On January 26, 2026, the Court of King’s Bench of Alberta (ABKB) held that the Alberta Department of Energy and Minerals (Alberta Energy) is required to first advance its claim for royalty arrears owed by an insolvent energy company within ongoing restructuring proceedings of that insolvent company, before seeking recovery from jointly liable solvent co-lessees.
This decision affirms that “claims provable in bankruptcy” against a debtor who has initiated insolvency proceedings are stayed and must be resolved within those proceedings in first instance, consistent with the single-proceeding model articulated by the Supreme Court of Canada in Peace River Hydro Partners v. Petrowest Corp (Petrowest).
Background
Blue Sky Resources Ltd. (Blue Sky) is a private upstream oil and gas company with assets in Alberta, British Columbia and Saskatchewan. On September 24, 2025, Blue Sky filed a Notice of Intention to Make a Proposal (NOI) under the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA), thereby triggering a statutory stay of proceedings.
On September 25, 2025, the day after Blue Sky filed its NOI, Alberta Energy issued collection notices to solvent leaseholders registered on petroleum and natural gas leases (PNG Leases) alongside Blue Sky (the Royalty Default Notice). The Royalty Default Notice advised that Blue Sky’s gas royalty account had an outstanding balance of approximately C$1.9-million (the Blue Sky Royalty Arrears), and that under section 20(2.1) of the Mines and Minerals Act, RSA 2000, c M-17 (MMA), all co-lessees were jointly responsible for the arrears. The notice further stated that unless the co-lessees remitted payment in full by October 31, 2025, Alberta Energy could pursue various remedies, including cancelling the affected PNG Leases, setting off the Blue Sky Royalty Arrears against credits owing by Alberta Energy to leaseholders, and suspending leaseholders’ electronic transfer system privileges.
Many solvent co-lessees were concerned about the issuance of the Royalty Default Notice during the pendency of the NOI proceedings, which they viewed as circumventing the statutory stay. Several co-lessees paid their proportionate share of the Blue Sky Royalty Arrears “under protest” with confirmation from Alberta Energy that it would not take further remedial action against the co-lessees until resolution of the matter by the Court.
The Court’s Decision
The Court of King’s Bench of Alberta held that Alberta Energy was required to advance its claim for the Blue Sky Royalty Arrears within the NOI proceedings prior to seeking any recovery from solvent co-lessees.
1. The Blue Sky Royalty Arrears Are a “Claim Provable in Bankruptcy” and Subject to a Stay of Proceedings
First, the Court determined that Alberta Energy’s claim to the Blue Sky Royalty Arrears constituted a “claim provable in bankruptcy” and was therefore subject to the statutory stay of proceedings. The Court set out three requirements for a claim provable in bankruptcy:
- it is a debt, liability or obligation owed to a creditor
- the debt was incurred before the debtor became bankrupt
- a monetary value can be assigned to the debt
The Court had no difficulty finding that the Blue Sky Royalty Arrears satisfied these requirements. It was a debt owed by Blue Sky to Alberta Energy, incurred by Blue Sky before it filed its NOI and to which Alberta Energy attached a monetary value of approximately C$1.9-million.
2. Proceeding Directly Against Co-Lessees Would Undermine the Single-Proceeding Model
The Court further found that allowing Alberta Energy to proceed directly against co-lessees would undermine the “single proceeding model” and the delicate balancing of creditor rights within the NOI proceedings. The single proceeding model is a core tenet of Canadian insolvency law and aims to centralize all claims related to an insolvency proceeding for efficient adjudication. The Court observed that the single proceeding model “is particularly apt” for resolution of Alberta Energy’s claims, given Alberta Energy enjoys a “privileged position to recover unpaid royalties” in the NOI proceedings. This privilege arises from Alberta Energy’s authority under the MMA to refuse the transfer of any PNG Lease to a prospective purchaser until all outstanding royalties are paid. By contrast, the solvent leaseholders have no ability to compel a priority distribution from sale proceeds and would be left to stand in line with other unsecured creditors.
3. Proceeding Directly Against Co-Lessees Would Obligate Otherwise Uninterested Co-Lessees to Participate in the NOI Proceedings
The Court also observed that permitting Alberta Energy to collect from co-lessees in first instance would force many co-lessees, who otherwise have no interest in the NOI proceedings, to participate at significant financial and administrative cost. The Royalty Default Notice was issued to 32 energy companies, suggesting that up to 32 involuntary unsecured creditors could unnecessarily be drawn into the NOI proceedings.
4. The MMA Framework Implies an Order of Recourse
Finally, the Court observed that the MMA and associated regulations establish a mechanism under which the Crown’s royalty share is paid, in first instance, by the party who took the Crown’s share of production. Although paragraph 20(2.1)(a) of the MMA provides that co-lessees are “jointly responsible,” paragraph 20(2.1)(b) implies an ordering of the Crown’s avenues of relief, such that co-lessees may be called upon only if the Crown’s royalty share remains unpaid by the party responsible for its payment in first instance.
Key Takeaways
This decision clarifies that Alberta Energy is required to pursue any pre-filing claims for arrears within ongoing insolvency proceedings before pursuing recovery from jointly liable leaseholders. This principle may apply more broadly to other statutory regimes that impose joint liability on industry participants.
For more information, please contact Kelly Bourassa or any other member of our Restructuring & Insolvency group.
