Executive Summary: Key Legal and Evidentiary Issues

• The Applicant sought declarations interpreting the Reverse Vesting Order (RVO) to characterize distributable proceeds as proceeds of disposition for tax efficiency purposes.

• Canada challenged the court's jurisdiction, arguing that relief sought was fundamentally a tax assessment issue falling under the federal tax court's exclusive domain.

• Ambiguity in sections 5(e) and 11(e) of the RVO created uncertainty regarding the tax treatment of funds received by Residual Co.

• Insufficient evidence existed to demonstrate the parties intended the RVO to be interpreted as treating funds as proceeds of disposition of AMI Shares.

• Requests for TCP and PUC declarations were deemed advance tax determinations rather than matters ancillary to bankruptcy proceedings.

• Concerns arose about the propriety of amending a final order almost two years after its issuance and after transactions had concluded.

Background and the insolvency proceedings

On November 1, 2023, Athabasca Minerals Inc., 2132561 Alberta Ltd., 2140534 Alberta Ltd., AMI Aggregates Inc, AMI Rock Chain Inc, AMI Silica and Terra Shift Engineering ("AMI") filed a notice of intention to make a proposal under section 50.4(1) of the Bankruptcy and Insolvency Act (BIA). KSV Restructuring was appointed as the proposal trustee to oversee the proceedings. A highly competitive sales and investment solicitation process (SISP) was then undertaken, with JMAC Energy Services LLC, the first-ranking secured creditor, participating as the stalking horse bidder. Following an auction under the SISP with 162 rounds of bidding, Badger Mining Corporation was the successful bidder.

The reverse vesting order and establishment of Residual Co

The court granted a Transaction Approval and Reverse Vesting Order on April 19, 2024, which approved a subscription agreement dated February 9, 2024, and authorized the transfer of certain liabilities and assets to 2585929 Alberta Ltd. ("Residual Co"), a company established pursuant to the RVO. On April 26, 2024, $21,954,189.12 was transferred to Residual Co. Residual Co was deemed to make an assignment in bankruptcy on May 14, 2024, and the appointment of KSV as trustee was affirmed at the first meeting of creditors on June 4, 2024.

The application and jurisdictional challenge

The application was filed on November 10, 2025, seeking a declaration that the Trustee's interpretation of certain paragraphs in the RVO is correct, or alternatively, to amend the RVO. The Applicant also sought declarations that certain shares are taxable Canadian property (TCP), that the Trustee's TCP analysis is valid, and a similar declaration related to a paid-up capital (PUC) calculation and analysis. The Attorney General of Canada challenged the court's jurisdiction, asserting that the Tax Court of Canada has exclusive original jurisdiction to hear and determine references and appeals on matters arising under the Income Tax Act. The court found that since no return had been filed, no assessment had been made, and no appeal had been filed, the application related to an interpretation of the RVO rather than constituting a reference or appeal under the Income Tax Act. The tax court therefore did not have exclusive jurisdiction. Given the strong policy reasons for a single proceeding model in the insolvency context, the court found it appropriate to exercise its jurisdiction.

The RVO declaration and amendment requests

The Applicant argued that sections 5(e) and 11(e) of the RVO contained ambiguity. Specifically, section 11(e) provides that distributable proceeds "vest" in Residual Co without any characterization of the nature of the proceeds, and paragraph 5(e) provides that the shares in AMI Minerals Inc ("AMI Shares") are cancelled for no consideration. The absence of express characterization of these amounts creates uncertainty under the Income Tax Act, particularly if the receipt of the distributable proceeds were to be treated as income rather than proceeds of disposition. The Applicant contended that the RVO should be interpreted to explicitly characterize the distributable proceeds as proceeds of the disposition of the AMI Shares. The Trustee in their first report emphasized that it understood the parties to the SISP and Transaction were seeking to maximize the value payable to the creditors (and possibly the shareholders) and the Transaction was intended to be tax efficient to allow for value maximization. However, the court found that general statements about maximizing value for stakeholders is insufficient evidence, and there is a paucity of evidence that the parties intended for the RVO to be interpreted in the manner urged by the Applicant. The court expressed concerns about the timing of the application and the fact the court is being asked to read in language that was not argued when the RVO was granted, as well as public interest concerns that asking the court to declare an interpretation correct in advance of filing tax returns may not be in the public interest. The court declined to grant the declaration sought. The court also declined to amend the RVO, noting that the RVO is a final order, the transactions contemplated by the RVO have been concluded, the order was granted almost two years ago, and the clarifications sought are substantive.

The TCP and PUC declaration requests

The Applicant sought advice and directions regarding the TCP and PUC plans, specifically on how to determine the appropriate holdback amounts in respect of tax obligations to allow the Trustee to distribute the remaining funds to equity claimants. They argued it is appropriate as the declaration will not bind the Minister but will provide guidance to the Trustee's tax advisors when preparing relevant tax returns. Canada argued that the determination of whether property is taxable property as defined in the Income Tax Act and what the paid-up capital is for income tax purposes is not within the jurisdiction of the court, and the requested declarations are not a proper matter for advice and direction from the court under section 34 of the BIA. The court agreed with Canada, finding that the advice and direction sought is not ancillary to a tax issue—it is a tax issue.

Ruling and outcome

The Honourable Justice B.B. Johnston dismissed the application. The court declined to grant the RVO declaration sought, declined to amend the RVO, and declined to provide the TCP and PUC declarations. While the court agreed that a possible interpretation of the RVO could result in tax inefficiencies, this is the language chosen by the parties in both the RVO and again in the Subscription Agreement, and this is the language approved by the court. The matter was heard on the 19th day of January, 2026, and dated at Calgary, Alberta on the 4th day of February, 2026.