Cleo Energy: the WEPP clawback returns to the court that warned against it

In the first week of its notice of intention, Cleo Energy Corp. could not count on meeting payroll. A creditor's garnishee summons had frozen its RBC account and produced a cheque to the court for $152,436.18, and on December 11, 2024 Chris Lewis, the company's sole director and chief executive, swore that Cleo needed those funds to pay approximately $132,000 to its twelve employees and nine consultants on Friday, December 13, having no other confirmed source of money that week. The company put its difficulties down to low production after mechanical failures and a major theft in its main producing fields, a lack of capital for the repairs, and a fall in oil and gas prices in September 2024, per the First Affidavit of Chris Lewis, Dec. 11, 2024, paras. 10–11, 17–19, 24, 26.

Cleo still had 12 employees on June 3, 2025, when the receivership took effect; all of them were terminated that day and paid under the federal Wage Earner Protection Program. The receiver, Alvarez & Marsal Canada Inc., now reports that Employment and Social Development Canada has clawed those payments back, in some cases causing former employees' tax returns to be withheld until they repaid, and that the reverse vesting order the court granted in November 2025 "was relied upon to reverse or nullify the WEPP entitlements." Its application for discharge, returnable September 16, 2026, asks first for a declaration that the order did not affect the former employees' eligibility, and then for approval of a final distribution in which unsecured creditors receive nothing, per the Fourth Report of the Receiver, Sept. 8, 2026, paras. 12, 19–20, 26–27, 34.

Six months of sales, then a receiver

Cleo, a private Calgary producer of medium-gravity oil from fields in East Central Alberta, filed its notice of intention on December 8, 2024, with A&M as proposal trustee, and sold assets in stages: to IHH Energy Corp., Nuova Strada Ventures Ltd. and Surge Energy Inc. under orders of March 25, 2025, and to Nuova Strada and Rise Energy SPV Ltd. under orders of June 2. The NOI could not be extended past June 8, and the interim lender, uCapital – uLoan Solutions Inc., concerned that a deemed bankruptcy could interfere with its repayment from the June sales, applied for a receiver. It was repaid $1,078,907 on June 9, per the First Report of the Receiver, Oct. 6, 2025, paras. 2–5, 25, and p. 7. Justice Burns had appointed A&M on June 2, effective June 3, under s. 243(1) of the Bankruptcy and Insolvency Act and s. 13(2) of the Judicature Act, per the Order (Transaction Approval and RVO), Nov. 14, 2025, Sch. "A", recital A.

Cleo's books at the receivership date, as the receiver summarized them, showed assets of $8,272,961 against liabilities of $24,562,034, of which $8,208,901 was secured. What the NOI sales had not reached, properties in nine areas from Taber to Greater Wainwright, carried approximately $20 million of deemed assets and $38 million of deemed liabilities, and only the Shorncliffe and Fabyan fields were producing, per the First Report of the Receiver, Oct. 6, 2025, pp. 4, 11.

Necessary means necessary

A&M's remarketing drew eight non-binding bids by August 29, 2025. It chose 2698902 Alberta Corporation, which signed a share purchase agreement on October 6 to buy Cleo itself, leases and environmental liabilities included, with everything it did not want vested in a residual company. The receiver said the other bids would have sent material liabilities to the Orphan Well Association and left nothing for other creditors, per the First Report of the Receiver, Oct. 6, 2025, paras. 29–30, 39, 45, 51.

Two governments spoke at the October 17, 2025 hearing. Alberta Energy objected to the vesting of Cleo's pre-filing royalty and rental arrears on its Crown mineral leases in the residual company while the leases stayed with Cleo. The Department of Justice, appearing for ESDC, took no position on the transaction but wrote to the court on October 22 that the WEPP payments "will most likely be collected back from the employees following an approval of the RVO transaction," because Cleo would "emerge from the receivership proceedings and continue to carry on its business operations as a viable corporation" and the eligibility criteria in ss. 5(1)(b)(ii) and 5(1)(c) of the WEPPA would no longer be met, per the Supplement to the First Report of the Receiver, Oct. 24, 2025, paras. 4–5, App. "A".

Justice Colin C.J. Feasby dismissed the application on October 28, 2025, without prejudice to a fresh one, in reasons reported as Cleo Energy Corp (Re), 2025 ABKB 621 and appended to the receiver's Second Report. He began by setting aside the usual adjective: "I refuse to subscribe to the polite fiction that RVOs are extraordinary in 2025." He then applied the necessity question from Harte Gold (Re), 2022 ONSC 653, on the footing that "necessary means necessary," and found the delays, risks and costs of AER licence transfers "asserted but not proved," observing that "Oil and gas licence transfers are an everyday part of business in the oilpatch." The purchaser's insistence on the structure "does not move me," he wrote; a rational purchaser denied an RVO would negotiate the price down rather than walk away, per the Second Report of the Receiver, Nov. 5, 2025, App. "A", paras. 10, 14, 21–22, 25, 29, 47.

Paying the lease arrears, about $150,000 of pre-filing debt, he held, was "a reasonable price for the Purchaser to pay to get the ongoing value of the Mineral Leases." On WEPP, he read ESDC's submission as "in essence, a warning that following the approval of the Cleo RVO, payments to former employees of Cleo may be clawed back followed by a warning that this Court has no say in the matter," and answered, "I beg to differ." Adopting Arrangement relatif à Former Gestion Inc, 2024 QCCS 3645, which fixes the relevant moment at termination, he wrote that employees "who have received WEPPs payment and have no inkling of the possibility of a clawback may have used the money to pay for groceries or rent," and that "A choice to clawback payments made to terminated employees of an insolvent corporation because of subsequent events beyond their control would be to the immense discredit of the Minister and, I would hope, be swiftly reversed by the Canada Industrial Relations Board or the Federal Court of Appeal," per the Second Report of the Receiver, Nov. 5, 2025, App. "A", paras. 29, 38, 45–46.

The second application

The receiver came back on November 14 with the same agreement and additional information addressed to the court's concerns. Its Second Report counted approximately 1,100 licence transfers that could take one to four months and cost up to $125,000, and an approximately $850,000 AER security deposit the purchaser would keep under an RVO but have to replace in an asset deal. It priced a CCAA plan at $400,000 to $500,000 or more, against about $791,000 left in the estate and an operating burn of about $170,000 a month. Without the deal, it said, it would likely shut in production and look to transfer approximately $38 million of deemed liabilities, about 1,100 wells and some 75 facilities among them, to the Orphan Well Association. The Orphan Well Association and Alberta Energy supported the transaction; the Department of Justice and the AER took no position, per the Second Report of the Receiver, Nov. 5, 2025, paras. 29, 41–45.