Alberta Court Approves Sale of Oil Sands Project Without Formal SISP Over Objections from Almost All Creditors, Leave to Appeal Denied – Insolvency / Bankruptcy / Restructuring

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On October 8, Greenfire Oil and Gas Ltd. and Greenfire Hangingstone Operating Corporation (collectively, Greenfire) have each filed a notice of intention to make a proposal pursuant to subsection 50.4 (1) of the Bankruptcy and Insolvency Law (Canada), RSC 1985, c B-3, as may be amended from time to time (the BIA) (this procedure, hereinafter referred to as the Notice of Intent Procedure) and Alvarez & Marsal Canada Inc. has been appointed as the Proposal Trustee (the Proposal Trustee) of Greenfire. Greenfire focuses on the development and production of oil sands and its main asset is a Steam Assisted Gravity Drainage (SAGD) project.

What would you like to know

  • Greenfire applied to the Alberta Court of Queen’s Bench for approval of an Approval and Acquisition Order and an Interim Funding Order.
  • The orders were approved and granted on December 17 despite a significant objection from the vast majority of Greenfire’s creditors, who notably raised an issue regarding the interconnection of the successful asset purchase agreement and the bridge financing.
  • Applications were made to the Court of Appeal to uphold an automatic right of appeal and other measures, but it was concluded that leave to appeal is required and that the appellants did not meet the test. leave and, therefore, leave to appeal was denied.

The details

During the Notice of Intent process, due to its lack of funding, Greenfire was unable to: a) initiate a strong, formal or formal Solicitation of Sale and Investment (SISP) process. conventional ; b) restart operations; and c) address the various actions Greenfire is required to take pursuant to an order issued by the Alberta Energy Regulator (AER), which required Greenfire to maintain its assets in a safe manner during winter weather conditions.1.

Instead, the proposal trustee has gone to considerable effort to identify and engage potential investors who may be interested in acquiring or investing in the SAGD project under the NOI process.2, which led Greenfire to enter into an Asset Purchase Agreement (APA) with Greenfire Acquisition Corporation (the buyer)3 (a party unrelated to Greenfire). As part of the APA, Trafigura Canada General Partnership (Trafigura) has agreed to provide the necessary financing to the purchaser to purchase the assets of Greenfire if the APA is approved.

The administrator of the proposal was of the opinion that Greenfire, among others: a) made reasonable efforts to obtain the best price and did not act recklessly, b) took into account the interests of all parties; and c) reviewed the effectiveness and integrity of its attempts to obtain the best price in the Notice of Intent process in the difficult financial circumstances which inundated it with4.

Greenfire brought an application in the Court of Queen’s Bench of Alberta seeking approval of an APA-related Approval and Acquisition Order (AVO) and the Interim Funding Order and the interim financing charge order related to the financing by Trafigura mentioned above (collectively, the interim financing order, and together with the AVO, the orders).

The administrator of the proposal noted that, among others: a) if the APA was not approved, then Greenfire would likely go bankrupt; b) there were no other credible alternatives; c) Greenfire had not received any superior or formal offer; and (d) the court sale transaction provided for significant interim financing that would allow Greenfire to restart operations, address AER concerns and result in modest recovery for Greenfire’s creditors5.

On December 17, the Honorable Justice DB Nixon approved and granted the orders.

In response, Athabasca Workforce Solutions Inc. (Athabasca) and Investor Group6 (along with Athabasca, the appellants) made two applications to the Court of Appeal for a declaration that they are entitled to appeal under paragraphs 193 (a) and (c) of the BIA, or in the alternative, seeking leave to appeal under subsection 193 (e) of the BIA.

In its brief, Athabasca argued that its appeal was material to the action at issue since all of Greenfire’s creditors (except one, an affected municipality) opposed the orders, as the transaction that is the subject of the PPA would result in significant losses to Greenfire’s creditors which could have been mitigated if an appropriate SISP had been conducted7.

Although the Honorable Madam Justice MS Paperny of the Court of Appeal considered the appellants’ arguments that the orders were novel in that approval of the interim financing order required approval of the proposed sale of ‘assets as a condition and, therefore, the AVO was granted in the absence of an appropriate SISP and with inadequate evidence of value, she disagreed. Judge Paperny stated that “[t]The approval of bridge financing and the sale of assets under Sections 50.6 and 65.13 of the BIA is a matter of judicial discretion and depends heavily on the facts. His Lordship noted that, among others: a) a list of non-exhaustive factors to inform the exercise of discretion is set out in the BIA; b) Justice Nixon has demonstrated that he balanced the interests of all stakeholders and considered the precarious financial situation, severe damage to assets, and restart and environmental risks; and c) there was a lack of other viable alternative proposals, the support of key stakeholders and the absence of prejudice to Greenfire’s creditors due to the bridge financing8.

In considering the appeal brought by the appellants, Paperny J. concluded that neither paragraphs 193 (a) nor (c) of the BIA (which provide for certain limited circumstances in which an appeal exists as of right as a result of bankruptcy proceedings) do not apply to the proposed appeal. and therefore, leave to appeal is required. The issue of the absence of the SISP discussed above was considered in Justice Paperny’s analysis of the factors to be considered in an application for leave to appeal under paragraph 193 (e) of the BIA ( which provides that if the limited circumstances in which an appeal exists as of right do not apply, then the leave of a judge of the Court of Appeal is required). One of the factors to be considered in an application for leave to appeal under paragraph 193 (e) of the BIA is whether the point of appeal is material to practice. Due to some of the reasons mentioned above, Justice Paperny concluded that there is no basis on the record to suggest that the appeal will have great practical significance.9.

Ultimately, after carrying out a detailed analysis of the issues referred to Madam Justice Paperny, Justice Paperny concluded that leave to appeal is required and that the appellants did not meet the test for leave and, therefore, leave to appeal was refusedten.

Footnotes

1Fifth Report of the Proposal Trustee filed on December 11, 2020, at paragraphs 20 and 39.

2 Same, at paragraph 49.

3 Torys LLP acted as legal counsel to Greenfire Acquisition Corporation.

4 Same, at paragraph 55.

5 Same, at paragraph 56.

6 “Investor Group” means Behrokh Azarian, Homayoun Hodaie, Mandana Rezaie, Mehran Pooladi-Darvish, Meysam Ovaici, Firooz Abbaszadeh, Mehran Joozdani, Layla Amjadi, Meer Taher Shabani-Rad, Zahra Ahmadi-Nagham Shadehi-Naghamra Ahmadi-Nagham Shadehi-Naghamra Ahmadi-Nagham Shadehi-Naghamra Shadehi, Parham Minoo, Haleh Peiravi, Mohammad Ahadzadeh Ardebili, Ramin Jalalpoor, Elham Vakili Azghandi, Tariq Mahmood Roshan, Amin Jalalpoor, Faisal Khan, Poonam Dharmani and Ali Nilforoush

7 Athabasca’s memorandum of argument filed on January 4, 2021, at para 13.

8 Athabasca Workforce Solutions Inc v. Greenfire Oil & Gas Ltd, 2021 ABCA 66, at paragraph 19.

9 Same, at paragraph 19.

ten Same, at paragraph 29.

Originally posted by Torys, February 2021

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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