Canada: "Acquiring And Holding A Licence Or Approval In Alberta Is A Privilege, Not A Right"

Last Updated: December 11 2017
Article by Natasha Wood

With these words, the Alberta Energy Regulator (the AER) revised Directive 67: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals (Directive 67).

On December 6, 2017 by Bulletin 2017-21, the AER announced changes to the eligibility program for potential and current licensees in Alberta. The move is, in part, in response to the Redwater spotlight case, currently on appeal to the Supreme Court of Canada and slated for a hearing early next year. The changes also likely relate to the trend of directors and/or officers of an insolvent or bankrupt company incorporating a new company to bid on the "good" assets of the insolvent company while leaving the "bad" assets to be disclaimed and end up in the orphan well association. These new information thresholds to entry are designed to weed out past offenders seeking to start fresh under new corporate entities. The revised Directive 67 will provide the AER with the information and corresponding discretion to close the loopholes with respect to such parties with the goal of ensuring that only responsible parties become eligible as licensees.

In addition to the requirements for new licensees, Directive 67 requires current licensees to provide new and extensive information by January 31, 2018 and imposes additional and ongoing obligations on current licensees. Given the nature of the information requirements and the impact that certain of the ongoing obligations may have on day-today corporate affairs, we strongly recommend that licensees begin the process of collecting the required information in the next few weeks and also familiarize themselves with the ongoing reporting obligations.

New Licensees

Previously, potential licensees were only required to provide limited corporate details, a $10,000 payment and proof of insurance. The revised application form (Schedule 1) sets out a questionnaire requiring comprehensive information extending beyond the corporate structure of the applicant to include information about related entities as well as entities with common directors, officers, partners or controlling shareholders. Using this information, the AER will determine, in its sole discretion, if a potential licensee poses an "unreasonable risk" – and if so, the AER may refuse to grant license eligibility or grant license eligibility with restrictions or conditions. The AER has provided a list of factors to consider in assessing such determination, which include an applicant's compliance history, experience, financial health, outstanding debts and previous involvement with insolvent companies, and in certain cases, these factors may be considered in respect to affiliated/associated entities. When considering a transaction with a newly formed entity, one might want to factor in the possible impact t at these new requirements will have on the timing of such new entity being eligible to hold AER licenses.

By January 31, 2018 all current licensees with licence eligibility must provide the same information that is required of new applicants. The information includes, among other items:

  • Full names of related entities, including parents and subsidiaries as well as a list of entities sharing any common directors, officers, partners or controlling shareholders;
  • Audited financial statements;
  • Lists of all shareholders (holding greater than 20% of the voting securities), directors and officers;
  • List of any energy companies that the current directors or officers held positions at in the last five years and whether any of those companies were subject to insolvency proceedings within a one year period of that person holding a position; and
  • List of any regulatory proceedings or non-compliances in all jurisdictions for the licensees and any of the associated or affiliated entities.

Every director and officer of the licensee is required to provide a declaration to the accurateness of the information provided.

Failure to provide this information to the AER by the deadline could result in the AER revoking or placing restrictions on a licensee's eligibility to hold licenses. If assistance is needed in interpreting the requirements or collecting and organizing any of this information, we encourage you to call us for guidance.

Going forward, Directive 67 mandates that all licensees must provide notice of any material change within 30 days of such change. This will ensure that the AER has accurate and current information on file. Material changes include such activities as changes to directors and officers or control persons, mergers, acquisitions and sales of substantially all of a licensee's assets. These changes will be assessed by the AER and if in the AER's opinion, a change creates an "unreasonable risk" the AER may place restrictions or conditions on a licensee's eligibility. Our view is that this test essentially creates a new regulatory hurdle to what would be considered normal course corporate activities and while well- intentioned, could stifle necessary internal actions by a company.

To alleviate this risk to licensees, the AER has advised that licensees may apply for advance rulings of a material change and whether such change will result in "an unreasonable risk". Until further guidance is received from the AER, there may be some confusion as to how this information is processed and when a material change does/does not result in an unreasonable risk. Further, while we expect that some licensees will make use of this advance ruling process where there are concerns, we encourage clients to contact us regarding any questions they may have with respect to the disclosure of confidential, competitive or material non-public information or any of the other "material changes" within the content of Directive 67.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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