Appealing a priority dispute in proposal proceedings

Mantle Materials Group Ltd v Travelers Capital Corp, 2023 ABCA 302 
Is leave required to appeal a priority dispute in BIA proposal proceedings?

Overview: In this case, the Court rejected an argument that leave was not required to appeal a priority dispute in BIA proposal proceedings, finding that the order appealed from was procedural in nature, and the appellant had not filed any evidence showing the value of its collateral or that its recovery was in jeopardy.

Travelers applied for a declaration that leave was not required to appeal the August 28, 2023 decision of Feasby J. or, alternatively, applied for permission to appeal that same order. The respondent, Mantle, opposed the application and cross applied for a lifting of a stay in the event that leave were granted. Alberta Environment and Protected Areas (AEPA), the provincial ministry responsible for environmental issues, supported Mantle in opposing the application.

This application arose in the context of Mantle’s insolvency proceedings under the Bankruptcy and Insolvency Act. Mantle operated gravel pits on lands both public and private, some of which were subject to Environment Protection Orders (EPO) issued by the AEPA. After conducting due diligence, Travelers financed Mantle’s purchase of equipment for use in its operations and Mantle granted Travelers a purchase-money security interest over the equipment, and pursuant to an agreement, Travelers’ security interest in the equipment was designated to have first priority. Mantle owed Travelers over $1 million.

Financial difficulties led Mantle to file a notice of intention to make a proposal under section 50.4 of the BIA. The application was granted without prejudice with respect to the priority of the charges that Travelers held over the equipment until the chambers judge released his reasons regarding Travelers’ priority claim. Mantle’s intended proposal would not allow payment to any creditors before Mantle had satisfied its end-of-life obligations stemming from EPOs. Travelers argued that it had priority with respect to security in certain equipment and its ability to realize on its security should not be postponed until after the remediation work has been completed. It argued that Orphan Well Association v Grant Thornton Ltd, 2019 SCC 5 (“Redwater”) held that an end-of-life environmental obligation need only be satisfied using assets encumbered by or related to the end-of-life obligation, and a creditor with security over assets unrelated to assets burdened with the environmental remediation obligation may realize on such security without delay.

The chambers judge disagreed with Travelers and provided that the various approved charges on the bankrupt’s estate had priority over Travelers’ security interest in the equipment. Travelers then argued that leave to appeal was not required because it was owed over $1 million and, therefore, pursuant to s. 193(c) of the BIA, it was entitled to appeal as of right.

Travelers was required to obtain leave. Section 193(c) is not satisfied simply where the value of the property exceeds $10,000. An appeal is not available under section 193(c) in situations where the order is procedural in nature, and, where the order does not result in a gain or loss to an interested party, the order is procedural in nature. Travelers did not file evidence showing the value of the equipment at issue nor showing that its recovery was in jeopardy. The order it sought to appeal was an order extending time to make a proposal, approved various charges on the bankrupt estate, and approved payment of certain pre-filing debts. The order was procedural in nature and section 193(c) did not apply to give Travelers a right to appeal.

Leave should only be granted if the judgment appears to be contrary to law, amounts to an abuse of judicial power or involves an obvious error, causing prejudice for which there is no remedy. The test essentially requires that the proposed appeal must be on a point of significance for which there is at least an arguable case. The following factors are considered on an application for leave to appeal under section 193(e) of the BIA:

1. whether the point on appeal is of significance to the practice;

2. whether the point raised is of significance to the action itself;

3. whether the appeal is prima facie meritorious or frivolous; and

4. whether the appeal will unduly hinder the progress of the action. 

Travelers argued that the equipment over which it had a secured interest was not affected by an environmental condition or damage and, therefore, it should not have to wait for Mantle to complete its environmental obligations before it could realize upon its security. Travelers’ argument ignored a basic principle that abandonment and reclamation obligations are binding “on the bankrupt estate”, and are not tied to the type of asset.

The equipment in which Travelers had a security interest was part of Mantle’s gravel production business, and was being used in the reclamation efforts. Mantle’s only business was gravel production. It had no assets unrelated to those operations. Additionally, Travelers could not satisfy the factor that an appeal would not unduly hinder the progress of the action. Section 195 of the BIA automatically stays proceedings until an appeal is disposed of. Staying the proceedings would cause significant harm to Mantle as it is required to complete the EPOs by November 1, 2023, and cannot continue once winter freeze sets in.

Accordingly, the application for leave to appeal was dismissed.

Judge: Justice William T. de Wit 

Counsel: Tom Cumming and Stephen Kroeger of Gowling WLG for the Respondent, Mantle Materials Group, Ltd

Alexis Teasdale of Lawson Lundell for the Applicant, Travelers Capital Corp

Trevor Batty of Field Law for Alberta Environment and Protected Areas

Pantelis Kyriakakis of McCarthy Tétrault for FTI as Proposal Trustee

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