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Contaminated sites continue to keep the courts busy. This month, the Ontario Court of Appeal allowed a secured creditor to take $3.75 million out of a bankrupt firm, despite MOE objections that the money was needed to cleanup the bankrupt’s pollution.

In Harbert Distressed Investment Fund v. General Chemical Canada, GCCL was a bankrupt chemical manufacturer, that had dumped its wastes in a “Soda Ash Settling Basin” (“SASB”) on its property. Remedial costs for the SASB could reach $64 million. The MOE was anxious to have GCCL assets pay for this clean up.

Unfortunately, in March 2004, the MOE had accepted GCCL’s cleanup estimate of only $3.4 million, and obtained this amount as financial assurance under a waste disposal site Certificate of Approval. By the time the MOE wanted more, GCCL had entered creditor protection under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, (“CCAA”). This prevented the MOE from increasing GCCL’s financial assurance.

Meanwhile, GCCL borrowed $9 million from the Harbert Fund. This amount was secured against all of GCCL’s assets except the SASB. Although nothing in the judgment says so, it seems reasonable to conclude that the money was advanced only after the lenders confirmed what financial assurance the MOE demanded; it is even possible that this loan was the source of the financial assurance funds.

In 2005, GCCL stopped operating and went into receivership. By then, it was well behind on its employee pension obligations as well as its other debts. The order appointing the interim receiver did not exempt either the receiver or GCCL from compliance with environmental regulations, nor did it prevent the MOE from issuing orders in respect of the SASB. However, that order expressly excluded the SASB from the property of GCCL over which the interim receiver was appointed.

The receiver raised $3.75 million from GCCL’s assets other than real estate, and obtained court approval, under the Bankruptcy and Insolvency Act, to pay it all to the Harbert Fund.
This seems to be a fair and reasonable decision as between the MOE and the lender. The MOE had authorized GCCL to operate the SASB, and had the power and opportunity to demand proper financial assurance for its decommissioning before the loan was made. The MOE had claimed to have an adequate system for obtaining financial assurance. Why should the lender have known that the MOE would be off in its cleanup estimate by $61 million? On the other hand, it leaves the public with yet another orphan contaminated site, that may now lie vacant and dangerous for many years. Polluter pays is a great principle, but it’s no solution for the many polluters that, like GCCL, go bankrupt first.

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