Alberta Court approves sale of oilsands project in absence of a formal SISP, over objections of substantially all creditors, with leave to appeal denied

On October 8, 2020, Greenfire Oil and Gas Ltd. and Greenfire Hangingstone Operating Corporation (collectively, Greenfire) each filed a Notice of Intention to Make a Proposal pursuant to section 50.4(1) of the Bankruptcy and Insolvency Act (Canada), RSC 1985, c B-3, as may be amended from time to time (the BIA) (such proceedings, referred to herein as the NOI Proceedings) and Alvarez & Marsal Canada Inc. was appointed as Proposal Trustee (the Proposal Trustee) of Greenfire. Greenfire is focused on oilsands development and production and their primary asset is a steam-assisted gravity drainage (SAGD) project.

What you need to know

• Greenfire brought forward an application before the Court of Queen’s Bench of Alberta seeking the approval of an approval and vesting order and an interim financing order.
• The orders were approved and granted on December 17 over significant objection from the vast majority of Greenfire’s creditors, who raised amongst other things an issue with regards to the interconnectedness of the successful asset purchase agreement and the interim financing.
• Applications were brought forward before the Court of Appeal to confirm an automatic right to appeal and other relief, but it was concluded that leave to appeal is required and that the appellants failed to satisfy the test for leave, and as a result, leave to appeal was denied.

The details

During the NOI Proceedings, due to its lack of funding, Greenfire was unable to: a) initiate a robust, formal or conventional sale and investment solicitation process (SISP); b) restart operations; and c) address the various actions required to be taken by Greenfire pursuant to an Order granted by the Alberta Energy Regulator (the AER), which required Greenfire to maintain its assets in a safe manner during winter weather conditions¹.

Instead, the Proposal Trustee made substantial efforts to identify and engage potential investors who may be interested in acquiring or investing in the SAGD project as part of the NOI Proceedings², which resulted in Greenfire entering into an asset purchase agreement (the APA) with Greenfire Acquisition Corporation (the purchaser)³ (an unrelated party to Greenfire). In connection with the APA, Trafigura Canada General Partnership (Trafigura) agreed to provide the necessary funding to the purchaser to purchase Greenfire’s assets if the APA was approved.

The Proposal Trustee was of the view that Greenfire, inter alia: a) made reasonable attempts to obtain the best price and did not acted improvidently, b) considered the interests of all parties; and c) considered the efficacy and integrity of its attempts to achieve the best price in the NOI Proceedings under the difficult financial circumstances that it was inundated with⁴.

Greenfire brought forward an application before the Court of Queen’s Bench of Alberta seeking the approval of an approval and vesting order (AVO) related to the APA and the interim financing order and interim financing charge order related to the financing by Trafigura noted above (collectively, the Interim Financing Order, and together with the AVO, the orders).

The Proposal Trustee noted that, inter alia: a) if the APA was not approved, then Greenfire would likely go bankrupt; b) there were no other credible alternatives; c) Greenfire had not been presented with any superior or formal offer; and d) the sale transaction before the Court provided for significant interim financing which would allow Greenfire to restart operations, address the AER’s concerns and result in a modest recovery to Greenfire’s creditors⁵.

On December 17, the Honourable Justice D.B. Nixon approved and granted the orders.

In response, Athabasca Workforce Solutions Inc. (Athabasca) and the Investor Group⁶ (together with Athabasca, the appellants) brought forward two applications before the Court of Appeal for a declaration that they have a right to appeal pursuant to subsection 193(a) and (c) of the BIA, or in the alternative, seeking leave to appeal pursuant to subsection 193(e) of the BIA.

In its memorandum of argument, Athabasca submitted that its appeal was significant to the subject action as all of Greenfire’s creditors (other than one, an affected municipality) opposed the orders as the transaction that was the subject of the APA would result in significant losses to Greenfire’s creditors that may have been mitigated had a proper SISP been conducted⁷.

While the Honourable Madam Justice M.S. Paperny of the Court of Appeal considered the appellants’ submissions that the orders were novel in that the approval of the Interim Financing Order required the approval of the proposed sale of assets as a condition and therefore, the AVO was granted in the absence of a proper SISP being conducted and with inadequate evidence of value, she disagreed. Justice Paperny stated that “[t]he approval of interim financing and sales of assets under sections 50.6 and 65.13 of the BIA are matters of judicial discretion and are highly fact dependent.” Her Ladyship noted that, inter alia: a) a list of non-exhaustive factors to inform the exercise of the subject discretion are set forth in the BIA; b) Justice Nixon demonstrated that he balanced the interests of all stakeholders and had regard to the precarious financial circumstances, the serious damage done to the assets, and the restarting and environmental risks; and c) there was a lack of other viable alternative proposals, support of key stakeholders, and lack of prejudice to Greenfire’s creditors as a result of the interim financing⁸.

In considering the appeal brought forward by the appellants, Justice Paperny concluded that neither subsections 193(a) nor (c) of the BIA (which provide certain limited circumstances under which an appeal exists as of right from bankruptcy proceedings) apply to the proposed appeal and therefore, leave to appeal is required. The issue related to the absence of the SISP discussed above was considered in Justice Paperny’s analysis of the factors to be considered on an application for leave to appeal under subsection 193(e) of the BIA (which provides that if the limited circumstances under which an appeal exists as of right do not apply, then a leave of a judge of the Court of Appeal is required). One of the factors to consider on an application for leave to appeal under subsection 193(e) of the BIA is whether the point on appeal is of significance to the practice. Due to certain of the reasons noted above, Justice Paperny concluded that there is no basis on the record to suggest that the appeal will have any broad significance to the practice⁹.

Ultimately, after conducting a detailed analysis of the issues before Her Ladyship, Justice Paperny concluded that leave to appeal is required and that the appellants failed to satisfy the test for leave and as a result, leave to appeal was denied¹⁰.

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

² Ibid, at para 49.

³ Torys LLP acted as counsel for Greenfire Acquisition Corporation.

⁴ Ibid, at para 55.

⁵ Ibid, at para 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-Naghdehi, Afshin Shameli, Maryam Mohsen Zadeh, 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 Memorandum of Argument of Athabasca filed January 4, 2021, at para 13.

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

⁹ Ibid, at para 19.

¹⁰ Ibid, at para 29.