Ecojustice, representing Friends of the Earth, appeared before the Supreme Court of Canada today to argue that corporations cannot use insolvency procedures to avoid cleaning up environmental contamination.

When a person or company can no longer meet their financial obligations, it is said to be insolvent. This often results in a person or company restructuring their finances in an effort to avoid bankruptcy. It also allows the company’s creditors (those it owes money) to receive some form of payments.

This is the first time Canada’s insolvency procedure has been challenged to deal with the polluter pays principle. The issue is historic contamination by AbitibiBowater Inc.’s mining, shipping and pulp and paper operations in Newfoundland and Labrador. AbitibiBowater closed its operations in the province in 2008, but left behind severe environmental damage on its former properties. That damage included the deposit of heavy metals and chemicals hazardous to human health into surrounding lands and waters.

In November 2009, Newfoundland ordered AbitibiBowater to clean up the environmental contamination at its former sites. However, the company had become insolvent and sought protection from its creditors under a federal law — the Companies’ Creditors Arrangement Act. The Quebec courts, which applied that law, concluded that Newfoundland’s remediation order was a “claim” under the CCAA, forcing the province to get in line behind other creditors and accept less money than the cost of the clean ups.

Now the Supreme Court will decide whether the remediation orders are claims. If the clean-up orders are not claims, Newfoundland may be able to recoup the costs of cleaning up the contaminated sites from AbitibiBowater, which is now called Resolute Forest Products.

“Businesses can’t restructure their way out of obligations to remediate the environment,” said William Amos, director of the Ecojustice Clinic at the University of Ottawa and the lawyer making oral arguments before the court. “The system is broken when it forces the environment to line up with creditors and makes Newfoundlanders pay for a mess that AbitibiBowater created.”

Ecojustice and Friends of the Earth are also concerned that allowing AbitibiBowater to avoid its responsibility to clean up its former sites threatens the ability of provincial governments to enforce environmental protection statutes and absolves insolvent corporations of any environmental accountability.

“Insolvency processes should not grant a company a clean slate when it comes to environmental contamination,” Amos said. “AbitibiBowater has a new name, Resolute Forest Products. It is restructuring and expects to return to profitability within a few years. Newfoundlanders, on the other hand, are still waiting for those contaminated sites to be cleaned and wondering who will foot the bill.”

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