Annual review of insolvency law: Why Abitibi rule is backwards

Dianne gave a well received presentation on the Abitibi case at the Annual Review of Insolvency Law in Montréal during the big snowstorm. In essence, Dianne believes that the Supreme Court’s decision, that the provincial environmental orders were subject to federal insolvency rules, was correct, but for the wrong reason, and that attempts to apply the Court’s new rule will have perverse effects.

The Court decided that the principal factor determining which environmental orders should survive insolvency is whether the provincial government is likely to do the work itself, if the insolvent organization does not do so. If the province will pay, the insolvency rules apply, and the cost of the environmental work does not have priority over the other creditors. If the province will not pay, the environmental work is not subject to insolvency rules, and therefore should take priority over the assets available to other creditors. In Dianne’s view, this produces exactly backward results, and provides both creditors and regulators with strong financial incentives not to take direct remedial action, even in the face of a serious environmental emergency.  The Court seemed to be unaware how rare it is for provincial governments to pay themselves for environmental cleanups, and of the many different factors that affect both the urgency and the fairness of allowing regulatory orders to jump the queue of other creditors, such as pensioners, the disabled, municipalities, and the small business down the road who fixed a piece of equipment.

The ARIL conference was attended by an impressive number of both bench and bar, including both Judge Gascon (Abitibi) and Judge Morawetz (Northstar/ Nortel). Insolvency commentator, Anna Lund, described Dianne’s comments as one of her favourite moments of the conference.