It is common for E&P companies in chapter 11 to seek to reject burdensome midstream contracts under Bankruptcy Code § 365. Rejection has not been permitted by bankruptcy courts where such agreements create enforceable covenants running with the land (“CRWL”) because a CRWL is a real property interest of the midstream gatherer, not just a contract right. Accordingly, before a debtor can seek to reject midstream agreements, the bankruptcy court must first determine whether an enforceable CRWL exists.

The Supreme Court of Canada granted leave to appeal yesterday in Indalex Limited (Re). This is an appeal from the Ontario Court of Appeal (2011 ONCA 265). Please see our Financial Services and Banking E-news Bulletin dated April 25, 2011, for a detailed summary of the decision of the Ontario Court of Appeal.