Bankruptcy does not release oil and gas companies from environmental obligations, Supreme Court of Canada rules

Bankrupt energy companies in Canada must clean up their wells before paying back creditors, the Supreme Court of Canada ruled on Jan. 31. The case centered on Redwater, an Alberta oil and gas company that went bankrupt in 2015. Most of the company’s wells were dry by that time, and restoring the land would have cost millions of dollars more than its sites were worth. The trustee overseeing Redwater’s bankruptcy, accounting firm Grant Thornton, wanted to sell the company’s assets to pay creditors and walk away from the cleanup. When regulators said Redwater could not ignore its environmental responsibilities, Grant Thornton and Redwater’s lender, ATB Financial, challenged the ruling, maintaining that creditors come first under Canada’s Bankruptcy and Insolvency Act (BIA). The Supreme Court disagreed. “The BIA was meant to protect trustees from having to pay for a bankrupt estate’s environmental claims with their own money,” a court summary says. “It didn’t mean Redwater’s estate could avoid its environmental obligations.” The case raised questions about “doing the right thing, the right thing for business and the right thing for the environment,” says ATB Financial CEO Curtis Stange. However, with more than 3,000 abandoned oil wells in Alberta, “the ruling does not solve the orphan-well problem, and stakeholders will need to work together on a solution,” Stange says.