PricewaterhouseCoopers Inc v Perpetual Energy Inc, 2021 ABQB 2

Court of Queen’s Bench of Alberta Citation: PricewaterhouseCoopers Inc v Perpetual Energy Inc, 2021 ABQB 2 Date: 20210114 Docket: 1801-10960 Registry: Calgary Between: PricewaterhouseCoopers Inc, LIT, in its capacity as the Trustee in Bankruptcy of Sequoia Resources Corp and not in its personal capacity Respondent/Plaintiff - and - Perpetual Energy Inc, Perpetual Operating Trust, Perpetual Operating Corp and Susan Riddell Rose Applicants/Defendants Corrected judgment: A corrigendum was issued on January 18, 2021; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of the Honourable Mr.

Justice D.B. Nixon _______________________________________________________

Table of Contents I. Introduction . 4 II. Issues . 5 III. Overview .. 5 IV. Interpretive Issues . 6 A. General Comments . 6 B. Construction – Strict or Remedial 7 V. Analysis . 7 C. Is the Perpetual February 2020 Application an abuse of process? . 8 1. Incremental Facts . 8 2. Further Analysis . 9 a. Affidavit Argument 9 b. Pleading Argument 10 3. Concluding Comments . 10 D. Is there an aspect of the

Section 96 BIA Claim that should be considered under this application? 11 1. The Relationship Element 13 2. The Transfer at Undervalue Element 13 3. The Temporal Element 14 4. The Insolvency Element 14 5. The Intention to Defeat Creditors Element 15 6. Concluding Comments . 15 E. Was PEOC insolvent at the time of the Asset Transaction or rendered insolvent by it? . 15 1. Incremental Facts . 15 2. The Statutory Framework . 16 a. The BIA .. 16 b. The CCAA .. 17 3. The Trustee Position . 18 4. The Perpetual Energy Position . 22 5. Further Analysis . 22 a. Preliminary Comments . 23 b.

The Uniform Law of Conference of Canada – The 2012 Proposal 24 c. The Alberta Law Reform Institute – The 2016 Proposal 25 d. New Brunswick – The 2015 Debtor Transactions Act 26 e. Bennett on Bankruptcy . 26 i. The 2016 Bennett Position . 27

ii. The 2020 Bennett Position . 27 iii. Concluding Comments on Bennett 28 f. Additional Context 30 i. The Federal View – No Tax Deduction . 30 ii. Deferred Taxes – An Accounting Provision . 30 g. Determining Insolvency . 31 i. “Insolvent Person Definition”- First Branch . 31 ii. “Insolvent Person Definition”- Second Branch . 32 (

I) Value Variable . 34 (II) ARO Variable . 35 (III) Property Tax Variable . 36 6. Concluding Comments . 36 F. Should the Trustee SOC be struck under Rule 3.68? . 37 1. Incremental Facts . 37 2. The Law .. 37 3. Further Analysis . 38 4. Concluding Comments . 38 G. Should the Trustee SOC be dismissed summarily under Rule 7.3? . 39 1. Standard of Proof and Procedural Points . 39 2. Incremental Facts . 39 3. The Law .. 40 4. Further Analysis . 42 a. Simple Facts – Trustee Evidence . 43 i. Value Variable . 44 ii. ARO Variable . 44 iii. Property Tax Variable . 45 b.

Evidence Quality – Just Determination Foundation . 45 c. Evidence Admissibility – Trial Standard . 45 5. Concluding Comments . 46 VI. Conclusions . 47 A. Is the Perpetual February 2020 Application an abuse of process? . 47 B. Is there an aspect of the

Section 96 BIA Claim that should be considered under this application? 47 C. Was PEOC insolvent at the time of the Asset Transaction or rendered insolvent by the Asset Transaction? . 47 D. Should the Trustee SOC be struck under Rule 3.68? . 47 E. Should the Trustee SOC be dismissed summarily under Rule 7.3? . 48 VII. Costs . 48 I. Introduction

[ 1 ] The action (the “ Action ”) underling this application engages the Bankruptcy and Insolvency Act (“ BIA ”). This particular application was filed by the Defendants on February 25, 2020 (the “ Perpetual February 2020 Application ”). [ 2 ] The Action was initiated by PricewaterhouseCoopers Inc, LIT, (“ PWC ”) in its capacity as the Trustee in Bankruptcy of Sequoia Resources Corp (the “ Trustee ”).

Sequoia Resources Corp (“ SRC ”) formerly operated under the name Perpetual Energy Operating Corp (“ PEOC ”). [ 3 ] The Defendants in this Action are Perpetual Energy Inc (“ Perpetual Energy ”), Perpetual Operating Trust (“ POT ”) and Perpetual Operating Corp (collectively, the “ Perpetual Defendants ”), and Ms. Susan Riddell Rose (“ Ms. Rose ”). [ 4 ] The Trustee is challenging the transfer of a number of shallow gas wells and related assets (collectively, the “ Goodyear Assets ”) from POT to PEOC.

While a number of questions are under appeal, the only remaining issue within the trial court at this juncture concerns a claim by the Plaintiff under

section 96 of the BIA (the “

Section 96 BIA Claim ”). [ 5 ] The Trustee commenced the Action by way of a Statement of Claim (the “ Trustee SOC ”). In that commencement document, the Trustee seeks an order declaring the sale of the Goodyear Assets (the “ Asset Transaction ”) void as against the Trustee. Alternatively, the Trustee seeks judgment for an amount not less than $217,570,800 based on the application of section 96(1) of the BIA : PricewaterhouseCoopers Inc v Perpetual Energy Inc , 2020 ABQB 6 at para 3 [“ PWC QB Reasons ”] [ 6 ] In the Perpetual February 2020 Application, the Applicants seek to strike or summarily dismiss the

Section 96 BIA Claim. They raise two threshold issues regarding the elements of the

Section 96 BIA Claim. Those two issues are whether: (

i) PEOC was insolvent at the time of the Asset Transaction or rendered insolvent by it within the meaning of the BIA ; or (ii) there was a transfer at undervalue within the meaning of the BIA . II. Issues [ 7 ] Framed in the context of questions, the issues that I address in the Perpetual February 2020 Application are as follows: a. Is the Perpetual February 2020 Application an abuse of process? b. Is there an aspect of the

Section 96 BIA Claim that should be considered under this application? c. Was PEOC insolvent at the time of the Asset Transaction or rendered insolvent by it? d. Should the Trustee SOC be struck under Rule 3.68 of the Alberta Rules of Court, Alta Reg 124/2010 (the “ Rule ” or “ Rules ”)? e. Should the Trustee SOC be dismissed summarily under Rule 7.3? III. Overview [ 8 ] POT transferred its beneficial interest in the Goodyear Assets to PEOC in the Asset Transaction. This step was effected through an asset purchase agreement dated October 1, 2016.

The effect of that agreement was to combine the legal and beneficial interest in the Goodyear Assets in PEOC. [ 9 ] Shortly after the Asset Transaction was effected, Perpetual Energy sold all of the shares in PEOC to 1986114 Alberta Inc (the “ Share Transaction ”). The Share Transaction was effected through a share purchase and sale agreement dated September 26, 2016. [ 10 ] PEOC was renamed SRC by its new shareholder [ 11 ] On or about March 2, 2018, SRC filed a Notice of Intention to Make a Proposal pursuant to the BIA .

On or about March 23, 2018, SRC assigned itself into bankruptcy. [ 12 ] The Trustee reviewed matters, including the Asset Transaction. Subsequent to that review, the Trustee filed the Trustee SOC on August 2, 2018. [ 13 ] The Trustee also filed an application on August 2, 2018. In that application, the Trustee listed Rule 7.3 as the basis for the requested

summary judgment remedy that it was seeking against the Perpetual Defendants (the “ Trustee August 2018

Summary Judgment Application ”). [ 14 ] The Trustee August 2018

Summary Judgment Application focused on the Asset Transaction. [ 15 ] The Trustee August 2018

Summary Judgment Application included a

section entitled “Transfer at Undervalue”. Within that

section of the Trustee August 2018

Summary Judgment Application, the assertions were that the Asset Transaction: (

i) was a transfer at undervalue; and (ii) was entered into by PEOC while it was insolvent or that it rendered PEOC insolvent.

[16] In terms of remedies sought, the Trustee August 2018

Summary Judgment Application asked the Court: (

i) to set aside theAsset Transaction; and (ii) to declare that transaction void as against the Trustee. [17] On August 27, 2018, the Perpetual Defendants filed a Statement of Defence (the “Perpetual SOD”). [18] On October 19, 2018, the Perpetual Defendants filed an Application for

Summary Dismissal and to Strike (the “PerpetualOctober 2018 Application”). [19] Concerning the Perpetual October 2018 Application, one of the arguments advanced by the Perpetual Defendants was that theparties were dealing at arm's-length with each other within the meaning of the BIA. For reasons detailed in the PWC QB Reasons, Ideclined to answer the question: PWC QB Reasons at paras 60 and 90. I was of the view that the arm’s length issue required viva voceevidence before it could be properly determined. IV. Interpretive Issues A.

General Comments [20] A key issue in the analysis below concerns the definition of the term “obligations” and the phrase “obligations, due andaccruing due” for purposes of the BIA. Neither are defined in the BIA. [21] Absent a statutory definition of the term “obligations” and the phrase “obligations, due and accruing due” for purposes of theBIA, it is appropriate to consider the guidance offered by: (

i) the jurisprudence; (ii) established business principles; (iii) establishedaccounting principles; (iv) legal think-tanks, such as the Uniform Law Conference of Canada (“ULCC”) and Alberta Law ReformInstitute (“ALRI”); and (

v) academics. [22] Notwithstanding they should be considered, business and accounting principles are not rules of law: Canderel Ltd v Canada, (SCC) at para 35 [Canderel]. Importantly, business and accounting principles must take a subordinate position relativeto the legal rules that govern: Canderel at para 35. As a result, a given business or accounting principle must be viewed critically. Acouple of additional comments are warranted. [23] My first comment focuses on accounting matters.

For purposes of the Perpetual February 2020 Application, I do not disputethat the abandonment and reclamation obligations (“ARO”) recorded in the audited financial statements for SRC were recorded inaccordance with the appropriate accounting principles at the time. However, what is recorded as a “liability” for accounting purposesmay not be considered an absolute liability at law if a creditor with a legally enforceable claim cannot be identified.

Similarly, what isrecorded as “obligations” for accounting purposes may not be considered “obligations, due and accruing due” at law if a creditor with alegally enforceable claim cannot be identified: see General Motors of Canada Ltd v Canada, 2004 FCA 370 at para 24 [GeneralMotors], leave to appeal to SCC refused, [2005] SCCA No 3. [24] My second comment touches on legal think-tanks and academics. I acknowledge that the guidance provided by legal think-tanks is neither a rule of law nor equated to judicial precedent.

That said, given the focus of such legal institutes, their commentaryshould be given appropriate consideration. I apply the same comments to academics who are knowledgeable in the insolvency area. B. Construction – Strict or Remedial [25] The Trustee suggested that the relevant provisions in the BIA should be construed in a remedial fashion, and that they shouldbe given a fair, large and liberal construction and

interpretation so as to best ensure the attainment of their objects:

Interpretation Act,RSC 1985 c I-21 at ss 12 and 13. In advancing this interpretative position, the Trustee referenced the following as a guideline: The well-established twin fundamental purposes of the BIA are to ensure the equitable distribution of a bankrupt’s assets among theestate's creditors and to provide for the financial rehabilitation of insolvent persons. Professor Roderick J.

Wood suggests a thirdobjective: “the prevention of fraud and abuse of the bankruptcy system, the promotion of commercial morality, and the protection of thecredit system”: Re Pocklington, 2017 ABQB 621 at para 52 (footnotes omitted). [26] When construing any statute, it is important to consider the underlying objects. That said, the nature of the statute needs to beconsidered during the interpretative process.

In that context, the following guideline is instructive: The legislative direction to interpret all legislation as remedial is also unfortunate in so far as it suggests that courts should no longer relyon the values underlying strict construction – the enjoyment of individual liberty, privacy, property rights and the like. While these arenot the only values worth protecting, they remain an important part of the Canadian legal culture.

Legislation that invades privacy ortakes away rights should be interpreted strictly – unless other more compelling considerations suggest otherwise: Ruth Sullivan, Sullivanon the Construction of Statutes 6th ed (Toronto: LexisNexis 2014) at 490 [Sullivan on the Construction]. [27] This guideline is also relevant to penal legislation. Penal legislation is legislation that creates offences punishable by fine,imprisonment or forfeiture of a right or privilege: Sullivan on the Construction at 490.

The nature of some bankruptcy initiatives areanalogous to quasi-criminal or penal proceedings: Frank Bennett, Bennett on Bankruptcy 22th ed (Toronto: LexisNexis 2020) at 178[“2020 Bennett on Bankruptcy”]; Bombardier Credit Ltd v Find, (ON CA) at para 20 [Bombardier Credit]; and ReLittle (1924), (ON CA), 5 CBR 244 (Ont CA) [Re Little]. As a further comment, the BIA is generally not viewed asremedial, except in the context of proposals to creditors where the remedial aspect is achieved through a rules-based framework: CenturyServices Inc v Canada (Attorney General), 2010 SCC 60 (SCC) at para 15 [Century Services].

V. Analysis [ 28 ] The Trustee SOC was drafted in a manner that focused on the alleged liabilities within PEOC. This “liability” focus is evidenced by the use of that term or derivatives thereof in ten instances within the Trustee SOC. [ 29 ] The Trustee SOC mentioned the term “obligations”, but only once. That sole reference to the concept of “obligations” in the Trustee SOC was in clause 16 of that commencement document, and that particular clause concerned an allegation Ms.

Rose had breached her duties to PEOC. [ 30 ] In its quest to respond to the Perpetual February 2020 Application, the Trustee shifted its focus to the concept of “obligations”. Given the manner in which the relevant provisions of the BIA are drafted, that shift in the litigation focus by the Trustee is appropriate. [ 31 ] In analyzing the issues inherent in the Perpetual February 2020 Application, some of the underlying history concerning the BIA is important. To assist in understanding some of the context underlying this case, the following is instructive.

Until 1919, there was no federal, comprehensive legislation governing bankruptcy and insolvency. Then, in 1919, Parliament enacted the Bankruptcy Act , which overlapped fraudulent conveyance and insolvency legislation enacted by the provinces. The Bankruptcy Act was modeled after the English Act. The Bankruptcy Act has been amended from time to time with major amendments in 1949, 1967, 1992, 1997, 2005, and 2007. Parliament proclaimed most of the amendments of 2005 and 2007 in 2009. In 1970, the federal government released a study report that recommended entirely new bankruptcy legislation.

Between 1975 and 1984, Parliament introduced six comprehensive Bills in the House of Commons and in the Senate, which would have completely revised the Act. Instead, Parliament introduced amendments to the then Bankruptcy Act , renamed the Bankruptcy and Insolvency Act ( BIA ) in 1992, and further amendments in 1997 and has continued to make amendments. While piecemeal amendments tend to cover issues and problems of the time, there is a clear need to revise and overhaul the BIA and either incorporate or co-ordinate the Companies’ Creditors Arrangement Act ( CCAA ).

Both statutes contain obsolete concepts and terminology that no longer appear to apply to 21st century commerce: 2020 Bennett on Bankruptcy at 1. [ 32 ] My review of the BIA and its predecessors indicates that the wording of the phrase “obligations, due and accruing due” in the context of the definition of an “insolvent person” in

section 2 of the BIA (and the predecessor statutes) has not been amended since Parliament enacted the Bankruptcy Act (as it then was) in 1919. C. Is the Perpetual February 2020 Application an abuse of process? 1. Incremental Facts [ 33 ] In the “Overview” component of the Perpetual SOD, it states that “[t]here was no transfer at undervalue. The parties were dealing at arm's-length.

The [Aggregate] Transaction occurred more than one year before [SRC’s] bankruptcy. [SRC] was not insolvent at the time of the [Aggregate] Transaction nor rendered insolvent by the Transaction”: see clause 5 of the Perpetual SOD. [1] [ 34 ] The Vice-President, Finance, and Chief Financial Officer of Perpetual Energy is Mr. Schweitzer. In addition to being a graduate of Queen's University with a Bachelor of Commerce degree, Mr. Schweitzer is a Chartered Professional Accountant. [ 35 ] Mr. Schweitzer swore two affidavits on the same day in respect of this litigation.

The details associated with those two affidavits are as follows. a. In a seven-page affidavit sworn and filed on May 5, 2020, Mr. Schweitzer focused on matters associated with PEOC at the time the Asset Transaction was effected (the “ First May 2020 Schweitzer Affidavit ”). The Asset Transaction was effected on October 1, 2016. b. In a thirteen-page affidavit sworn and filed on May 5, 2020, Mr. Schweitzer focused on matters associated with PEOC at the time it was seeking security for costs in this litigation (the “ Second May 2020 Schweitzer Affidavit ”).

The security for cost issue is forward looking, and is concerned with the ability of the Perpetual Defendants to recover Costs if they are ultimately successful in defending their position in the context of this litigation. 2. Further Analysis [ 36 ] The Trustee asserts that the Perpetual February 2020 Application is an abuse of process. It advances two arguments to support this proposition. [ 37 ] First, the Trustee asserts that it is an abuse of process for Mr.

Schweitzer to have sworn two affidavits on the same day which take different positions in circumstances where they are based on the same corporate records (the “ Affidavit Argument ”). [ 38 ] Second, the Trustee asserts that the Perpetual February 2020 Application is an abuse of process because the Perpetual Defendants already applied under the Perpetual October 2018 Application to strike or summarily dismiss the

Section 96 BIA Claim. The particular arguments advanced by the Trustee are: (

i) that the

Section 96 BIA Claim has been argued and determined; and (ii) that certain of its arguments are inconsistent with the pleadings filed by the Perpetual Defendants ( i.e. , that there was no transfer) (collectively, the “ Pleading Argument ”).

[ 39 ] I will deal with each of these assertions by the Trustee in sequence. a. Affidavit Argument [ 40 ] I reviewed the two affidavits on which the Trustee grounds its abuse of process assertion concerning the Affidavit Argument. I disagree with the Trustee. [ 41 ] The First May 2020 Schweitzer Affidavit is in support of the Perpetual February 2020 Application to summarily dismiss the

Section 96 BIA Claim against the Perpetual Defendants. The focal point of that particular affidavit was looking backward in time from the date the affidavit was filed. In particular, the First May 2020 Schweitzer Affidavit is looking back at the status of PEOC as at October 1, 2016. In particular, the focus of that affidavit is on PEOC as at the date of the Asset Transaction. [ 42 ] The Second May 2020 Schweitzer Affidavit is in support of the application for security for costs, which the Perpetual Defendants filed.

The focal point of that particular affidavit is the status of PEOC looking forward in time from the date the said affidavit was filed. I infer that the temporal focus of the Second May 2020 Schweitzer Affidavit is on or after October 2, 2020, being the date on which the Perpetual February 2020 Application was last argued. b. Pleading Argument [ 43 ] I reviewed the various arguments advanced by the Trustee. In

summary, the Trustee asserts that the Perpetual February 2020 Application is an abuse of process because the striking and the

summary dismissal of the

Section 96 BIA Claim has been argued and determined. The Trustee then asserts that it would be an abuse to allow the Perpetual Defendants to argue the strike or

summary dismissal because of that prior determination. [ 44 ] While there is merit to some aspects of the Pleading Argument advanced by the Trustee, I do not agree that the Perpetual February 2020 Application should be dismissed. But for the Perpetual February 2020 Application, this litigation concerning the Perpetual Defendants and the Trustee SOC is far from over. Depending on the conclusion of this application, the Action could go on for years.

If the matter can be determined earlier in a fair and just manner, it should be considered: Weir-Jones Technical Services Incorporated v Purolator Courier Ltd , 2019 ABCA 49 [ Weir-Jones ]. [ 45 ] My views on this point are supported by the foundational Rules . Those Rules direct that we should always strive to get to the merits of a case as fast, efficiently, inexpensively, and fairly as possible: William A Stevenson and Jean E Côté, Alberta Civil Procedure Handbook , 2021 ed (Edmonton: Juriliber, 2020) vol 1 at 1-5 [ Stevenson and Côté 2021 ].

In this regard, the Supreme Court of Canada has also directed that the Courts require a shift in culture: Hryniak v. Mauldin , 2014 SCC 7 at paras 2 and 28 [ Hryniak ]. Provided the process is fair and just, the best forum for resolving a dispute is not always the one with the most painstaking procedure: Hryniak at para 32 . [ 46 ] In framing the Perpetual October 2018 Application in an effort to strike and/or dismiss the claim of the Trustee under

section 96 of the BIA , the Perpetual Defendants focused only on the "arm's length" issue: PWC QB Reasons at paras 60 and 90 . In contrast, in the Perpetual February 2020 Application, the Perpetual Defendants focus on other elements that the Trustee most prove in order to establish its case. 3.

Concluding Comments [ 47 ] Given that the First May 2020 Schweitzer Affidavit and the Second May 2020 Schweitzer Affidavit are addressing two different scenarios and are focused on two different timeframes, I find that there is no abuse of process in respect of those documents. [ 48 ] Given that the Perpetual October 2018 Application and the Perpetual February 2020 Application focus on different elements of the

Section 96 BIA Claim, I find that there is no abuse of process. Provided this Court only addresses matters that have not been decided, it is appropriate for me to consider the Perpetual February 2020 Application. [ 49 ] If the Perpetual Defendants can show that the claim does not have merit, it should not have to suffer a trial. Such a determination would be in keeping with the thrust of the foundational Rules . On the other hand, if the Trustee puts its best foot forward and demonstrates from the record that there is a genuine issue requiring a trial, then neither a striking of the Action nor a

summary disposition is available. [ 50 ] As a closing comment on this abuse of process matter, my views on the ability of the Court to consider the Perpetual February 2020 Application is consist with earlier assertions advanced by the Plaintiff in the context of the Trustee August 2018

Summary Judgment Application. In particular, the Trustee has asserted that “[t]he law on the relevant issues is also not complex. In any event, there is no reason why complex legal issues require a trial and cannot be determined on an application”: see paragraph 29 of the Brief of the Respondent PricewaterhouseCoopers Inc, LIT, dated November 1, 2018 (the “ November 2018 Trustee Brief ”). This comment from the Trustee is consistent with the foundational Rules that I touched on above. D. Is there an aspect of the

Section 96 BIA Claim that should be considered under this application ? [ 51 ] Having determined that the Perpetual February 2020 Application is not an abuse of process, I now turn to the next question. The question as to whether there is an aspect in the

Section 96 BIA Claim that should be considered engages the elements of that statutory provision. The relevant components of

section 96 of the BIA read as follows: [96(1) Transfer at undervalue ] On application by the trustee, a court may declare that a transfer at undervalue is void as against [...] the

trustee — or order that a party to the transfer or any other person who is privy to the transfer, or all of those persons, pay to the estate the difference between the value of the consideration received by the debtor and the value of the consideration given by the debtor — if (

a) the party was dealing at arm’s length with the debtor and (

i) the transfer occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and that ends on the date of the bankruptcy, (ii) the debtor was insolvent at the time of the transfer or was rendered insolvent by it, and (iii) the debtor intended to defraud, defeat or delay a creditor; or (

b) the party was not dealing at arm’s length with the debtor and (

i) the transfer occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and ends on the date of the bankruptcy, or (ii) the transfer occurred during the period that begins on the day that is five years before the date of the initial bankruptcy event and ends on the day before the day on which the period referred to in subparagraph (

i) begins and (

A) the debtor was insolvent at the time of the transfer or was rendered insolvent by it, or (

B) the debtor intended to defraud, defeat or delay a creditor. [ 52 ] For purposes of this hearing, there are five distinct elements embedded in the framework of

section 96 of the BIA . Those elements are as follows: a. the relationship between the parties ( i.e. , arm’s length or non-arm’s length) (the “ Relationship Element ”); b. a transaction that constitutes a “transfer at undervalue” (the “ Transfer at Undervalue Element ”); c. the time of occurrence of the transfer, as measured from the date of the initial bankruptcy event ( i.e. , within one year or between one year and five years) (the “ Temporal Element ”); d. the insolvency of the debtor (the “ Insolvency Element ”) [2] ; and/or e. the intention on the part of the debtor to defeat creditors (the “ Intention to Defeat Creditors Element ”). (Collectively, the “

Section 96 BIA Elements .) [ 53 ] Depending on the particulars of the transaction which the licensed insolvency trustee is examining, these elements apply and interact in different fashions. As a case in point, there is an important distinction within the Relationship Element as between an arm’s length transaction and a non-arm’s length transaction. [ 54 ] In respect of an arm’s length transaction, it is more difficult for a trustee to challenge the subject transfer, and the time frame is shorter.

To contest an alleged transfer at undervalue between arm’s length parties, the challenge must occur within one year of the date of the initial bankruptcy event. Further, the licensed insolvency trustee must prove at the time of the transfer, on a balance of probabilities, both: (

i) the insolvency of the debtor at the time of the transfer; and (ii) the intention of the debtor to defeat creditors . To emphasize the point, the insolvency aspect and the intention to defeat creditors is a conjunctive test when an arm’s length transaction is being challenged. [ 55 ] In respect of a non-arm’s length transaction that is challenged within one year, the tests are not that rigorous. To contest an alleged transfer at undervalue between non-arm’s length parties, a licensed insolvency trustee need not prove any additional element if the transfer occurs within the one-year window.

In particular, assuming the subject transfer is at undervalue, the conveyance can be impeached even if the debtor: (

i) was not insolvent; and (ii) did not intend to defeat creditors. [ 56 ] If the alleged transfer at undervalue in respect of a non-arm’s length transaction occurred outside of this one-year period but within a five-year window immediately prior to the date of the initial bankruptcy event, the requirements are quite different. Under this scenario, the licensed insolvency trustee must prove at the time of the transfer, on a balance of probabilities, either: (

i) the Insolvency Element; or (ii) the Intention to Defeat Creditors Element. To emphasize the point, the insolvency aspect and the intention to defeat creditors is a disjunctive test when a non-arm’s length transaction is being challenged. [ 57 ] The above framework provides a context within which to examine the Asset Transaction for purposes of the Perpetual February 2020 Application. Focusing on the particulars of the Asset Transaction, the Trustee must prove, on a balance of probabilities, each of the

Section 96 BIA Elements . If the Perpetual Defendants displace one of those elements, then the

Section 96 BIA Claim fails.

1. The Relationship Element [ 58 ] The Relationship Element involves the question as to whether there was a non-arm's length relationship between the PEOC and POT at the time of the Asset Transfer. This question was before me in an earlier application: PWC QB Reasons at para 87 and 107 . [ 59 ] Concerning the question as to whether the relevant relationship was non-arm's length at the relevant time, I declined to answer the question because I determined that it needed to be tested in a viva voce context: PWC QB Reasons at para 100 .

Unless the Relationship Element comes back before me in the context of a viva voce hearing, I am functus on this issue. As a result, I make no further comment. 2. The Transfer at Undervalue Element [ 60 ] The Transfer at Undervalue Element is a focal point of the Trustee SOC. In the

section of the Trustee SOC entitled the “Transfer at Undervalue”, the Trustee asserted that “[t]he Asset Transaction constituted a transfer at undervalue within the meaning of the BIA , including sections 2 and 96 ”: see clause 21 of the Trustee SOC. [ 61 ] The Transfer at Undervalue Element is one of two threshold issues listed in the Perpetual February 2020 Application. It is also an issue that the Perpetual Defendants raised in the Perpetual SOD. [ 62 ] Given the facts and analysis, I find the Transfer at Undervalue Element is a live issue in my consideration of the Perpetual February 2020 Application.

That said, I will not consider this issue further for purposes of this hearing. My reasons for this are twofold, albeit in the alternative. [ 63 ] First, if I determine below that the Insolvency Element was not violated for purposes of the Perpetual February 2020 Application such that PEOC was not insolvent at the relevant time, then I will have to decide if either Rule 3.68 or Rule 7.3 applies to strike or summarily dismiss, respectively, the

Section 96 BIA Claim against the Perpetual Defendants. That determination would be made independent of the Transfer at Undervalue Element. [ 64 ] Second, if I determine below that the Insolvency Element was potentially violated for purposes of the Perpetual February 2020 Application, then the

Section 96 BIA Claim against the Perpetual Defendants will have to go to trial. I make that determination because the Transfer at Undervalue Element engages a number of issues that should be explored in a trial proper. That determination would be made because, in my view, neither Rule 3.68 nor Rule 7.3 should be used in this case to conclude the Transfer at Undervalue Element. 3.

The Temporal Element [ 65 ] The path the Court needs to address in the context of the Temporal Element will be determined by the Relationship Element. [ 66 ] If the Asset Transaction is found to be arm’s length, then the Trustee is out of time. This would be the case because the alleged transfer at undervalue between parties must have occurred within one year of the date of the initial bankruptcy event.

Given that the Asset Transaction was effected in October 2016 and that the bankruptcy of SRC (formerly PEOC) occurred in March 2018, it is outside the one-year timeframe. [ 67 ] If the Asset Transaction is found to be non-arm’s length, then the Trustee is within the timeframe to challenge the conveyance.

This would be the case because the alleged transfer at undervalue between parties must have occurred within five years of the date of the initial bankruptcy event. [ 68 ] For purposes of the analysis under the Perpetual February 2020 Application only, I will assume that I am examining a non- arm’s length transaction.

In making this assumption, I emphasize that I make no finding on the arm’s length/non-arm’s length issue in this decision. [ 69 ] Given the facts, analysis and assumption above, I presume for purposes of this analysis that the five year envelop in section 96(1) (b)(ii) of the BIA applies for purposes of the Perpetual February 2020 Application. As a result, the non-arm’s length Temporal Element asserted by the Trustee is assumed to have been met for purposes of exploring the arguments inherent in the Perpetual February 2020 Application. 4.

The Insolvency Element [ 70 ] In a number of clauses in the Trustee SOC, the Trustee stated that SRC (formerly PEOC) was either insolvent at the time of the Asset Transaction or rendered insolvent by that transaction: see clauses 14.3, 16.3.3, 20.1 and 22.4 of the Trustee SOC. In responding to the Perpetual February 2020 Application, the Trustee grounds its argument on the fact that the BIA expressly refers to "obligations, due and accruing due", as opposed to "liabilities". [ 71 ] The Insolvency Element was not dealt with in PWC QB Reasons because the Perpetual October 2018 Application did not raise the issue.

As stated above, the issue the Perpetual Defendants advanced in the Perpetual October 2018 Application in the context of the

Section 96 BIA Claim was directed to the issue of whether the Asset Transaction was at arm’s length for purposes of section 96(1) of the BIA . [3] [ 72 ] Based on my review of the documents, I find that both the Perpetual SOD and the Perpetual February 2020 Application touch on, and challenge, the insolvency assertion advanced in the Trustee SOC. In particular, the Perpetual SOD stipulates that SRC was not insolvent at the time of the relevant transaction nor rendered insolvent by that transaction: see clause 5 of the Perpetual SOD. Similarly, the Perpetual February 2020 Application challenges the insolvency assertion advanced in the Trustee SOC.

[ 73 ] The Insolvency Element is a fundamental aspect of the Trustee SOC. If the evidence before me establishes that SRC (formerly PEOC) was neither insolvent at the time of the Asset Transaction nor rendered insolvent by that transaction, then the next step is to consider whether the Trustee SOC should be: (

i) struck under Rule 3.68; or (ii) dismissed summarily under Rule 7.3. My preliminary review of the question in the context of the Perpetual February 2020 Application confirms that the Insolvency Element is worthy of examination. [ 74 ] Given the facts and analysis, I find the Insolvency Element is a live issue in my consideration of the Perpetual February 2020 Application. 5. The Intention to Defeat Creditors Element [ 75 ] The Trustee SOC makes no reference to the Intention to Defeat Creditors Element. As a result, I infer that this element is not relevant to the claim made by the Trustee.

This inference is supported by the fact that the Perpetual SOD does not address the Intention to Defeat Creditors Element. [ 76 ] Since pleadings shape the issues, I am not entitled to address this element, absent an amendment: Geophysical Service Incorporated v Murphy Oil Company Ltd , 2018 ABCA 380 [ Geophysical Service ], leave to appeal to SCC refused, 2019 CarswellAlta 1009 . Even “[a] motion for

summary judgment must be judged on the basis of the pleadings and materials actually before the judge, not on suppositions about what might be pleaded or proved in the future”: Canada (Attorney General) v Lameman , 2008 SCC 14 at para 19 [ Lameman ]; see also Geophysical Service at para 33 . [ 77 ] Given the facts and analysis, I find the Intention to Defeat Creditors Element to be irrelevant to my consideration of the Perpetual February 2020 Application. 6. Concluding Comments [ 78 ] Based on the facts and analysis, I have determined there is an aspect of the

Section 96 BIA Claim that should be considered under the Perpetual February 2020 Application. Given the manner in which the Perpetual SOD and the Perpetual February 2020 Application are framed, the sole focus below will be on the Insolvency Element. E. Was PEOC insolvent at the time of the Asset Transaction or rendered insolvent by it? [ 79 ] This question engages the Insolvency Element.

Based on the evidence before me in the context of the Perpetual February 2020 Application, the answer to this question pivots on whether the ARO associated with the Goodyear Assets at the time of the Asset Transaction is to be taken into account in the determination of the Insolvency Element. 1. Incremental Facts [ 80 ] The evidence of the Trustee during the hearing concerning the Perpetual October 2018 Application focused on three financial variables. Those financial variables were: (

i) the value of the consideration received by SRC (the “ Value Variable ”); (ii) the ARO (the “ ARO Variable ”); and (iii) property taxes (the “ Property Tax Variable ”) (collectively, the “ Financial Variables ”). [ 81 ] Concerning the Value Variable, the value of the Goodyear Assets received by PEOC on the Asset Transaction was alleged in the Trustee SOC to be no more than $5,670,200: see clause 13.2 of the Trustee SOC.

This amount does not include any value attributed to the Gas Marketing Contract, which the evidence indicates was $12.9 million: PWC QB Reasons at para 332 ; see also PWC QB Reasons at para 114 (e). [ 82 ] The Trustee SOC includes the following. a. The Goodyear Assets had significant associated ARO when PEOC acquired that property in the context of the Asset Transaction: para 5 of the Trustee SOC; see also PWC QB Reasons at para 114 (a). b.

The amount and scope of the ARO associated with the Goodyear Assets was not capable of being quantified: para 6.1 of the Trustee SOC; see also PWC QB Reasons at para 114 (b). [ 83 ] Concerning the ARO Variable, the evidence provided by the Trustee in the context of the Perpetual October 2018 Application alleged the “liabilities” assumed by PEOC in the Asset Transaction included the following estimated amounts: (

i) ARO abandonment costs of $98,855,218; (ii) ARO reclamation costs of $93,272,056; and (iii) ARO facility costs of $26,831,000. These alleged ARO liabilities aggregate to a total of $218,958,274: PWC QB Reasons at para 333 . [ 84 ] Concerning the Property Tax Variable, the evidence provided by the Trustee in the context of the Perpetual October 2018 Application alleged municipal property taxes in the amount of $10,047,744. Based on my review of the evidence in that earlier hearing, I noted that those municipal property taxes were from a 2015 listing.

Since the Asset Transaction was effected in 2016, I focused on the evidence concerning the municipal property taxes associated with that calendar year. Based on my review of the evidence in that earlier hearing, I found the relevant outstanding municipal property tax to be in the amount of $1,560,890: PWC QB Reasons at para 334 . [ 85 ] SRC carried on business operations under its new management from October 1, 2016 until early March, 2018 (the “ SRC Operations Period ”). The SRC Operations Period equates to just over 17 months of ongoing business activity.

[86] The financial statements for Perpetual Energy report that the expected time period for settling its ARO is a range of up to 25years. Those financial statements also report that Perpetual Energy used a rate of 2.3% for discounting purposes. [87] The financial statements for Canadian Natural Resources Limited ("Canadian Natural") report that the expected time periodfor settling its ARO is a range of up to 60 years. Those financial statements also report that Canadian Natural used a rate of 3.8% fordiscounting purposes. 2. The Statutory Framework a.

The BIA [88] The relevant aspects of section 96(1) of the BIA are outlined above. As stated in that analysis, there are five elementsembedded in the framework of

section 96 of the BIA. For purposes of the Perpetual February 2020 Application, I only focus on theInsolvency Element. [89] The Insolvency Element engages the definition of “insolvent person” which is defined in

section 2 of the BIA (the “InsolventPerson Definition”). That definition reads as follows: In this Act [...] “insolvent person” means a person who is not bankrupt and who resides, carries on business or has property in Canada, whose liabilitiesto creditors provable as claims under this Act amount to one thousand dollars, and (

a) who is for any reason unable to meet his obligations as they generally become due, (

b) who has ceased paying his current obligations in the ordinary course of business as they generally become due, or (

c) the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process,would not be sufficient to enable payment of all his obligations, due and accruing due;.... b. The CCAA [90] Certain aspects of the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 [“CCAA”] will be touched on as part of thisanalysis because of comments within the jurisprudence.

That said, there are important differences between the CCAA and the BIA, andsome of those differences need to be highlighted for purposes of this application. [91] As a preliminary comment in respect of the CCAA, that statute does not contain a definition for the phrase “insolvent person”.Section 2 is the “Definitions” component of that statute, and it is silent on the phrase “insolvent person”. [92] However, the CCAA does include the phrase “insolvent person” in

section 36.1 of that statute. That provision (and itsheadings, included here for reference purposes only) reads as follows: Preferences and Transfers at Undervalue 36.1(1) Sections 38 and 95 to 101 of the Bankruptcy and Insolvency Act apply, with any modifications that the circumstances require, inrespect of a compromise or arrangement unless the compromise or arrangement provides otherwise.

Interpretation

(2) For the purposes of subsection (1), a reference in sections 38 and 95 to 101 of the Bankruptcy and Insolvency Act (

a) to “date of the bankruptcy” is to be read as a reference to “day on which proceedings commence under this Act”; (

b) to “trustee” is to be read as a reference to “monitor”; and (

c) to “bankrupt”, “insolvent person” or “debtor” is to be read as a reference to “debtor company”. 3. The Trustee Position [93] The Trustee argues that all line items listed in the “liabilities”

section of the balance sheet (the “Right-Hand Side of theBalance Sheet”) are to be included in assessing the Insolvency Element for purposes of the Asset Transaction.[4] In advancing thisassertion , the Trustee states that “[e]very obligation" is to be included in applying the balance sheet test: Re Stelco Inc, (ON SC) at para 59 [Stelco].

In response to a question that I asked for context, the Trustee also asserted that any deferred taxeswould be included in the application of the balance sheet test because that obligation would crystallize on the “date of the test”: see alsoStelco at para 59. [94] In advancing the above position, the Trustee relies primarily on the sweeping comments of Justice Farley who wrote theStelco decision. In that case, Justice Farley made the comment that “[s]urely, there cannot be ‘orphan’ obligations which are left hangingunsatisfied.

It seems to me that the intention of ‘due and accruing due’ was to cover off all obligations of whatever nature or kind andleave nothing in limbo”: Stelco at 50; see also Stelco at paras 22, 52 and 59. The Trustee also relies on a number of other cases: see ReAnderson, 2012 BCSC 956 at para 10 [Anderson]; and Re 4519922 Canada Inc, 2015 ONSC 124 at paras 27 and 31 [4519922Co].

[95] In the course of advancing his position, Justice Farley disagreed with the comments of Justice Ground in Enterprise CapitalManagement Inc v Semi-Tech Corp, (ON SC). Insofar as Justice Ground and Justice Farley are both of the OntarioSuperior Court, the judicial comments of one do not bind the other. [96] While I have the highest regard for the leadership that Justice Farley showed in the commercial area over the years that hewas on the bench, I do not agree that his sweeping comments apply to the Insolvency Element as it is framed in the BIA.

While theconstruction of the phrase "obligations, due and accruing due" that Justice Farley suggested above embraces a laudable objective forCCAA purposes, a prerequisite to that result under the BIA would require, in my view, a legislative amendment to that statute.[5] I touchon that needed legislative amendment below, but emphasize for purposes of this application that Parliament has not yet been acted uponneeded amendments to the BIA notwithstanding that other forums have identified the need for such legislative modifications. [97] My further comments concerning Justice Farley and his

interpretation of the phrase “obligations, due and accruing due” arefivefold. [98] First, the comments of Justice Farley in Stelco were made in the context of an application under the CCAA. As has beenmentioned by the Supreme Court of Canada, the CCAA has a remedial objective and it is focused on all stakeholders: Century Servicesat paras 59 and 60; see also Luc Morin and Arad Mojtahedi, “In Search of a Purpose: The Rise of Super Monitors & Creditor-DrivenCCAAs” in Jill Corraini and the Honourable D Blair Nixon, eds, Annual Review of Insolvency Law 2019 (Toronto: Carswell ThomsonReuters, 2020) at page 624.

Consistent with this theme, an academic has commented that Justice Farley gave the term “insolvent” “...anexpanded meaning under the CCAA in order to give effect to the rehabilitative goal of that statute”: see Dr Janis P Sarra, Rescue! TheCompanies’ Creditor Arrangement Act, 2nd ed (Toronto: Carswell 2013) at 101 and 102 [Rescue!].

Similarly, Justice Paperny (as shethen was) notably characterized the CCAA endorsement exercise as one that “widens the lens” to balance a broader range of interests,which includes creditors, shareholders, the company, employees and the public: Re Canadian Airlines Corp, 2000 ABQB 442 at paras95 and 174, leave to appeal to ABCA refused, 2000 ABCA 238; 2001 ABCA 9, leave to appeal to SCC refused, 2001 Carswell Alta 888. [99] It is noteworthy that when Justice Farley was considering the solvency issue, he stated explicitly that he was going “...toexamine whether Stelco has been successful in meeting the onus of demonstrating with credible evidence on a common sense basis that itis insolvent within the meaning required by the CCAA in regard to the

interpretation of ‘debtor company’ in the context and within thepurpose of that legislation”: Stelco at para 26 (underlining added). In my view, his focus on “that legislation” and the broad perspectiveof the CCAA justifies a consideration of all obligations when considering a restructuring under that statutory framework because oneneeds to look forward into the future. [100] This broad perspective involving applications under the CCAA has been commented on by Janis Sarra.

She has observed thatcertain entities have been found to be insolvent “...using the expanded definition of insolvency set out in Re Stelco Inc”: Rescue! at 106(underlining added). She has gone on to state that the expanded “...definition reflects the “rescue” emphasis of the CCAA, modifying thedefinition of insolvent person to include a financially troubled corporation that is reasonably expected to run out of liquidity withinreasonable proximity of the time as compared with the time reasonably required to implement a restructuring”: Rescue! at 106. [101] In contrast, I view the Insolvency Element under

section 96 of the BIA as being measured as at a point in time. That is, one mustdetermine what obligations are due and accruing due as at a particular date. As an aside, my view that one must determine whatobligations are due and accruing due as at a particular date is not inconsistent with the Trustee’s view that an obligation would crystallizeon the “date of the test”.

When I consider matters within the context of the Insolvency Element, the relevant question is what obligationscrystalize (i.e., are completely constituted) as at the “date of the test”. [102] In this regard, I construe “obligations, due” as one where there is an existing relationship in circumstances where the subjectobligation is completely constituted and presently exigible: The Hydro-Electric Commission of Ontario v Albright, (SCC), 64 SCR 306 at 312 [Hydro-Electric].

Examples of the relevant relationships include debtor/creditor (including trade debtor/tradecreditor) and borrower/lender. [103] I do not view an obligation based on an estimate as falling within the scope of the “obligations, due”, unless there is an existingcreditor: see General Motors at para 24. I take this interpretative position because absent an existing creditor there has not been thecrystallization of the necessary relationship to establish an “obligation[...], due” in a legal sense for purposes of the BIA. That is, I do notview an obligation based on an estimate as being completely constituted.

Absent an existing creditor, no one can enforce a debtobligation at that time because no completely constituted obligation exists in a legal sense. [104] To emphasize the point concerning “obligations, due”, the enactment by a body politic of a statutory framework that createsfuture obligations to society, which causes an entity like Perpetual Energy to book an accounting estimate does not equate to theestablishment of “obligations, due”. Using ARO as an example, the accounting exercise to quantify the amount that may be due in thefuture is only an estimate of an obligation the time of calculation.

It does not establish an obligation that is “due” to an identifiable personat that time. [105] Similarly, I construe “obligations, ...accruing due” as one where there is an existing debtor/creditor or borrower/lenderrelationship in circumstances where the underlying obligation is completely constituted, albeit with an additional amount accumulatingday to day, but which is only enforceable in the future: see Hydro-Electric at page 312 and 313. [106] My

interpretation of the phrase “obligations, ...accruing due” is supported by the consideration the Supreme Court gave to themeaning of "accrued" in Sun Indalex Finance, LLC v United Steelworkers, 2013 SCC 6 [Sun Indalex].

In that case, the term "accrued"was considered in the context of certain statutory wind-up deemed trust provisions covering "employer contributions accrued to the dateof the wind-up but not yet due under the plan or regulations": Pension Benefits Act, RSO 1990, c P.8, s 57(4). [107] In Sun Indalex, Justice Deschamps (for the majority on this point) held that “a contribution has ‘accrued’ when the liabilitiesare completely constituted, even if the payment itself will not fall due until a later date”: Sun Indalex at para 36 (underlining added).

Insupport of his conclusion on this matter, Justice Deschamps cited Justice Duff's

interpretation of the meaning of the word "accrued" inHydro-Electric. In interpreting the scope of a covenant, Justice Duff found that

the word " accrued " according to well recognized usage has, as applied to rights or liabilities the meaning simply of completely constituted – and it may have this meaning although it appears from the context that the right completely constituted or the liability completely constituted is one which is only exercisable or enforceable in futuro – a debt for example which is debitum in praesenti solvendum in futuro : Hydro-Electric at 312 and 313 . [Emphasis in the original.] [ 108 ] Second, Justice Farley and his sweeping comments in Stelco are reflective of the fact that he tended to push the legislative boundaries under the CCAA .

He did so through the exercise of his inherent jurisdiction. In the course of expressing his views on the meaning of “obligations”, he commented that “[t]he word "liability" is a very broad one. It includes all obligations to which the bankrupt is subject on the day on which he becomes bankrupt except for contingent and unliquidated claims which are dealt with in s. 121(2) (underlining added)”: Stelco at para 52 . [ 109 ] I acknowledge that Justice Farley then went on to state that “contingent and unliquidated claims would be encompassed by the term ‘obligations’’: Stelco at para 52 . He also framed “...the BIA (

c) test...roughly ... as an assets compared with obligations test”: Stelco at para 41 . [ 110 ] While I might be inclined to accept Justice Farley’s last comment if the relevant terminology within clause (

c) of the Insolvent Person Definition only referred to the term “obligations”, the relevant terminology is not the term “obligations” simplicter . The relevant phrase within that definition is “obligations, due and accruing due”. In my view, those additional words constrain the meaning of “obligations”. [ 111 ] Third, judicial activities under the CCAA is judge-made law crafted on an ad hoc basis, without statutory guidelines: see 2020 Bennett on Bankruptcy at 5. This is a contrast to dealing with the matters under the under the BIA , which proceed under a detailed legislated framework.

In my view, I am obligated to construe the BIA as it currently reads, not based on how it should read. As a result, I am obligated to construe the phrase “obligations, due and accruing due”. [6] [ 112 ] Fourth, Justice Farley further observes “...that in the notional or hypothetical exercise of a sale, then all the obligations which would be triggered by such sale would have to be taken into account”: Stelco at para 55 . He further comments that “[a]ll liabilities, contingent or unliquidated would have to be taken into account”: Stelco at para 56 .

In making that comment, Justice Farley relied on a number of cases, including Re King Petroleum Ltd (1978), 29 CBR (NS) 76 (Ont. SC) . [ 113 ] I note that in King , Justice Steele observed that “[i]n this case, I find no difficulty in accepting the obligations shown as liabilities because they are known” (underlining added): King at 81, as quoted in Stelco at para 49 . A few comments are warranted. First, unlike the circumstances in King , the alleged ARO is not known. It is simply an estimate of an obligation, which will be impacted by unknown legislative changes over the decades to come.

The vagaries of ARO are evidenced by the fact that the Perpetual Energy financial statements report that its ARO will be settled in a range of up to 25 years. That timeline by itself creates uncertainty. The vagaries of the ARO are further emphasized by the evidence of Canadian Natural (which is one of the Intervenors), whose financial statements report that its ARO will be settled in a range of up to 60 years. In my view, that extended timeline further evidences the uncertainty of the ARO.

The radical differences in the discount rates applied by Perpetual Energy and Canadian Natural further illustrate the vagaries, being 2.3% and 3.8%, respectively. Second, the reference to “obligations” in King is not qualified by the phrase “due and accruing due”. Insofar as words mean something, that additional terminology is important. [ 114 ] Fifth, to the extent jurisprudence in Canada makes comments concerning the meaning of phrases in the BIA in the context of a CCAA restructuring, those comments are obiter dicta . While such comments are instructive, they are not binding on me.

Importantly, the Trustee has not provided me with any authority that is binding on me in respect of its construction of the phrase “obligations, due and accruing due” in the context of the BIA . [ 115 ] In

summary, if this case was dealing with a dispute under the CCAA , I would give the comments of Justice Farley further consideration because that statute is remedial in nature (a “rescue” focus) and the court should consider the interests of all stakeholders in an effort to continue the troubled business: Century Services at paras 15 to 18 . I make this comment because the underlying thrust of the CCAA is to provide a framework that will avoid the negative consequences of liquidation: Century Services at para 18 . In contrast, the BIA does not have a “rescue” focus.

The statute is, in part, penal in nature: Re Little ; and Bombardier Credit . Given that different context, a court should be cautious about giving an “expanded definition” to the concept of insolvency for purposes of the BIA , notwithstanding that it may be appropriate for the CCAA : Rescue! at 106. 4. The Perpetual Energy Position [ 116 ] As stated above, the Perpetual Defendants assert that PEOC (subsequently SRC) was not insolvent at the time of the Asset Transaction nor rendered insolvent by that transaction.

This assertion is evident in the Perpetual SOD and the Perpetual February 2020 Application because both of those documents touch on, and challenge, the insolvency assertion advanced in the Trustee SOC. 5. Further Analysis [ 117 ] As with many issues in law, the answer is not as clear as a layperson might assume.

On the Insolvency Element issue, there are two different camps within the Canadian judicial community. [ 118 ] What is particularly interesting about the arguments advanced by the Trustee concerning the alleged scope of the Insolvent Person Definition is that notwithstanding they were asserted by a celebrated jurist in 2004 (and occasionally followed – see 4519922Co at para 31, where Justice Newbould cited Justice Farley with approval, albeit in a CCAA context, again), they have not been universally followed throughout Canada, even in Ontario: see, for example, Re Industries Cover inc (Syndic des) , 2015 QCCS 136 at paras 412-26 [ Industries Cover ]; and RBC v Oxford Medial Imaging Inc , 2019 ONSC 1020 at para 39 .

[119] I acknowledge that statements have been made by courts to the effect that contingent liabilities on guarantees are to be includedas debts accruing due: Anderson at para 10. An examination of the Anderson case is warranted since the Trustee raised it as an example. [120] Mr. Carl Glenn Anderson (“Mr. C. G. Anderson”) had personally agreed to guarantee certain amounts in 2002 concerning439288 BC Ltd (“439Co”) and Area Finance Inc (“AFI”) (collectively, the “CGA Guarantees”). When Mr. C. G.

Anderson grantedthat guarantee in 2002 it was because 439Co was insolvent, and the guarantee was a term of the amended proposal: Anderson at para3(4). [121] Mr. C. G. Anderson subsequently effected a non-arm’s length transfer of property, which occurred on August 15, 2005:Anderson at para 3(12). The transferee was his son, Mr. Jarrett Anderson. The issue was whether Mr. C. G. Anderson was insolvent atthe time of that transfer in August, 2005. [122] Both 439Co and AFI made assignments in bankruptcy on November 2, 2009. That 2009 assignment is not relevant, but it doesprovide context.

The critical evidence is that 439Co and AFI had deficiencies in their financial capacities in August 2005 that subjectedMr. Anderson to a call on the guarantees in the amount of $15,500,000 (and he also owed approximately $2,600,000 directly to 439Co):Anderson at para 3(10). [123] I concur that it was appropriate for Justice Meiklem in the Anderson case to include the CGA Guarantees in the calculation asto whether Mr. C. G. Anderson was insolvent as at the August 15, 2005 transfer date: Anderson at para 10. The reason for myconcurrence is because the obligation that Mr. C. G.

Anderson had under the CGA Guarantees was completely constituted on August 15,2005, which is the “date of the test”. That is, the underlying contractual relationship could be enforced as at that date.

The only reason itis called contingent on the August 15, 2005 date is because no steps had been taken on or before that date to enforce the CGAGuarantees, notwithstanding that the contractual framework existed. [124] I also note with particular interest that in Industries Cover, Pinsonnault, JCS cites Justice Fournier in Bonneau (Faillite de), (QC CS) at paras 36 to 29 that it would be non-sensical to adopt an expansive

interpretation of "obligations, accruingdue" for the purposes of determining insolvency because including all future payments as due on the spot in the balance sheet test wouldresult in a good part of the population being insolvent: Industries Cover at para 425; see also Villeneuve c Villeneuve, 2007 QCCS 4468at paras 31 and 32. Given the economic climate in Canada that is currently impacting the oil and gas industry, I infer that the sameconcern exists for the participants in that economic sector. That is, applying the Trustee’s

interpretation would likely render many of theoil and gas entities operating in Canada insolvent as at the date of this decision. [125] I addition to the above noted debate, I think it important that four key players have not accepted the interpretive approach thatJustice Farley suggested in Stelco concerning the phrase “obligations, due and accruing due” within clause (

c) of the Insolvent PersonDefinition. I turn to consider the nature and context of these four key players. a. Preliminary Comments [126] One of the inherent questions asked in the Perpetual February 2020 Application is whether PEOC was rendered insolvent by theAsset Transaction, if it was not already insolvent. As noted above, this engages the Insolvency Element. In the context of this case, thefocal point is clause (

c) of the Insolvent Person Definition. [127] The underlying question concerns the scope of the phrase “obligations, due and accruing due” within clause (

c) of the InsolventPerson Definition. Clause (

c) of the Insolvent Person Definition is often referred to as the “balance sheet test” (the “Balance SheetSolvency Test”). [128] There is authoritative commentary and one legislative enactment that touches on the “insolvency” issue. That commentary andthe one legislative enactment is worthy of consideration, and, as alluded to above, it stems from four key players. [129] The authoritative commentary and the one legislative enactment on which I will touch is: (

i) a paper issued by the ULCC in2012, which was entitled Uniform Reviewable Transaction Act [“2012 URTA Proposal”]: see 2012 ULCC 0035; (ii) Final Report 108issued by the ALRI, March 2016, Updated April 2016, which was entitled Reviewable Transactions [“2016 ALRI ReviewableTransactions Act”]: see 2016 CanLIIDocs 390; (iii) the enactment by New Brunswick of the Debtor Transactions Act (the “2015 NBDTA”): see SNB 2015, c 23; and (iv) Frank Bennett.

In considering the Insolvency Element in the context of commentary from Frank Bennett, I reviewed Frank Bennett, Bennett on Bankruptcy 18th ed (Toronto: LexisNexis 2016) [“2016 Bennett on Bankruptcy”], FrankBennett, Bennett on Bankruptcy 21st ed (Toronto: LexisNexis 2019) [“2019 Bennett on Bankruptcy”] and 2020 Bennett onBankruptcy. [130] I also reviewed the commentary from a few other sources which captures the views of the federal Crown concerning “genuineliabilities”. While those other sources touch on the matter in a different context, that perspective is instructive concerning the InsolvencyElement issue. b.

The Uniform Law of Conference of Canada – The 2012 Proposal [131] The ULCC undertook a comprehensive project to consider calls for reform of the law of fraudulent conveyances and fraudulentpreferences in Canada. Now, as in 1919 when the federal Bankruptcy Act was initially enacted, there is overlap between: (

i) the BIA, onone hand; and (ii) fraudulent conveyance and insolvency legislation enacted by the provinces, on the other hand. In 2012, the ULCCrecommended the adoption of the 2012 URTA Proposal across Canada. [132] In considering the issues, the ULCC drew on the BIA in a manner that is relevant to the Insolvency Element. One of the itemsaddressed in the 2012 URTA Proposal was the definition of “insolvent”. The definition in the 2012 URTA Proposal is as follows: “insolvent”, with respect to a person, means that

(

a) the person is for any reason unable to meet his or her obligations as they generally become payable, (

b) the person has ceased paying his or her obligations in the ordinary course of business as they generally become payable, or (

c) the aggregate of the person’s property, other than exempt property, is not, at a fair valuation, sufficient to enable payment of all his or her obligations, whether or not those obligations are currently payable; [ 133 ] For purposes of my analysis, I note that the term “obligations” in clause (

c) of the definition of “insolvent” in the 2012 URTA Proposal is not qualified by any words. In my view, that revised legislative drafting approach opens the Balance Sheet Solvency Test under the definition of “insolvent” in the 2012 URTA Proposal to potentially include anything that would fall within the scope of the term “obligations”. While I need not make a finding on the matter at this time, the use of the term “obligations” in the 2012 URTA Proposal may include ARO within the scope of clause (

c) of the definition of “insolvent” in that draft statute. The inference that I draw on that matter is supported by the narrative that accompanied the 2012 URTA Proposal. The relevant narrative is as follows: Clauses (

a) and (

b) of the definition exactly parallel the corresponding clauses of the Bankruptcy and Insolvency Act ( BIA ) definition of the term. Clause (

c) provides a balance sheet test of insolvency, which is designed to determine whether the cumulative value of a person’s property is sufficient to satisfy all of his or her financial obligations. The test reflects the equivalent clause of the BIA definition but differs in two points of detail. First, only property of a debtor that can be reached by creditors under judgment enforcement law is included in calculating the cumulative value of his or her assets for purposes of determining creditors’ rights; exempt property is explicitly excluded.

Secondly, the [ 2012 URTA Proposal] resolves a debate about the application of the BIA balance sheet test. The issue is whether the calculation of obligations is to take into account only obligations that are currently payable, or all obligations to which a person is currently subject regardless of whether they are payable presently or in the future. The second view is adopted here (the “ 2012 URTA Commentary ”). [Emphasis added.] [ 134 ] It is noteworthy that the 2012 URTA Proposal was promulgated approximately eight years after the comments of Justice Farley in Stelco .

If the ULCC thought that Stelco was correct concerning the scope of clause (

c) of the Insolvent Person Definition, I infer that it would not have been necessary for this national think-tank to recommend the amendment to the BIA framework wording in clause (

c) of the definition of “insolvent” in the 2012 URTA Proposal. Further, there would have been no need to state in 2012 URTA Commentary concerning clause (

c) of the definition of “insolvent” that the revised wording “resolves a debate about the application of the BIA balance sheet test”. c. The Alberta Law Reform Institute – The 2016 Proposal [ 135 ] In 2016, the ALRI recommended the 2012 URTA Proposal be adopted in Alberta: see 2016 CanLIIDocs 390 .

The actual document recommended for approval was the 2016 ALRI Reviewable Transactions Act , which adopted the 2012 URTA Proposal with minor amendments. [ 136 ] In considering the issues, the ALRI drew on the 2012 URTA Proposal in a manner that is relevant to the Insolvency Element because it effectively incorporated the BIA insolvency framework by reference. One of the items included in the 2016 ALRI Reviewable Transactions Act was the definition of “insolvent”, which reads as follows: “insolvent”, with respect to a person, means that (

a) the person is for any reason unable to meet his or her obligations as they generally become payable, (

b) the person has ceased paying his or her obligations in the ordinary course of business as they generally become payable, or (

c) the aggregate of the person’s property, other than exempt property, is not, at a fair valuation, sufficient to enable payment of all his or her obligations, whether or not those obligations are currently payable; [ 137 ] The definition of the term “insolvent” in the 2016 ALRI Reviewable Transactions Act is identical to the definition of that term in the 2012 URTA Proposal. [ 138 ] A review of the history concerning the 2016 ALRI Reviewable Transactions Act provides context.

After considering the 2012 URTA Proposal, the ALRI made the following statement: The Uniform Reviewable Transactions Act should be enacted in Alberta, with such minor revision as may be required to conform to local drafting protocols, to incorporate the few changes suggested below and to appropriately cross-reference Alberta legislation. The [2012 URTA Proposal] represents good policy, would strengthen the judgment enforcement system and would greatly clarify the rights of creditors and the corresponding liability of those who deal with a person who has creditors.

It is comprehensive in scope and includes rules addressing questions that are either not addressed by current legislation or for which there are no clear answers: 2016 ALRI Reviewable Transactions Act at para 102. [ 139 ] For purposes of this analysis, I note that the term “obligations” in clause (

c) of the definition of “insolvent” in the 2016 ALRI Reviewable Transactions Act is not qualified by any words. In my view, the drafting of clause (

c) of the definition of “insolvent” in the 2016 ALRI Reviewable Transactions Act opens the Balance Sheet Solvency Test under the definition of “insolvent” in to potentially include anything that would fall within the scope of the term “obligations”, including possibly ARO. [7] My views on this are supported by the narrative that accompanied the 2012 URTA Proposal, which was incorporated into the 2016 ALRI Reviewable Transactions Act by way of an attachment in the form of Appendix A. [ 140 ] It is noteworthy that the 2016 ALRI Reviewable Transactions Act was promulgated approximately 12 years after the comments of Justice Farley in Stelco .

Again, if the ALRI thought that Stelco was correct concerning the scope of clause (

c) of the Insolvent Person

Definition, I infer that it would not have been necessary for it to accept the amendment suggested by ULCC to the BIA frameworkconcerning the wording in clause (

c) of the definition of “insolvent” which was included in the 2012 URTA Proposal. Further, therewould have been no need to incorporate by reference the 2012 URTA Commentary concerning clause (

c) of the definition of “insolvent”that the revised wording “resolves a debate about the application of the BIA balance sheet test”: see Appendix A to the 2016 ALRIReviewable Transactions Act. d. New Brunswick – The 2015 Debtor Transactions Act [141] The enactment of the 2015 NB DTA is significant because it gives legislative strength to the wording in clause (

c) of thedefinition of “insolvent” in the 2012 URTA Proposal. In my view, it also gives legislative acceptance to the 2012 URTA Commentary. Imake these comments because the definition of “insolvent” in the 2015 NB DTA adopted the same wording as outlined above in respectof the 2012 URTA Proposal and the 2016 ALRI Reviewable Transactions Act. [142] Given its enactment of the 2015 NB DTA, I infer that the lawmakers in New Brunswick adopted that definition of “insolvent”for the reasons stated in the 2012 URTA Commentary. e. Bennett on Bankruptcy [143] Mr.

Frank Bennett does not have the weight of the ULCC or the ALRI. That said, he needs no introduction to the insolvencycommunity in Canada. He is a past Chair of both the provincial and national Bankruptcy and Insolvency sections of the Canadian BarAssociation. He has made a significant academic contribution to the insolvency area over the decades, as evidenced by the many bookshe authored in this area. Insofar as he has addressed the Balance Sheet Solvency Test and its connection with the Insolvency Element,Mr.

Bennett’s views are worthy of consideration. [144] With that background in mind, I reviewed the 2016 Bennett on Bankruptcy, the 2020 Bennett on Bankruptcy, and, during anearlier segment of this ongoing litigation between the parties to this action, I reviewed 2019 Bennett on Bankruptcy (collectively, the“Frank Bennett Commentary”). I do not address the 2019 Bennett on Bankruptcy edition below in any detail, although I note that theanalysis in that edition expands on what is in 2016 Bennett on Bankruptcy, and tracks with what the Balance Sheet Solvency Testcommentary in 2020 Bennett on Bankruptcy. i.

The 2016 Bennett Position [145] The Balance Sheet Solvency Test is addressed in 2016 Bennett on Bankruptcy.

That edition of Bennett on Bankruptcy isrelevant because 2016 is the year during which the Asset Transaction was effected. [146] The relevant commentary the 2016 Bennett on Bankruptcy text concerning the Balance Sheet Solvency Test is as follows: ...And factor (c), property if sold at a fair valuation would not be sufficient to pay his or her debts, refers to a net worth statement wherethe creditor needs to establish that the debtor does not have sufficient assets, if liquidated at fair market sale, to satisfy the debts. This isoften referred to as the balance sheet or liquidation test.

In calculating the debtor’s net worth, one has to include obligations currentlypayable and one does not have to include claims accruing due: “Interpretation”

Chapter of 2016 Bennett on Bankruptcy at 47 and 48. [147] The corresponding footnote to the above commentary is as follows, and it contained no commentary except for the reference tothe following Ontario Superior Court case: Enterprise Capital Management Inc. v. Semi-Tech Corp., (Ont. S.C.J.): Footnote 24 in the “Interpretation”Chapter of 2016 Bennett on Bankruptcy at 48. ii. The 2020 Bennett Position [148] The Balance Sheet Solvency Test is also addressed in 2020 Bennett on Bankruptcy.

Since the Perpetual February 2020Application was heard in calendar 2020, I reviewed that edition of the annotated textbook to see if there had been any shift in the viewsof Mr. Bennett concerning the Balance Sheet Solvency Test.

I found that there had been a shift insofar as the 2020 Bennett onBankruptcy text addressed Stelco directly in the context of its discussion concerning the Balance Sheet Solvency Test. [149] The relevant commentary the 2020 Bennett on Bankruptcy text concerning the Balance Sheet Solvency Test is as follows: And factor (c), “property if sold at a fair valuation would not be sufficient to pay his or her debts”, refers to a net worth statement wherethe creditor needs to establish that the debtor does not have sufficient assets, if liquidated at fair market sale, to satisfy the debts.

This isoften referred to as the “balance sheet or liquidation” test. In calculating the debtor’s net worth, one has to include obligations currentlypayable and one does not have to include claims accruing due: “Interpretation”

Chapter of 2020 Bennett on Bankruptcy at 48 and 49. [150] The corresponding footnote to the above commentary is as follows: [Footnote 31] Enterprise Capital Management Inc. v. Semi-Tech Corp., [1999] O.J. No. 5865 (Ont. S.C.J.); Royal Bank of Canadav. Oxford Medical Imaging Inc., [2019] O.J. No. 1295, 2019 ONSC 1020, 68 C.B.R. (6th) 19 (Ont. S.C.J.), where the court infollowing the Enterprise Capital Management case, stated at para. 39 that “. . .it is inappropriate to include every debt payable at somefuture date for the purposes of determining insolvency. This would render numerous corporation’s insolvent.

Rather, debt obligationsought to be measured against the fair valuation of the company’s property and limited to obligations currently payable or properlychargeable.” On the other hand, if the debtor is facing a liquidity crisis, the court will take that factor into consideration where debts are payable at

some future date. See, for example, Re Stelco Inc., (ON SC), [2004] O.J. No. 1257, 48 C.B.R. (4th) 299 (Ont.S.C.J.), leave to appeal to the Court of Appeal refused, for a comprehensive review of the factors and law regarding whether a debtorcompany is insolvent. The Court reviewed variations of the insolvency test to determine whether a debtor will be insolvent if it cannotmeet its future obligations, or would be facing a liquidity crisis if it could not meet its obligations as they become due within a shortperiod of time: Footnote 31 in the “Interpretation”

Chapter of 2020 Bennett on Bankruptcy at 49. iii. Concluding Comments on Bennett [151] The Frank Bennett Commentary stipulates that the Balance Sheet Solvency Test needs to take into account obligations currentlypayable. I agree with that aspect of the Frank Bennett Commentary because it is consistent with the phrase “obligations, due” in theInsolvent Person Definition.

By definition, obligations currently payable are completely constituted liabilities, which are presentlyexigible. [152] The Frank Bennett Commentary in the 2020 Bennett on Bankruptcy also stipulates that the Balance Sheet Solvency Test needsto take into account “...obligations...properly chargeable”.[8] I agree with that position to the extent that the subject obligation iscompletely constituted as at the “date of the test”. [153] The Frank Bennett Commentary further states that “...one does not have to include claims accruing due”. I do not agree with theentire thrust of that statement.

I take that position because the interpretive view in the Frank Bennett Commentary goes too farconcerning this particular matter. It is not in-keeping with the full context of the phrase “obligations, due and accruing due”, which isincluded in clause (

c) of the Insolvent Person Definition. [154] As I read the Insolvent Person Definition, the concept of “obligations, ...accruing due” is explicit in the legislative framework.As a result, “obligations, ...accruing due” must be taken into account. In my view, the only proviso is that the “accruing” obligation mustbe completely constituted as at the “date of the test”, albei

[…]