Losing Your Bill 13

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LOSING YOUR BILL 13 CONTRACT WHEN YOUR LICENSEE GOES BROKE

A Bill 13 replaceable contract must state that if the licence to which it pertains is transferred, the contract transfers with it. Our provincial forest regulations require that. Unfortunately, when a licensee goes broke and its licence gets sold to some new party, it is often the case (in fact, usually the case) that the Bill 13 contracts are lost when the licence is assigned.

This is a lesson that the Skeena contractors have experienced several times in previous years. Recently, that same message was brought home to the Pope & Talbot contractors in the Southern Interior.

How could this happen?

Fundamentally, the problem lies in the fact that a replaceable contractor's attachment to a licence depends entirely the licensee's contractual promise to protect the contractor if the licence is sold.

In the case of a solvent licensee selling its licence to somebody else, the Bill 13 contractor is protected. But, in the case of an insolvent licensee, that promise may be prove to be worthless.

In the Skeena and Pope & Talbot cases, the insolvent licensees asked for protection under the Companies' Creditors Arrangement Act -- a piece of federal legislation. In my view, the result for the contractors would have been the same under a bankruptcy or receivership.

The usual step in insolvency is to liquidate the assets of the insolvent party for the greatest amount possible. From there, the proceeds of liquidation are distributed in an order that sees secured creditors and government creditors paid first, with unsecured creditors (like logging contractors) sharing in what is left.

A forest licence or a tree farm licence is a very valuable asset. Usually it will be sold in conjunction with one or more lumber mills or pulp mills. To sell the asset, a bidding process is established.

What happens, then, is that an independent party, unrelated to the proceedings, will make an offer that it considers appropriate. In its offer that bidder will state whether or not it is willing to take on the Bill 13 contracts as part of its purchase. Experience indicates that the purchaser will usually opt to reject those Bill 13 contracts.

In the case of Pope & Talbot, the purchaser of its Southern Interior mills and licences indicated that it was not prepared to complete the purchase if it were made to take the Bill 13 contracts. On the other hand, the purchaser of the Fort St. James mill and licence indicated that it was prepared to assume the replaceable contracts.

Ultimately it is the Supreme Court that approves or rejects the offer brought before it. The court considers the benefits to all of the stakeholders, which would include the logging contractors. But, at the end of the day, is the maximization of sales proceeds that seems to govern. Generally speaking, the Bill 13 contractors are losing their contracts more frequently than they are keeping them. The last three disputed cases that went before the Chief Justice of the Supreme Court resulted in the contractors losing.

Contractors that lose their replaceable contracts can advance a money claim against the estate of the insolvent licensee for the lost value of that contract. That type of claim is regarded as an unsecured claim. It will result only in the contractors being paid cents on the dollar, depending upon how much money is left over after the higher ranking creditors are paid.

What can be done about this? In Fort St. James, one of the contractors put in a bid to purchase the mill and licence, and as part of that bid committed to honour the Bill 13 contracts. That set the standard for bidding, and the ultimate purchaser (who was not a contractor) ended up agreeing to honour the Bill 13 contracts. In the Southern Interior, where the sale was approved for $69 million, there was only one offer, by a purchaser unwilling to purchase if it was required to assume the replaceable contracts. In the circumstances, the court had little choice but to accept the offer.

In my view, it is time for legislative change. Presently, the Minister cannot veto a licence transfer if the Bill 13 contracts are not assumed by the purchaser. If the Minister were given that veto power by legislation, Bill 13 contracts would survive a licensee's insolvency.

John Drayton is a lawyer with Gibraltar Law Group who practices in the areas of forestry and motor transport law.

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