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CREDITORS AND CLAIMS - Secured creditors - Provable claims

Friday, May 07, 2021 @ 6:06 AM  

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Appeal by the Yukon Government and Welichem Research from orders made in receivership proceedings of Yukon Zinc. The Debtor’s principal asset was a zinc‑silver‑lead mine in the Yukon Territory. In 2018, the Debtor received loans from Welichem on the security of general security agreements covering all its assets. Welichem was the Debtor’s primary secured creditor and the lessor of certain mining equipment. The Receiver assumed responsibility for the care and maintenance of the mine and rectified most of the initial deficiencies in the care and maintenance program. The Receiver also assessed the Debtor’s assets, including the items leased to it by Welichem under a Master Lease. The Government, Welichem and the Receiver each brought applications. The Government sought declarations that it had a provable claim in the bankruptcy of the Debtor for the costs of remedying the environmental damage affecting the Debtor’s real property and that the Government’s claim was secured under s.14.06(7) of the Bankruptcy and Insolvency Act (BIA). Welichem sought an order that the Receiver’s Disclaimer Notice of the equipment lease was a nullity, and that the Receiver affirmed the Master Lease and was required to pay the full lease payments to Welichem from the date of the Receiver’s appointment. The Government appealed the findings that it did not have a provable claim in respect of the Debtor’s obligation to post security pursuant to the Quartz Mining Act and that it did not have a contingent claim in respect of remediation costs. Weilchem appealed the provision in the order made pursuant to the Government’s application that the security given to the Government for remediation costs by s. 14.06(7) of the BIA, on the real property of the Debtor, included the Debtor’s mineral claims. Welichem also appealed the dismissal of its application for orders that a notice to lessor to disclaim or resiliate equipment lease given by the Receiver was a nullity and that the Receiver had affirmed the equipment lease. Welichem also appealed the order made on the Receiver’s application making the Essential Master items subject to the secured charge given to the Receiver for its fees, disbursements and borrowings and an order approving a sale and investment solicitation plan developed by the Receiver.

HELD: Appeal allowed in part. The judge erred in including the mineral claims in the Government’s charge over the Debtor’s real property. Mineral claims were an interest in real property, not real property. The Government did not have a claim provable in bankruptcy because of the failure of the Debtor to provide the Unfurnished Reclamation Security because it was not a requirement that the Government could have enforced by legal action. The judge did not err in finding that the Government’s contingent claim for remediation costs was not a claim provable in bankruptcy. The proper characterization of the Disclaimer Notice was a full disclaimer of the Master Lease, coupled with an appropriation by the Receiver of the Essential Lease Items for its use. The equipment lease was disclaimed in its entirety, and the receiver’s purported appropriation of certain leased items was of no force or effect. The judge erred in concluding that the Receiver’s actions were not an incursion on Welichem’s property rights. As the leased items belonged to Welichem, not the Debtor, the judge erred in extending the receiver’s charge over the leased items. It was appropriate for the receiver to consider a bidder’s ability to obtain regulatory approvals in assessing their bids, and the judge did not err in approving the solicitation plan.

Yukon (Minister of the Department of Energy,Mines and Resources) v. Yukon Zinc Corp., [2021] Y.J. No. 17, Yukon Territory Court of Appeal, D.F. Tysoe, A.W. MacKenzie and Lyons JJ.A., March 5, 2021. Digest No. TLD-May32021012