Oil & gas companies score win in Supreme Court
South Peace News
Bankrupt oil and gas companies who have stopped paying their property taxes have become a major problem for Northern Sunrise County.
But a recent Supreme Court decision against the county could have major implications for municipalities in the same situation across Alberta.
The county has 96 tax accounts worth a total of $2,698,708.92 outstanding as uncollectable. According to administration, the county has already made allowances and recorded bad debt for $2,396,696.95 for oil and gas industry insolvent accounts as of Dec. 31, 2018.
The many different tax accounts in arrears belong to only 10 oil companies.
At their meeting on Dec. 10, council decided whether to keep trying to get the tax money or apply for the Provincial Education Requisition Credit [PERC] for uncollected education property taxes on oil and gas properties.
With many oil and gas companies going out of business due to the price downturn, the Alberta government introduced the PERC program to allow municipalities to apply for a rebate of the education property tax portion of outstanding taxes in arrears.
The PERC application for rebate of school taxes on the tax accounts in Northern Sunrise will be for $331,538.15.
However, in order to get that money, the municipality must first formally cancel the taxes on properties included in the application.
“I don’t understand how they can get away with this,” Reeve Carolyn Kolebaba says.
“This is $2 million and we’re only going to get $300,000? What the hell! I’m not going to pay my taxes.”
Councillor Dan Bosivert speculated.
“I think this is part of the new government’s method of working with oil companies to let them move on.”
Council deferred their decision for a few hours in order to double check that they had taken every action possible to collect on the accounts and confirm that the oil companies were indeed bankrupt.
However, unlike residential or farm properties, the county can’t auction off the property of oil and gas companies who don’t pay their taxes. In most cases, oil companies simply stop responding to mailed statements that they are in arrears, and there is no further action the county can take, which they find frustrating.
About half of the outstanding taxes are due to the bankruptcy of Virginia Hills, a company which built a pipeline through Northern Sunrise and five other Albertan municipalities.
Virginia Hills owes Northern Sunrise about $600,000.
Northern Sunrise took Virginia Hills Oil Corp. and Dolomite Energy Corp. all the way to the Supreme Court to try to get paid. They were joined in the lawsuit by two other municipalities along the pipeline route: the M.D. of Opportunity No. 17 and Lamont County.
However, because Northern Sunrise did not apply early on to be secured creditors in the receivership or bankruptcy, they ultimately lost the suit.
“In the very beginning Northern Sunrise County should have been in the room and should have been saying we need to be paid back, and we didn’t,” Kolebaba says.
It was our mistake that we had originally lost that funds, but we wanted to bring it to the attention of the provincial government, so we had to take it to the Supreme Court to say now you change the Municipal Government Act so this doesn’t happen again.”
The Supreme Court of Canada found that the Municipal Government Act [MGA] does not create a special lien for linear property tax arrears. The municipalities argued that their claims for linear tax arrears would make them secured creditors under the Bankruptcy and Insolvency Act.
The three appellants were also denied leave to appeal the high court’s decision on Aug. 29.
The Virginia Hills decision is considered a significant victory for oil and gas companies and for trustees such as accounting firms and lenders, especially after a perceived loss for oil companies when a different Supreme Court decision recently found that it is still the responsibility of oil companies to clean up their wells, even in bankruptcy.
Kolebaba says the Supreme Court decision on Virginia Hills potentially affects every municipality across the province.
“In the same situation, those oil companies can do the same thing to them,” she says.
“This is where the MGA has let us down,” says Councillor Corinna Williams.
Northern Sunrise ultimately decided to cut their losses and cancel the over $2 million in taxes owing to get the $300,000 credit from the provincial government.
However, they also decided to write to the provincial government to show the amount of money they are writing off.
The only other option for municipalities like Northern Sunrise is to continue to lobby the government to change the MGA to recognize their linear property tax claims as secured claims.
“This is a sad day in my opinion,” Kolebaba says.