Canadian Insolvency: Key Developments and Emerging Trends

Several significant judicial decisions were released in 2025 that remain relevant to businesses, commercial lenders and restructuring professionals. This bulletin summarizes the key developments of 2025 and highlights areas of significance for restructuring professionals and market participants to monitor in 2026.

1. Hudson’s Bay Company and Assignment of Contracts

North America’s oldest corporation, the Hudson’s Bay Company (HBC), filed for protection under the Companies’ Creditors Arrangement Act (CCAA) before the Ontario Superior Court of Justice (ONSC). After an expedited sale and investment solicitation process failed to identify a going-concern solution for the company’s business, a full liquidation of HBC’s inventory commenced. Against this backdrop, the proceedings gave rise to a number of important decisions. By far the most significant was the ONSC’s decision concerning the proposed assignment of 25 leases to a prospective purchaser seeking to launch a new department store chain. The motion by HBC seeking the assignment of the leases was opposed by landlords of 24 of the 25 locations.

Section 11.3 of the CCAA allows a debtor to seek an order assigning a contract to a third party without the consent of the counterparty, notwithstanding any provision of the contract which requires consent to assignment. Section 11.3 sets out three factors for a court to consider in evaluating a forced assignment request: (i) whether the court-appointed monitor approves the proposed assignment, (ii) whether the proposed assignee can perform the obligations of the debtor under the contract, and (iii) whether the assignment is appropriate. These factors are neither mandatory nor exhaustive and have rarely been considered by courts in a contested context.

The forced assignment motion was strongly contested by the landlords. In opposing the motion, the landlords challenged the viability of the proposed assignee’s business plan and whether the proposed assignee would be able to perform its obligations under the leases. The monitor agreed that those concerns were well-founded and did not approve the proposed assignment. Notwithstanding a lack of monitor support, HBC proceeded with its motion to compel the assignments over the landlords' opposition.

The ONSC ultimately refused to authorize the assignment of leases, setting out fourteen factors to guide courts in assessing requests for assignment orders, including the following:

• While not determinative, the monitor’s support (or lack of support) for a transaction should be given significant weight by the court; as the “eyes and ears of the court” in insolvency proceedings, the monitor’s judgment is entitled to deference
• Whether the proposed assignment is in furtherance of a going-concern outcome with the attendant preservation of a business enterprise, customer and supplier relationships and jobs for employees, or an asset sale in a liquidating proceeding
• The remaining term of a contract is a relevant factor — greater emphasis will be placed on a counterparty’s ability to perform a lease with a 50-year term than a lease for one or two years
• Whether a proposed assignee can perform the obligations of the debtor requires a consideration of both monetary and non-monetary obligations and must be substantiated by evidence
• Section 11.3 provides extraordinary relief — forcing a contractual counterparty into a relationship with a third party that it never agreed to bargain with — and the court’s discretion in this regard, must be exercised carefully

2. Reverse Vesting Orders

The momentum surrounding use of Reverse Vesting Orders (RVOs) continued in 2025, with several RVOs issued notwithstanding stakeholder objections. An RVO transaction provides for the acquisition of shares of the debtor company, following the assignment of unwanted liabilities and assets to a “ResidualCo,” usually a special-purpose vehicle incorporated solely for this purpose. When certain criteria are met, courts have recognized that an RVO can be granted, particularly where valuable attributes such as government permits and licences or tax losses cannot be transferred via an asset sale.

In Henenghaixin Corp v. Long Run Exploration Ltd, the Court of Appeal of Alberta (ABCA) dismissed an application for leave to appeal the lower court's decision to grant an RVO over the opposition of a contingent creditor. The creditor asserted a proprietary constructive trust claim over the debtor’s assets and sought to have its claim treated as a retained liability rather than a transferred liability under the RVO.

The Court of King’s Bench of Alberta (ABKB) considered the merits of the creditor’s claim and found that a constructive trust had not been established on the evidence. Accordingly, the ABKB concluded that the creditor was left with an unsecured claim, rather than the priority proprietary interest it would have obtained over the secured creditor had a constructive trust been established. On that basis, the ABKB found that any lack of recovery on that claim was a function of the debtor’s insolvency, not the RVO itself. Applying the framework articulated in Harte Gold Corp. (Re) for determining when RVOs are appropriate, the ABKB concluded that, because the creditor was no worse off than under any viable alternative, the claim was properly treated as a transferred liability under the RVO.

The ABCA denied leave to appeal, finding no error in the lower court’s application of the governing legal principles and no issue of sufficient importance to the practice to warrant appellate intervention.

Another contested RVO was granted by the Quebec Superior Court (QCSC) in the CCAA proceedings of Varennes Cellulosic Ethanol LP to allow the proposed purchaser to acquire the debtor’s clean fuel project and maintain necessary regulatory approvals, tax credits and contractual relationships while vesting out unwanted liabilities, including obligations to a licensor of intellectual property (IP). The licensor argued that the RVO could cause potential prejudice on the basis that the IP agreements were being vested out as part of the transactions, but certain assets being transferred had the licensed IP imbedded in them. As the purchaser would not be assuming the debtor’s obligations under the IP agreements, there was no guarantee that the licensed IP and its associated confidentiality would be properly preserved by the proposed purchaser. The QCSC directed the parties to agree on an undertaking to protect the rights of the licensor and granted the RVO over the licensor’s objection.

Despite the increased frequency of RVOs, a decision of the ABKB in Cleo Energy Corp (Re) serves as a reminder that requests for RVOs must be supported by evidence of their necessity. Although there were no objections to the requested RVO in this case, the ABKB refused to approve the RVO in the absence of evidence to support assertions that it was necessary. The receiver claimed that the RVO was necessary to avoid the delay, cost and risk associated with transferring oil and gas licences through a traditional asset sale and noted that the proposed purchaser indicated it would not proceed with the transaction in the absence of the RVO. The ABKB found that these assertions were not supported by evidence.

The ABKB emphasized that the receiver’s report should show the work done to determine what the delays, risks and costs are likely to be and why they are material and genuine concerns. The ABKB also noted that a purchaser’s demand for the RVO is not determinative, as courts must assume that a purchaser will behave rationally and would negotiate a reduction in purchase price rather than walk away from the transaction. The ABKB also noted that the debtor provided no reasons why it would not be feasible to instead complete the proposed transaction by way of a CCAA plan, thereby avoiding the licence transfer problem without the use of an RVO. The ABKB denied the RVO without prejudice, ultimately allowing the receiver to return and request the RVO again, supported by more evidence of necessity. The receiver subsequently brought a motion and the RVO was granted on November 14, 2025.

3. Sales Process

In Cameron Stephens Mortgage Capital Ltd. v. Conacher Kingston Holdings Inc., the Ontario Court of Appeal (ONCA) upheld a lower court decision to reopen a court-approved sale process in a receivership proceeding where there was a “substantially higher” late bid.

At the conclusion of the original court-approved sale process, the receiver sought approval of a sale transaction with the successful bidder. The day before the hearing for approval of the original successful bid, the receiver received two late offers for the subject property from a related party (Late Bidder) that were 6.7% and 14.2% higher than the original successful bid.

The sale approval hearing was then adjourned by the lower court for a short period of time to give parties more time to file additional materials in response to the late bids and permitted parties to file additional offers by the day before the new hearing date. During that period, a further offer was received from the Late Bidder that was 37% higher than the original successful bid, leading the receiver to suggest that, as an alternative to approval of the original successful bid, it was open to the court to reopen the sale process to ensure that the value of the new offer was captured and maximized.

In reaching its decision, the lower court recognized that there were no flaws in the sale process and that the conduct of the receiver and others involved was “unassailable.” The lower court also emphasized the importance of preserving the integrity and predictability of court-approved sale processes, noting that in the vast majority of cases such processes will yield a value-maximizing result that should not be subverted by late-breaking offers. However, given the magnitude of the price differential between the original successful bid and the “substantially higher” new offer, the lower court concluded that approving the original successful bid would risk an improvident result, as it would leave significant value “on the table” for stakeholders. Citing the “unique circumstances” of this case, the lower court concluded that the receiver's alternative recommendation was the preferred approach, ordering a short extension of the sale process that permitted parties to submit additional bids. The original successful bidder appealed this decision.

The ONCA upheld the lower court’s decision “to ensure that the creditors received the highest value for the property.” Although the original successful bid was ultimately approved by the court following the collapse of the Late Bidder's bid and another competing offer, the decision confirms that even a properly conducted sale process may be revisited where a “substantially higher” late bid emerges.

4. Wage Earner Protection Program Act

Canadian courts have addressed interesting questions around the intersection between the Wage Earner Protection Program Act (WEPPA) and RVOs. WEPPA establishes the Wage Earner Protection Program (WEPP), a federal government program which directly compensates employees who are owed wages, severance and/or termination pay by a “former employer” that is subject to a bankruptcy, receivership or qualifying liquidating CCAA proceeding. As RVOs typically vest liabilities related to terminated employees out of the debtor and into a newly formed ResidualCo, courts have been asked to determine who the “former employer” is in an RVO transaction — the debtor company or ResidualCo — for the purpose of assessing WEPP eligibility.

In the CCAA proceedings of Arrangement relatif à Valeo Pharma inc. (Valeo), the QCSC granted an RVO that stipulated that any unretained employee of Valeo would be deemed transferred to ResidualCo, following which ResidualCo would terminate the employee’s contract and assume all related liabilities. The QCSC found that because ResidualCo terminated the employees and ResidualCo remained subject to the CCAA proceedings the employees were eligible for WEPP, notwithstanding the fact that the debtor, Valeo, would emerge from the proceedings no longer insolvent and continuing its business. Specifically, the QCSC found that ResidualCo met the definition of “former employer” in the WEPPA’s eligibility requirements. Leave to appeal was sought by the Attorney General of Canada and the Quebec Court of Appeal (QCCA) granted leave to appeal on whether the QCSC incorrectly interpreted the term “former employer” in WEPPA’s eligibility requirements. The appeal was heard on September 30, 2025. The decision is under reserve.

In Cleo Energy Corp (Re), the Attorney General of Canada advised the ABKB at the motion by Cleo’s receiver seeking the issuance of the RVO that former employees of Cleo who had already received payments pursuant to WEPP could have their payments clawed back if the RVO was granted. Unlike in Valeo, the employees were not terminated by the ResidualCo. The Attorney General of Canada argued, among other things, that because Cleo was emerging from receivership a solvent entity, Cleo was not a “former employer” because it could not meet the eligibility requirements of being subject to a receivership proceeding. The ABKB rejected this argument, holding that WEPPA eligibility is determined at the moment an insolvent entity’s employees are terminated and is not impacted by subsequent events such as the former employer’s emergence from receivership. The ABKB highlighted that WEPPA exists to protect employees from adverse consequences of the insolvency of their employer and recognized that terminated employees should not be prejudiced by how restructuring transactions are structured.

The Attorney General of Canada took the same position in the CCAA proceedings of Synaptive Medical Inc. before the ONSC. Similar to the situation in Cleo, the employees were terminated by the debtor company prior to the granting of an RVO and employee claims were transferred out of the debtor and into the ResidualCo. The decision of the ONSC has not yet been released.

5. Third Party-Driven CCAAs 

In recent years, secured lenders have increasingly used creditor-driven CCAA proceedings as an alternative to receivership proceedings. Creditor-driven proceedings are initiated by the secured lender (rather than the debtor) and are typically accompanied by enhanced powers granted to the court-appointed monitor, resulting in the monitor assuming some or all of the powers of the debtor’s board. This allows secured lenders to preserve the benefits of a CCAA process while limiting or displacing the debtor’s control. More recently, parties other than secured creditors have also begun initiating CCAA proceedings.

In Angus A2A GP Inc., for the first time, CCAA proceedings were initiated by equity investors as a tool to delay a contemplated sale of a company’s property which they did not support and in respect of which they had not received adequate notice. In November 2024, on application by certain equity investors, the ABKB issued an initial order under the CCAA. The initial order granted Angus A2A GP Inc. and certain of its affiliates (Angus) protection under the CCAA and provided for expanded powers allowing the monitor to operate the day-to-day business of Angus.

The ABKB found that Angus was insolvent and the investors had standing to commence CCAA proceedings as interested persons under the CCAA. The ABKB acknowledged that the proceeding was unusual, as the stay was not sought for the purpose of protecting a debtor company from creditors, nor was the proceeding commenced by creditors. Instead, the CCAA proceedings were commenced by the investors to preserve assets, unseat management, conduct an investigation and facilitate and maximize recovery for stakeholders.

Angus sought to appeal a number of decisions within the CCAA proceedings, including the initial order, the decision dismissing the application brought by Angus to extend the time for leave to appeal the initial order, the ARIO and the comeback decision. On application by Angus, the ABCA granted leave to appeal the question of whether the investors properly had standing to commence the CCAA proceedings and, if so, whether the investors used the CCAA for an improper purpose. The appeal was heard by the ABCA on September 8, 2025, and the decision has not yet been released.

In Minglian Holdings, the CCAA was recently used by a creditor seeking urgent court supervision of the debtor due to alleged impropriety and loss of faith in management. On application by a secured lender, the Supreme Court of British Columbia (BCSC) issued an initial order granting CCAA protection to Minglian Holdings Ltd. and its affiliate (Minglian). The bank cited alleged improper fund transfers, development project delays and imminent risk of weather-related damage in connection with an unfinished development project. The initial order provided the monitor with enhanced powers to control the expenditure of funds, construction and completion of sales relating to the project.

In Asbestos Corporation Limited (ACL), CCAA proceedings were commenced in Quebec on the joint application of the debtor and, for the first time, several of its insurers. The debtor’s business historically involved asbestos mining operations in Quebec, which ceased in 1986. ACL’s remaining activities at the commencement of the CCAA proceedings involved dealing with asbestos-related litigation claims in the United States. ACL’s insurers were required to reimburse ACL for asbestos-related claims, including defence costs and settlement agreements. The insurer co-applicants, being the party with the primary economic interest in the resolution of these asbestos-related claims, filed a CCAA application (jointly with the debtor) to obtain a stay of proceedings and provide a platform to implement a fair, orderly and efficient claims process in a single jurisdiction under the supervision of the QCSC.

6. Creditor Voting Rights

Orders authorizing the filing of a CCAA plan and directing the conduct of creditor meetings to consider and vote on a resolution approving the plan are typically viewed as a largely procedural step in the CCAA process. The threshold for granting a meeting order is usually met unless the plan is “doomed to fail” at either the creditor or court approval stage.

In 420 Investments Ltd, the ABKB granted a meeting order notwithstanding objections from a contingent creditor who was not permitted to vote on the plan. The contingent creditor’s claim was the subject of litigation which the ABKB determined could not be resolved in a summary fashion but rather in a trial several years away. If the contingent creditor were permitted to vote on the plan, the quantum of its asserted claim meant that the outcome of the vote would be a “foregone conclusion” because if their full claim was accepted, it would hold a veto. The ABKB found that allowing the contingent creditor to vote on the plan would unduly prejudice other creditors who were owed money at the time of the meeting and who have interests in certainty, finality and a speedy process.

7. Reviewable Transactions

In My Mortgage Auction Corp, the BCSC affirmed a trustee’s streamlined approach to prosecuting “claw back” proceedings with respect to amounts paid to more than 500 investors in a multi-million dollar Ponzi scheme. The judgment granted upon the trustee’s application represented a first-of-its-kind decision affirming that ill-gotten profits received from a Ponzi scheme can be recovered from multiple investors by way of a single, consolidated application capable of establishing both liability and quantum of funds subject to recovery. This decision also addresses important principles regarding the nature of Ponzi schemes and the causes of action available in the wake of their collapse. It is likely to be of significant assistance to court officers seeking to effectively and efficiently manage the difficulties that arise when insolvent persons have engaged in fraudulent activity.

8. Overriding Arbitration and Other Contractual Clauses in Insolvency

The effect of the Supreme Court of Canada’s (SCC) 2022 decision in Peace River Hydro Partners v. Petrowest Corp. (Petrowest) continued to be felt in 2025, with several courts applying Petrowest in unique circumstances. In Petrowest, the SCC clarified the circumstances in which otherwise valid arbitration agreements may be held to be inoperative in the context of a Bankruptcy and Insolvency Act receivership, including where a centralized judicial process is necessary and the party seeking to avoid the arbitration can establish that submitting the dispute to arbitration would compromise the orderly and efficient conduct of a court-ordered receivership.

In Mayfield Investments Ltd (Re), the ABKB applied Petrowest to stay a proposed arbitration in favour of an ongoing receivership proceeding. The ABKB found that the party to the arbitration agreement had lost its right to arbitrate because it participated in the receivership proceeding a number of months before delivering its Notice to Arbitrate. The ABKB held it would be “extremely problematic” to allow parties who participate in court proceedings (including a court proceeding involving the counterparty to the arbitration agreement) to later pursue arbitration. The ABKB found it had statutory jurisdiction to determine which of the two overlapping proceedings had primacy and that practicality demanded the dispute be determined within the receivership proceedings.

In Mercy Falls BC Inc. (Re), the BCSC applied Petrowest in the CCAA context, finding that a contractual claim subject to an arbitration clause should be heard within the ongoing CCAA proceedings instead of arbitration. The BCSC used its broad discretionary power and jurisdiction under section 11 of the CCAA to order that the matter proceed by way of litigation in the CCAA proceedings in order to serve the remedial objectives of the CCAA. The BCSC relied on Petrowest for the proposition that a court may find an arbitration agreement inoperative in the insolvency context. The BCSC applied Petrowest and ordered that expedited litigation within the insolvency proceedings would better serve the objectives of the CCAA, avoiding delay and potential prejudice to creditors while ensuring the matter remained under judicial oversight.

9. Increased Scrutiny of Director and Officer Releases

Releases for directors and officers (D&Os) on the implementation of a CCAA plan are common. This is a recognition that many successful restructurings require significant involvement and cooperation from D&Os of the debtor. In exchange for such involvement and support, courts often grant releases shielding D&Os from potential liability related to their efforts. In recent years, releases of D&Os on the completion of a sale transaction are being increasingly requested, particularly in the context of RVOs.

In two decisions last year, courts closely scrutinized broad requests for D&O releases in the context of RVOs, ultimately refusing to grant them.

In the CCAA proceedings of Lion Electric Company, the debtor sought to include a broad D&O release in its RVO in favour of all present and former D&Os. Certain pre-filing litigation claims were stayed by the CCAA order, including claims against a number of the debtor’s D&Os for misconduct, and the claimants opposed the proposed releases. In refusing to grant the releases, the QCSC stated, among other things, that third-party releases in CCAA sale transactions are not and should not be granted as of right. The QCSC held that compelling evidence must be provided to support that the releases are, among other things, necessary and rationally connected to the restructuring, essential for the success of the restructuring and supported by the meaningful contributions of the D&Os to the restructuring. The QCSC found that evidence was not present in this case and rejected the request for the broad release, instead approving a narrower release containing a carve-out for certain pre-filing litigation claims.

Similarly, in the receivership proceedings of Flow Beverage Corp, the ONSC refused to grant the requested third-party releases to directors of the debtor as part of an RVO transaction. The proposed releases would release all claims in respect of all matters both before and after the filing date. The ONSC declined to grant the releases in the circumstances, noting that the directors resigned at or before the receivership filing (making their contribution to the proceeding unclear) and there was no evidence before the court to determine whether the releases were appropriate. The ONSC’s decision reiterates the importance of providing clear evidence in support of the releases sought.

For more information, please contact the authors or any member of our Restructuring & Insolvency group.