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The model Initial Order under the Companies' Creditors Arrangement Act (the "CCAA"), pursuant to section 11.02 of the CCAA, provides a stay of proceedings preventing any proceedings or enforcement processes to be commenced or continued against the applicant entity and staying and suspending any proceedings currently underway.
The CCAA sets out certain exceptions to this stay of proceedings, including in section 11.1(2), which provides that a stay of proceedings does not affect a regulatory body's investigation in respect of a debtor company or an action, suit or proceeding that is taken in respect of the debtor company by the regulatory body – other than the enforcement of a payment ordered by the regulatory body or the court. Section 11.1(3) sets out that the Court may order that subsection (2) does not apply in certain circumstances, allowing the enforcement of a payment even in the face of a stay of proceedings.
In AlphaBow Energy Ltd. (Re),1 the Alberta Court of King's Bench found that the facts warranted the application of the exception to the stay of proceedings contemplated by section 11.1(2), and that section 11.1(3) was not available. The decision provides an example of what commercial contexts might arise where the regulatory exception will apply and triumph over the stay of proceedings.
Background
AlphaBow Energy Ltd. ("AlphaBow") is a private energy company located in Alberta. The Alberta Energy Regulator (the "AER") is the regulator of oil and gas activities in Alberta.
In March 2023, the AER issued an order requiring AlphaBow to submit certain information. When AlphaBow failed to comply, a Suspension Order was issued in June 2023, suspending AphaBow's licenses and sites as a temporary measure until AlphaBow could comply with the March 2023 order and submit an acceptable plan to reactivate its sites safely.
In September 2023, the AER directed the Orphan Well Association ("OWA") to provide reasonable care and measures to AlphaBow's licenses and sites and to suspend all of its sites in order to ensure that there was interim preservation.
Shortly after the AER confirmed the March and June 2023 orders, in March 2024, AlphaBow filed a Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency Act ("BIA"). In April 2024, the BIA proceedings were continued under the CCAA and an order approving a sale and investment solicitation process was granted.
In December 2024, AlphaBow obtained orders approving several transactions, including a reverse vesting order authorizing the transfer of all of the common shares of AlphaBow to 2628071 Alberta Ltd. ("071 Alberta"), and approval and vesting orders for the sale of certain assets to 071 Alberta and an affiliated party, 2628069 Alberta Ltd. (the "AVO Transactions"). As part of these transactions, certain assets and liabilities would be transferred to the AlphaBow Energy Residual Trust for the benefit of AlphaBow's creditors.
On March 4, 2025, the AER received a license transfer application from AlphaBow to Cascade Capture Ltd. ("Cascade"), the nominee purchaser in respect of the above-noted AVO transactions.
On July 10, 2025, the AER conditionally approved the license transfer applications, requiring payment of security from Cascade in the amount of approximately $4.9 million, and payment of security from AlphaBow of approximately $20.5 million. These amounts constituted 10% of AlphaBow's estimated inactive liability. The AER submitted that following closing of the transactions, AlphaBow would be left with over 3000 inactive wells of which only 184 are economically viable if reactivated. In the AER's view, the income from the remaining licensed assets would be markedly insufficient to meet AlphaBow's ongoing environmental obligation.
Cascade subsequently withdraw the license transfer application.
Relief Sought by AlphaBow
On this application, AlphaBow sought a declaration that any request by the AER for a security deposit from AlphaBow is stayed pursuant to the CCAA, and in the alternative, that if the request for a security deposit is a regulatory action, that the Court should stay any such request pursuant to section 11.1(3) of the CCAA.
Section 11.1(2) of the CCAA provides:
Subject to subsection (3), no order made under section 11.02 affects a regulatory body's investigation in respect of the debtor company or an action, suit or proceeding that is taken in respect of the company by or before the regulatory body, other than the enforcement of a payment ordered by the regulatory body or the court.
Section 11.1(3) provides that if a regulatory body is not seeking to enforce its rights as a creditor, a regulatory action may nonetheless be subject to the CCAA stay of proceedings but only if the Court is satisfied that: (a) a viable compromise or arrangement could not be made unless the CCAA stay of proceedings was enforced against the regulatory action; and (b) it would not be contrary to the public interest that the regulatory body be subject to the CCAA stay of proceedings.
Is the AER request for a security deposit stayed by the ARIO?
AlphaBow argued that the AER's refusal to transfer licenses unless a security deposit is provided is a violation of the stay of proceedings as the AER is seeking to enforce a monetary obligation. The Court found that the AER's request for a deposit did not constitute the enforcement of the AER's rights as a creditor, and thus was not captured by the stay of proceedings.
The Court found that the AER's condition for payment is calculated as a percentage of AlphaBow's end-of-life obligations, which the Supreme Court and the Alberta Court of Appeal have previously characterized as public duties owed to fellow citizens rather than provable claims as a creditor.
The Court was also not persuaded by AlphaBow's argument that the AER's request was paramount to giving it priority contrary to the stay of proceedings which is meant to maintain status quo among creditors. The Court, citing Orphan Well Association v. Grant Thornton Ltd.2, found that the AER is acting in a bona fide regulatory capacity and does not stand to benefit financially. The Court found that even though the effect of the AER's enforcement action is to prioritize AlphaBow's end of life obligations over the rights of other creditors, it does not alter the priority scheme among AlphaBow's creditors.
Should the CCAA of Stay of Proceedings apply to the AER's request for a security deposit?
AlphaBow argued that the AER's request for a security deposit should be stayed under section 11.1(3) of the CCAA.
Pursuant to subsection 11.1(3), AlphaBow must show that the two statutory preconditions are met, namely that a viable compromise or arrangement could not be made if the exception sought by the AER were to apply, and that it is not contrary to the public interest that the AER be affected by the CCAA stay of proceedings.
The Court distinguished other cases cited by AlphaBow, like Just Energy3 and BZAM4, where regulatory exceptions were stayed on their facts, finding that staying the regulatory exception in this case benefits only the parties to the transaction but would not actually advance a viable restructuring. Upon exiting the CCAA process, AlphaBow would still have "over 3000 inactive wells, of which only 184 are economically viable if reactivated", leading the Court to determine that AlphaBow would be unable to meet its ongoing environmental obligations and the wells would once again be reverted to the OWA.
As such, the Court found that the statutory pre-conditions in subsection 11.1(3) had not been satisfied and declined to stay the regulatory exception.
Key Takeaways
Regulatory requirements for a security deposit as a precondition for approval of a license transfer sought in a CCAA transaction may not be a breach of stay of proceedings and will not be seen as re-arranging priorities among creditors, where the costs required to be paid are part of the debtor's end-of-life reclamation obligations and there is a public interest to have such amounts paid.
Potential purchasers of similarly situated insolvent operators, and the insolvent operators themselves, will need to consider which party will bear the commercial cost of security deposit payments and the treatment of such deposits in determining the purchase price in bids. This may limit interest in sale processes involving entities that are seen to have similar potential liabilities, however, early engagement with regulators like the AER regarding potential transactions will ensure that all parties are aware of the relevant obligations at an early stage such that it can be accounted for in any commercial agreements.
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Footnotes
1. AlphaBow Energy Ltd. (Re), 2025 ABKB 622.
2. Orphan Well Association v. Grant Thornton Ltd., 2019 SCC 5.
3. Re Just Energy Corp., 2021 ONSC 1793.
4. BZAM Ltd. Plan of Arrangement., 2024 ONSC 1645.
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