Nortel's CCAA proceedings stay Ministry of Environment clean-up obligations
March 9, 2012 by Sarah Robicheau
Since Nortel Networks Corporation, and a number of related companies (together, “Nortel”), initially filed under the Companies’ Creditors Arrangement Act (CCAA) over two years ago, the Ontario Ministry of the Environment (the “MOE”) has sought to hold Nortel responsible for environmental contamination remaining on properties it once owned. Specifically, the MOE has issued a remediation and prepared several other draft remediation orders (together, the “MOE Orders”). Nortel estimated that completing the work required by the orders would cost approximately eighteen million dollars. Nortel has long maintained that such environmental clean up orders should not be prioritized ahead of obligations set out in their CCAA plan of arrangement. Today, the Ontario Superior Court of Justice released its reasons in a number of motions relating to these environmental matters, brought together before Justice Morawetz.
Nortel sought a number of declarations and orders, as follows:
The Court’s decision turned heavily on whether the obligations set out by the MOE Orders and under the Environmental Protection Act can be characterized as financial obligations or as performance or regulatory obligations. Nortel noted that the CCAA already provides for the preferred treatment of certain environmental liabilities. It argued that in light of this, the MOE Orders constitute an effort to use measures outside the CCAA to privilege the MOE’s financial claims, which are more properly dealt with exclusively within the CCAA framework. For its part, the MOE argued that the CCAA provisions dealing with environmental liabilities only address claims where the MOE is acting as a creditor and do not address environmental liabilities generally. Further, it argued, the obligations set out in the MOE Orders are performance obligations which are not impacted by the CCAA proceedings and that allowing Nortel to evade these responsibilities amounts to an unfair shifting of expense from Nortel’s creditors, who chose to do business with the company, to the taxpayers of Ontario.
Recognizing the challenges this conclusion leaves in dealing with the realities of environmental remediation costs, the Court notes that the CCAA does make some provisions for recognizing claims for clean-up costs of property still owned by a debtor company. In this case, however, Nortel had sold its interest in most of the properties subject to the MOE Orders prior to filing under the CCAA. Alternatively, the Court suggests that the MOE could file a claim as an unsecured creditor.