An Overview of Mantle
Subsequent to the commencement of JMB's CCAA proceedings, AEPA issued Environmental Protection Orders (the "Environmental Orders") against JMB requiring it to comply with its environmental reclamation obligations with respect to its gravel pit operations. When Mantle amalgamated with JMB and its subsidiary, it became liable for JMB's outstanding Environmental Orders.3
In order to fund the acquisition of equipment for use in its operations, Mantle obtained a loan in the amount of
Soon after Travelers' loan was issued, Mantle began experiencing financial difficulties, which were compounded by the excessive debt inherited from the JMB CCAA proceedings and Mantle's obligation to comply with the Environmental Orders. Mantle ultimately filed a notice of intention to make a proposal under section 50.4 of the Bankruptcy and Insolvency Act. In this proposal, Mantle sought priority charges in favour of the involved restructuring professionals and its interim (debtor in possession) lender. Mantle took the position that Travelers should not be entitled to realize on its security interest until the reclamation work was completed, as completion of the work would result in the release of
The Mantle Decision
In the
Travelers disputed the application of these cases on the basis that there is an exception to the super priority for assets unrelated to the environmental condition or damage.9 However,
The Court in Mantle found Mantle's equipment to be analogous to the equipment and real estate in Trident; the equipment over which Travelers had a security interest was as much a part of Mantle's gravel business as the equipment in Trident was a party of Trident's oil and gas production business.11 Accordingly, Travelers' security interest was held to be subordinate to the restructuring charges that were necessary for completion of environmental remediation work to the satisfaction of the AEPA and could not be enforced until the environmental reclamation was complete.12
Looking Ahead
Mantle demonstrates the requirement for thorough due diligence on the part of a lender, paired with the expansion of a super priority claim into a non-oil and gas context. Interestingly, the Court in Mantle noted that Travelers had conducted its own due diligence, and among the materials available, were documents highlighting the live nature of Mantle's environmental reclamation obligations. However, it is possible Travelers did not appreciate the risks of the Environmental Orders having priority over its security in these circumstances because the case law in this area is still developing. Going forward, lenders who take security based on the value of equipment used in resource extractive industries in
Footnotes
1.
2. Ibid at paras 4 - 11.
3. Ibid at paras 6, 11.
4. Ibid at para 12.
5. Ibid at paras 13 - 15.
6.
7.
8.
9. Mantle, supra note 1 at para 30.
10. Ibid at para 36.
11. Ibid at paras 38, 40.
12. Ibid at para 43.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
©
Mr
T2P 4K9
Tel: 4168657000
Fax: 4168657048
E-mail: info@mcmillan.ca
URL: www.mcmillan.ca
© Mondaq Ltd, 2023 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source