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As expected, Newfoundland has lost its attempt to enforce its environmental cleanup orders against AbitibiBowater after insolvency. Newfoundland issued the cleanup orders in an attempt to jump the queue of Abitibi’s creditors. Crucially, Abitibi no longer owned or used the contaminated sites in its business, because the province had already expropriated them.

In an important and long awaited decision, the Supreme Court of Canada agreed that these orders were really financial claims, and were therefore barred by the insolvency. The province could have made its claims in the Companies Creditors Arrangement Act proceeding like any other creditor, but chose not to. Since little money was available for unsecured creditors, it would not have received much that way.

Provincial governments must therefore do more to ensure that cleanup costs are provided by financial assurance during the active life of a business, and not rely on getting innocent third parties to pay for cleanups after the fact.

The decision can be read here.

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