Insights Header image
Insights Header image
Insights Header image

Alberta Court of Appeal Dismisses Property Tax Appeal: Municipalities are Not Secured Creditors for Taxes Assessed on Pipelines, Wells and Other Linear Property

March 2019 Restructuring and Insolvency Bulletin 2 minute read

The Alberta Court of Appeal has dismissed an appeal brought by three municipalities (the “Municipalities”) seeking status as secured creditors entitled to special priority for payment of linear property taxes.

In Northern Sunrise County v Virginia Hills Oil Corp, 2019 ABCA 61, the primary issue was whether the Municipal Government Act (“MGA”) grants to an Alberta municipality a special lien for linear property taxes, which lien ranks senior in priority to contractual security interests if the tax debtor is not bankrupt or subject to other insolvency proceedings.

Background

In 2017, Virginia Hills and Dolomite Energy, two oil and gas companies with wells, pipelines and related equipment, were placed into receivership and later became bankrupt. The debtors’ secured creditors (the “Secured Creditors”) were owed more than the realized value of the debtors’ assets. The receiver applied for advice and direction regarding whether the linear property tax claims were secured or unsecured.

The Municipalities did not make submissions before the chambers justice and a final distribution order was granted in favour of the Secured Creditors. The Municipalities appealed the order arguing that linear property tax claims were secured claims due to the special lien afforded to Municipalities under section 348 of the MGA and were payable in priority to other secured creditors.

Decision

Section 348 of the MGA is an ambiguous provision that does not specify whether the municipal property taxes secured by the special lien include linear or non-linear taxes or both. As a result, the Court undertook an exercise in statutory interpretation of section 348.

In dismissing the Municipalities’ appeal, the Court ruled that section 348 does not include linear property. The Court made this decision after considering the taxation scheme of the MGA as a whole, including the remedies available to municipalities to collect taxes under the MGA.

The Court agreed with the receiver that difficulties would arise in applying a special lien to linear property due to uncertainty about the property to which the special lien would attach.

Implications

This decision is of considerable importance to participants in the Alberta oil and gas industry, including receivers, trustees, municipalities and secured lenders. Administration of a number of cases had been delayed (in some cases for long periods of time) pending the release of this decision.  All stakeholders will benefit from the clear finding that claims for linear property tax arrears are unsecured.

McMillan successfully represented The Bank of Nova Scotia, as agent for the senior lenders to Virginia Hills Oil Corp. which was a respondent in this appeal.

by Richard Jones, Adam Maerov and Preet Saini

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2019

Insights (5 Posts)View More

Featured Insight

Unpacking Ontario’s Proposed Strengthening Cyber Security and Building Trust in the Public Sector Act, 2024

Unpacking Ontario's Bill 194: Strengthening Cyber Security and Building Trust in the Public Sector Act, 2024. Key changes & compliance strategies detailed.

Read More
May 17, 2024
Featured Insight

Navigating International Student Worker Restrictions: Post-Expiry Guidelines for Employers

On April 30, 2024, Canada’s temporary waiver allowing international students to exceed 20 hours of work per week expired.

Read More
May 14, 2024
Featured Insight

Understanding the Consumer-Driven Banking Framework: Key Insights from the Budget Implementation Act, 2024, No.1

On April 30, the federal government introduced the Budget Implementation Act, 2024, No. 1, which provides the legislative framework for open banking in Canada.

Read More
May 13, 2024
Featured Insight

Legal Risk Assessments – An Essential Risk Management Tool

The best way to address the legal issues that arise in any business is to focus on their identification and resolution before they become legal problems.

Read More
May 9, 2024
Featured Insight

Jury’s Out: Bench Trials Are In

Ontario courts are leaning towards the elimination of civil jury trials, as evidenced in recent decisions out of the Ontario Superior Court of Justice.

Read More
May 8, 2024