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Key Developments In Canadian Insolvency Case Law In 2020

February 17, 2021

In 2020, several significant judicial decisions were rendered across Canada relevant to commercial lenders, businesses and restructuring professionals. This bulletin summarizes the core issues of importance in each case and provides status updates on the cases reported on in our January 2020 bulletin, Key Developments in Canadian Insolvency Case Law in 2019.


Bellatrix Exploration Ltd. (Action No. 1901-13767)
Date of Decision: February 4, 2020

Bellatrix Exploration Ltd. (Bellatrix) obtained protection under the Companies Creditors Arrangement Act (Canada) (CCAA). At the time of the CCAA filing, Bellatrix was party to certain contracts with an energy producer (EP) for the purchase and sale of natural gas (Contract). Bellatrix sought to disclaim the Contract and cease delivery of natural gas to the EP.
The EP argued that the disclaimer notice provided by Bellatrix was invalid because the Contract constituted an eligible financial contract (EFC) for the purposes of the CCAA. Under section 32(9) of the CCAA, a debtor company is not permitted to disclaim contracts that are EFCs. Pursuant to the express terms of the Contract, the parties acknowledged that the Contract was an EFC.

Pursuant to regulations promulgated under the CCAA, a contract will be considered an EFC if it is:

  1. a financial agreement;

  2. a financial agreement which is a derivatives agreement; or

  3. a derivatives agreement settled either by payment or delivery which derivatives agreement either:

    1. trades on a futures, options exchange, board or other regulated market, or

    2. is the subject of recurrent dealings in the derivatives markets or in the over-counter securities or commodities markets.   

In addition to arguing that the Contract was not properly characterized as an EFC, Bellatrix argued that the court should apply a “fair results” test under which it may determine that, even if the form of contract constitutes an EFC, the court may decline to characterize the contract as an EFC if it would be unfair to do so.

The court found that fairness may enter the analysis when deciding the threshold question as to whether an agreement meets the definition of an EFC. Accordingly, the court concluded that it has some latitude where the true characterization is at issue, and such characterization has implications for the court’s ability to fulfil the objectives and purposes of the CCAA. The court, however, drew a distinction between this approach and the proposition advanced by Bellatrix that an agreement which clearly meets the definition of an EFC may nevertheless be declared by the court not to be one, on the basis of fairness. The court also noted that it is problematic to suggest it should be permitted to substitute its view of fairness for that reflected in Parliament’s decision to provide an exception to disclaimer for EFCs in section 32(9) of the CCAA. The court rejected Bellatrix’s argument, holding that to disallow an agreement that meets the criteria of an EFC, to be called an EFC, would be to allow the court to effectively rewrite such agreement.

The court found that the Contract was both a financial agreement and a derivatives agreement which should enjoy EFC status and was therefore exempt from disclaimer.


Leave to appeal this decision of the Court of Queen’s Bench of Alberta was allowed on May 1, 2020. The appeal was heard by the Alberta Court of Appeal (ABCA) on October 22, 2020. At this time, no decision has been rendered.


Subject to appellate review, where a contract clearly meets the definition of an EFC, a court does not have the discretion to recharacterize the agreement to permit a disclaimer on the basis of fairness.


Forjay Management Ltd. v 625536 BC Ltd., 2020 BCCA 70
Date of Decision: February 27, 2020

In the context of a receivership proceeding commenced in respect of a failed residential real estate development, a dispute arose between multiple mortgagees in respect of the proceeds of realization. The first and second mortgagees claimed that all funds advanced by them to the borrower were secured by their mortgages in priority to amounts advanced by a third mortgagee. The third mortgagee submitted that amounts advanced by the prior registered mortgagees in excess of the face amount of their respective mortgages were not secured by the first and second mortgages and, as a result, the third mortgagee had claims to the proceeds of realization. The face amount of a mortgage is the principal amount of the mortgage stated on the registered mortgage form.  

The British Columbia Court of Appeal (BCA) affirmed the decision of the Superior Court of British Columbia, finding that advances made by first and second mortgagees in excess of the face amount of a registered mortgage were secured and ranked in priority to a third mortgage.

In doing so, the BCA considered the common law principle of “tacking”, and whether or not the obligation of a borrower to repay money advanced under a first-in-time mortgage, after a subsequent mortgage has been registered, takes priority over such subsequent mortgage. The BCA found that where a priority agreement exists among mortgagees, as was the case between the second mortgagee and third mortgagee, it will govern the priority of advances. It was a term of the second mortgage that the third mortgagee would subordinate its loan to advances under the second mortgage, and a priority agreement to that effect was registered on the same day the second mortgage was entered into.

No such priority agreement existed between the first mortgagee and third mortgagee. The BCA, however, held that even where such priority agreement does not exist, a first mortgagee is able to tack when it has no notice in the prescribed form of the existence of a subsequent mortgage. In such circumstances, amounts advanced in excess of the face amount of the mortgage will continue to be secured. The form of notice required is governed by section 28(2) of the Property Law Act (British Columbia) which requires the subsequent mortgagee to provide formal written notice. Actual notice will not suffice.

The first mortgagee had actual notice of the existence of the third mortgage and was aware that the third mortgage was registered on title. Actual notice was provided in the form of a passing reference to the third mortgage in an email to the first mortgagee’s counsel. The BCA found that this notice was not sufficient to constitute notice in compliance with the Property Law Act (British Columbia).

Accordingly, the first mortgagee was found not to have had notice for the purposes of tacking and the full amount of the first mortgage, including the advances in excess of the registered face amount, were valid and the obligation of the borrower to repay such amounts ranked in priority to the obligations secured by the third mortgage.


Leave to appeal this decision to the Supreme Court of Canada (SCC) was denied on October 1, 2020. This decision is now final.


In British Columbia, where a subsequent mortgagee wishes to limit the amount of debt that ranks in priority to it, the subsequent mortgagee must provide formal written notice of the existence of its mortgage to prior mortgagees in accordance with the requirements of the Property Law Act (British Columbia).  


Urbancorp Cumberland 2 GP Inc. (Re) (2020), 2020 ONCA 197
Date of Decision: March 11, 2020

The Ontario Court of Appeal (OCA) considered the scope and effectiveness of section 9(1) of the Construction Lien Act (Ontario) (CLA) which creates a trust over sale proceeds of real property in favour of unpaid contractors in the construction industry that add value to such real estate by their provision of work and materials. The CLA has now been superseded by the Construction Act (Ontario); however, the CLA was the relevant statute at the time.

In this case, a residential condominium developer filed a Notice of Intention to file a proposal under the Bankruptcy and Insolvency Act (Canada) (BIA) and subsequently continued its proposal proceedings under the CCAA. Unsold units in a condominium project the developer constructed were among its assets and were ultimately sold during the CCAA proceeding. Pursuant to an order of the OCA expanding its statutory powers, the sales agreements were entered into by the court-appointed monitor and the proceeds of sale were received directly by the monitor. The appellant unpaid contractors supplied work and materials in respect of the sold units and were owed significant sums. The appellants claimed that, pursuant to the CLA, a trust arose over the proceeds of sale to the extent of the amounts owing to them, giving them priority over these amounts ahead of secured creditors.

The motion judge rejected the trust claim because the sale proceeds were not received by the owners of the sold units directly and were instead received by the monitor. The germane provision, section 9(1) of the CLA, contemplates a sale of property by an owner, and not by a representative of the owner. 

The OCA reversed the decision of the motion judge and confirmed the effectiveness of section 9(1) of the CLA in insolvency proceedings. In doing so, the OCA held that the fact that the agreements of purchase and sale were entered into by the monitor and not by the owner itself did not detract from the fact that the owners were ultimately the vendors of the units.

The OCA also addressed the interaction of the provincial CLA with the federal CCAA from the perspective of the doctrine of federal paramountcy, which provides that where validly enacted provincial legislation conflicts with validly enacted federal legislation, the federal legislation governs, and the provincial legislation is inoperative to the extent of the conflict. Based on federal paramountcy, case law under the BIA holds that provincial statutory deemed trusts are inoperative in a bankruptcy under the BIA. However, to the extent the relevant provincial legislation creates a true trust – as opposed to deeming that a trust exists – that true trust survives bankruptcy, and funds impressed with that true trust are available to beneficiaries of the trust and not the general body of creditors. A true trust must satisfy the three certainties: certainty of intention, certainty of subject matter and certainty of object.

Citing prior SCC case law, the OCA concluded that section 9(1) creates a trust that satisfies the three certainties and, accordingly, a true trust which survives bankruptcy. Section 9(1) identifies the subject matter of the trust as the value of the consideration on a specific sale by the owner of its interest and identifies the object of the trust as the unpaid contractors who supplied work and material to the improvement which was sold. Finally, section 9(1) creates the requisite certainty of intention by deeming the creation of a trust and requiring that the trust funds not be appropriated for any purpose inconsistent with the trust. As the CCAA (unlike the BIA) does not generally render statutory provincial deemed trusts invalid, to the extent the trust would survive in a bankruptcy, the OCA held that it must also continue to be effective in a CCAA case.

The OCA concluded that the trust created by section 9(1) is only displaced by the doctrine of paramountcy if it conflicts with a specific priority created under the CCAA, or an order giving effect to that priority, such that paramountcy would require the trust to be considered inoperative in whole or in part. As a matter of paramountcy, super-priority charges, such as the charge granted for debtor-in possession (DIP) financing in this case, take priority over a provincial statutory trust. The section 9(1) trust therefore yielded in priority to the DIP financing charge but was otherwise operative as against the objecting secured creditors.


The time to seek leave to appeal this decision to the SCC has expired and this decision is now final.  


The trust created by section 9(1) of the CLA meets the requirements of a true trust under the general principles of trust law and will only be displaced by the doctrine of paramountcy if it conflicts with a specific priority created under the CCAA. The trust claim yielded in priority to the DIP financing charge. Where there is no conflicting priority, the trust will impress upon the sale proceeds from property to which an unpaid contractor has made contributions.


Curriculum Services Canada/Services Des Programmes D'Études Canada (Re), 2020 ONCA 267
Date of Decision: April 27, 2020

Pursuant to subsection 136(1)(f) of the BIA, a landlord is entitled to a preferred claim (ranking junior to secured creditors but in priority to the general body of unsecured creditors) for (i) arrears of rent for a period of three months immediately preceding the bankruptcy, and (ii) accelerated rent for a period not exceeding three months following the bankruptcy, if entitled to accelerated rent under the lease, to the extent of the realizable value of assets on the premises under the lease.

In this case, following disclaimer of its lease, in addition to its preferred claim, the landlord claimed repayment of certain tenant inducements and the balance of its preferred claim for accelerated rent, in excess of the realizable value of the assets on the premises as a regular unsecured creditor.

The OCA confirmed that, in Ontario, the disclaimer of a lease by a bankruptcy trustee brings the bankrupt’s obligations under the lease to an end. The landlord is limited to its preferred claim for up to three months’ accelerated rent in respect of the unexpired term of the lease, to the extent of value of the assets on the premises. To the extent such value is not sufficient, the landlord is entitled to recover any unpaid balance of its preferred claim as a regular unsecured creditor.


The time to seek leave to appeal this decision to the SCC has expired and this decision is now final.  


In Ontario, where a lease is disclaimed by a bankruptcy trustee, a commercial landlord has no claim for the unexpired term of its lease beyond its preferred claim for three months’ accelerated rent, limited to the value of the assets on the premises, and an unsecured claim for any unpaid balance of its preferred claim beyond the value of the assets on the premises.


Arrangement relatif à 9323-7055 Québec inc. (Aquadis International Inc.) 2020 QCCA 659 
Date of Decision: May 21, 2020

Aquadis International Inc. (Aquadis) imported and distributed bathroom products, including faucets, to various retailers of the ultimate customers in Quebec. Certain of the faucets distributed by Aquadis were faulty and in 2015, Aquadis commenced proposal proceedings under the BIA, which were continued under the CCAA, as a result of subrogated claims against it by insurers. Shortly after commencing insolvency proceedings, Aquadis began negotiating with its retailers to arrive at a global settlement pursuant to which the retailers would contribute to a litigation pool in exchange for full releases from any liability arising as a result of the sale of defective faucets.

A global settlement was not reached and in 2019, pursuant to its expanded authority by court order, the monitor of Aquadis filed a plan of compromise and arrangement. The plan provided for the establishment of a litigation pool made up of all sums of money collected by the monitor from third parties, including from certain settling retailers, in exchange for full releases. The plan included the power of the monitor to sue the non-settling retailers on behalf of creditors for contribution to the litigation pool.

The plan was unanimously approved by the creditors. The non-settling retailers, however, opposed the plan. Nevertheless, the Superior Court of Quebec approved the plan, emphasizing, among other things, the fact that proceedings against the non-settling retailers were aimed at maximizing Aquadis’ assets, a proper purpose recognized in case law. The court also emphasized that recourse against the non-settling retailers was the only possible avenue leading to a global resolution of Aquadis’ liabilities. As such, according to the court, the powers requested by the monitor to sue the non-settling retailers were necessary to advance the restructuring process and the only practical solution in the circumstances.  

The non-settling retailers appealed this decision, arguing that the powers granted to the monitor under the plan were contrary to section 23 of the CCAA, which sets out the powers and duties of monitors and the principle of neutrality of the monitor.

The Quebec Court of Appeal (QCA) dismissed the appellants’ argument. Under section 23, the powers and duties of a monitor can be expanded at the discretion of the court. Expansion of the monitor’s powers in this case was warranted as it was for the purpose of maximizing creditor recovery, an objective squarely within the spirit of the CCAA. The QCA also noted that statutory remedies and powers available to bankruptcy trustees pursuant to the BIA are also available to CCAA monitors, and that under the BIA, a trustee can exercise rights not only for the benefit of the debtor, but also for the benefit of creditors. Further, the appellants were not creditors but third parties to whom the monitor owed no duty. Finally, the creditors voted unanimously for the monitor to exercise their rights against the appellants in the context of the CCAA proceedings and, accordingly, the monitor was acting in conformity with the collective will of the creditors.

The QCA also noted that a monitor’s requirement of neutrality is not absolute, provided that the monitor is objective, unbiased and pursuing legitimate CCAA objectives.


The time to seek leave to appeal this decision to the SCC has expired and this decision is now final.  


In appropriate circumstances, a monitor may be permitted to commence litigation for and on behalf of creditors to maximize the CCAA estate.


Yukon (Government of) v Yukon Zinc Corporation, 2020 YKSC 16
Date of Decision: May 26, 2020

Yukon Zinc, a mining corporation, was party to a master lease that applied to approximately 570 items, including equipment, vehicles and tools related to its mining operations. The receiver of Yukon Zinc found that only 79 of the items subject to the master lease were required for continuing the necessary care and maintenance and environmental remediation of the mine. Thus, the receiver sought to disclaim the portions of the master lease pertaining to the unnecessary items. The counterparty to the master lease objected to the partial disclaimer and asserted that partial disclaimer was not permitted by law. The counterparty argued that the receiver had a binary choice to either reject or maintain the contract as a whole.  

The Yukon Territory Supreme Court found that, while uncommon, it has the authority to authorize partial disclaimer of a contract pursuant to the discretionary authority granted to it in the BIA and the Judicature Act (Yukon) in the appropriate circumstances. The court emphasized that, in the circumstances, the receiver was acting in good faith and considered the interests of all stakeholders. The court also considered it significant that the receiver was not operating the mine, and urgently required the specifically identified items for the care and maintenance and environmental remediation of the mine. The cost and time to replace these essential items was unreasonable given the remote location of the mine. The need to continue the care and maintenance and remediation activities was immediate. The terms of the master lease were onerous and not commercially reasonable in the circumstances. Accordingly, the court permitted the partial disclaimer of the master lease.  


An appeal of this decision was heard in mid-November 2020. At this time, no decision has been rendered.   


This case involved a unique set of facts involving health, safety and environmental concerns. The receiver was able to identify a subset of required leased equipment from an itemized list in a master lease for use and ascribe a value for the use of such essential items. Caution is warranted before purporting to apply this precedent to a different fact scenario.


Séquestre de Media5 Corporation, 2020 QCCA 943
Date of Decision: July 20, 2020

Section 243(1) of the BIA authorizes a court to appoint a receiver with respect to an insolvent person on application of a secured creditor. Unlike the rules of court and other statutes of its common law counterparts, the Civil Code of Quebec (CCQ) does not provide for the appointment of a receiver. The only way to appoint a receiver in Quebec is by application under the federal BIA.

The secured creditor of Media5 Corporation brought such an application before the Quebec Superior Court. At a contested hearing, the court found that it was not possible to appoint a receiver in Quebec, at the request of a secured creditor in order to sell the property of a business, when the property is located only in Quebec.

The secured creditor appealed the lower court decision.

The QCA considered the scope of section 243(1) of the BIA in conjunction with the requirements of the CCQ regarding the exercise of hypothecary rights and, in overturning the lower court decision, concluded that a receiver could be appointed in Quebec pursuant to section 243(1). The QCA noted, however, that the BIA provisions regarding the appointment of a receiver should coexist and be construed harmoniously with provincial property and civil rights laws, including the security and mortgage provisions of the CCQ. Accordingly, the appointment must comply not only with notice periods prescribed by the BIA, but also with the requirements of the CCQ regarding the exercise of a hypothecary right, namely, the issuance and expiry of a 20-day notice (over moveable, (i.e. personal), property) or 60-day notice (over immoveable, (i.e. real), property).


Media5 Corporation filed an application for leave to appeal this decision to the SCC on November 12, 2020 and a leave decision is pending.


The QCA affirmed that the remedy of a BIA receiver is available in respect of property located only in Quebec. However, a secured creditor must satisfy the notice requirements under both the BIA and the CCQ before seeking such appointment. This leads to inconsistent notice requirements for the application for the appointment of a BIA receiver between Quebec and the common law provinces.

For more information, please see our July 2020 Blakes Bulletin: Media5 Corporation: Quebec Court of Appeal Confirms Course of Action to Appoint a Receiver.


Re Sherritt International Corporation, 2020 ONSC 5822
Date of Decision: September 28, 2020

Sherritt International Corporation (Sherritt), a holding company of various subsidiaries, applied for final approval of a plan of arrangement under section 192 of the Canada Business Corporations Act (CBCA). CBCA plans have become an attractive, cost-effective alternative to a CCAA process for overleveraged companies seeking to complete a balance sheet restructuring, as opposed to a comprehensive operational restructuring, for which the CBCA is not suited.

Two creditors objected to plan approval. The objecting creditors provided a term loan to subsidiaries of Sherritt, which was then guaranteed by Sherritt. The guarantee was secured by a pledge of equity interests directly or indirectly owned by Sherritt in a foreign joint venture mining operation. The objecting creditors were placed in the same class for voting purposes as unsecured noteholders, although the plan provided for differential treatment between the two creditor groups. The plan provided, in pertinent part, that the objecting creditors would become the owners of the equity that had been pledged to them to secure the guarantee. The unsecured noteholders would have their claims subordinated and the face value of their claims reduced. Existing equity holders of Sherritt itself were to remain unimpaired.

The objecting creditors claimed that (i) a term loan is not capable of arrangement under the CBCA, and (ii) the plan was unfair because (a) the objecting creditors, which held security in an equity interest owned by Sherritt, were unfairly placed in the same voting category as unsecured noteholders, and (b) the plan was substantively unfair.

The court rejected the first ground of objection and found that term loans are capable of arrangement under section 192 of the CBCA. In rejecting this objection, the court emphasized the importance of interpreting the CBCA broadly and liberally in the context of a debt restructuring.

The court similarly disagreed that the plan was unfair. The court applied the principles outlined in Re Canadian Airlines Corp., with respect to classification of creditors under the CCAA, and found that the objecting creditors were appropriately placed in the same voting category as the unsecured noteholders of Sherritt. Although the objecting creditors held security against certain equity interests directly or indirectly owned by Sherritt, the court concluded that, like the unsecured noteholders, the objecting creditors had unsecured claims against Sherritt. The court also noted that fragmentation of the class would be contrary to the facilitative purpose of the arrangement provisions of the CBCA. The objecting creditors were unable to demonstrate that it was impossible to consult with the unsecured noteholders with a view to their common interest.

With respect to substantive fairness, the court was satisfied that the plan was both fair and reasonable to the objecting creditors. Under the terms of the plan, Sherritt’s guarantee would be extinguished and the objecting creditors would become the owners of the equity interest previously pledged to them. Sherritt took the position that the objecting creditors would be in the same position following plan implementation that they would have been in had they realized on their security in a liquidation. The objecting creditors, however, took issue with the fact that, in this case, the equity holders of Sherritt itself were not being diluted or otherwise impaired. The objecting creditors noted that in a liquidation, no value would be given to equity until the debt to the objecting creditors was paid as equity was behind them in the capital structure. The court held that this, in and of itself, did not result in unfairness, including because the unsecured noteholders that were having their debt subordinated and reduced under the plan voted in favour of the plan by an overwhelming majority.

Further, the court did not place significant value on the guarantee that was being extinguished. As a holding company, Sherritt’s only value was held in its various subsidiaries, located in a variety of different countries. Had the objecting creditors retained the guarantee and been required to commence a lawsuit to collect any outstanding deficiency, they would face a high degree of complexity in enforcing their interests and small chance of recovery. 

The court assessed the compromise being made by the objecting creditors against the necessity of the arrangement and found that there was no better option available to Sherritt and its stakeholders.

In considering the objections, the court also provided guidance on fairness opinions issued by a financial advisor or investment banker on the fairness of a proposed transaction. Such opinions are commonly provided to a court as evidence in support of a company’s request to have a court approve steps that a corporation proposes to take, including a plan of arrangement under the CBCA. The court noted that the mere presence of a fairness opinion is meaningless. Like any other evidence, its force lies in its content and substance which must be carefully reviewed.


This decision was not appealed and is final.


A term loan is a debt obligation capable of compromise under section 192 of the CBCA. The arrangement provisions of the CBCA, like the CCAA, should be broadly and liberally construed in the context of a debt restructuring. When considering fairness objections to the classification of creditors under the CBCA, the court will consider commonality of interest and the facilitative purpose of the arrangement provisions of the CBCA. When considering the substantive fairness of an arrangement, the court will consider the necessity of the arrangement against the compromise being made by creditors.


Re iAnthus Capital Holdings Inc., 2020 BCSC 1442
Date of Decision: September 28, 2020

The Supreme Court of British Columbia (BCSC) considered whether the plan of arrangement proposed by iAnthus Capital Holdings, Inc. (iAnthus) pursuant to the Business Corporations Act (British Columbia) (BCA) was fair and reasonable and should be approved. The plan of arrangement was the product of negotiations between iAnthus and its noteholders.

The plan of arrangement included a broadly drafted release that would have had the effect of immunizing iAnthus and persons presently or formerly associated with iAnthus from claims advanced in several actions, and a permanent injunction enjoining “all persons” from advancing any of the released claims. The application for approval of the plan was opposed by the plaintiffs in several of the pending actions, in part, on the basis that the release and injunction were overbroad.

Counsel for certain of iAnthus’ creditors submitted that a common practice has developed by which arrangements under corporate statutes are utilized to reorganize insolvent or nearly insolvent corporations, such as iAnthus, as an expedient and less expensive alternative to a CCAA proceeding. The CCAA, however, would not provide the same possibility of value for shareholders. The creditors’ counsel submitted that lenders giving up debt for equity, in circumstances where shareholders were obtaining value, would demand third party releases of the kind they have become accustomed to obtaining under the CCAA. Absent such releases, lenders would not continue to support arrangements under corporate statutes, depriving companies and shareholders of the advantages of this restructuring option.

The BCSC first considered whether the plan was fair and reasonable apart from the release and injunction. The BCSC concluded that it was the best possible arrangement for shareholders of iAnthus following a thorough and professional attempt to market itself and its assets. Nevertheless, the BCSC declined to approve the plan due to the inclusion of the release and injunction, finding that although the plan was the best arrangement for shareholders, it would result in unfairness to certain creditors. 

The BCSC found that arrangements under corporate statutes are distinct from those under the CCAA. Despite common terminology, the CCAA and corporate statues operate differently. While the CCAA expressly contemplates a comprehensive arrangement proposed with all creditors, or a class of creditors, in which all affected creditors have a say in whether it should be adopted, the BCA does not provide for a comprehensive compromise of debt and related voting rights.

The BCSC held that the BCA does not afford the BCSC the authority to limit the rights of third parties who receive nothing from the arrangement, and may be unaware of the arrangement, in order that the company may be substantively protected from claims in existence before the arrangement was proposed. In the BCSC’s view, an order limiting the rights of third parties to the arrangement could only be justified where it was truly necessary and where the substantive positions of third parties were protected. This bar was not satisfied in this case. Accordingly, the presence of the release, and associated injunction in the plan, rendered the arrangement unfair and unreasonable.

This decision contrasts with the 2018 decision of the Ontario Superior Court of Justice in Re Concordia International Corp. In that case, the court approved a CBCA plan of arrangement that included certain releases in favour of third parties on the basis that the criteria for approval of third-party releases under the CCAA were applicable and satisfied. The BCSC noted that even if it were mistaken and the court possessed the power to extinguish third party claims as part of a corporate arrangement, the release in this particular case was not a fair and reasonable balancing of interests.


The time to appeal this decision has expired and this decision is now final.  


The BCA does not provide the court with the authority to approve a plan of arrangement that limits the rights of third parties unless it is truly necessary to the arrangement and the substantive positions of the third parties are protected.


Re 7636156 Canada Inc, 2020 ONCA 681
Date of Decision: October 28, 2020

Following disclaimer of the lease by the bankruptcy trustee of 7636156 Canada Inc. (the Bankrupt), the bankruptcy trustee brought a motion for determination of the amount that the Bankrupt’s landlord was entitled to draw down on a letter of credit provided to the landlord as security for the Bankrupt’s obligations under the lease. The bankruptcy trustee argued that the landlord was only entitled to draw on the letter of credit for three months’ accelerated rent, in accordance with the landlord’s preferred claim under the BIA. 

The OCA confirmed that the obligations of an issuer to honour a draw on a letter of credit are independent, third party obligations which the issuing bank is obligated to honour when presented with documents that, on their face, conform with the terms and conditions of the letter of credit. Disclaimer of a lease only ends rights and remedies of a landlord as against a bankrupt tenant’s estate and does not end the rights and remedies of a landlord against third parties, including issuers of letters of credit. Accordingly, the landlord was entitled to draw on the letter of credit to the full extent of its damages for the unexpired term of the lease.


An application for leave to appeal this decision to the SCC was filed by the bankruptcy trustee on December 18, 2020 and the leave decision is pending. 


The obligations of an issuer to honour a draw on a letter of credit are independent, third party obligations, unaffected by disclaimer of a lease by a bankruptcy trustee. While the claim of a landlord in bankruptcy is limited, a landlord’s claim for damages for the unexpired term of its lease is not limited for the purposes of a letter of credit.

For more information, please see our November 2020 Blakes Bulletin: Court Confirms Autonomy of Letters of Credit, Rules Landlord May Draw for Full Claim Amount.


In 2020, reverse vesting orders (RVOs) were used with increased prevalence as a tool to facilitate restructurings. An RVO allows for the transfer of liabilities or unwanted assets out of the debtor company into a newly formed entity, or existing subsidiary, prior to transfer of the shares of the existing debtor company to a purchaser. The result is to remove anything a potential purchaser may not want from the acquired entity, all without a creditor vote.

It appears that an RVO was first used in the CCAA proceeding of T. Eaton Company Limited (Eatons) in 1999 to vest out certain liabilities of Eatons before the amalgamation of Eatons and Sears Canada Inc. (Sears). The RVO allowed Sears to retain the benefit of Eatons’ tax losses. Similarly, in 2015, an RVO was used in the CCAA proceeding of Plasco Energy Group Inc. (Plasco) to allow the secured creditors that entered into a transaction with Plasco to retain the benefit of its tax losses. Prior to October 2019, these appear to be the only instances where an RVO was used.

The 2020 decisions highlighted below underscore the growing popularity of RVOs.

Arrangement relatif à Nemaska Lithium inc., 2020 QCCA 1488
Date of Decision: November 11, 2020

The CCAA debtors were involved in the development of a lithium mining project in Quebec.
In January 2020, the CCAA court (the Quebec Superior Court) approved the sale or investment solicitation process (SISP) on an unopposed basis. The SISP resulted in the acceptance of an offer that was made subject to the condition that an RVO be issued providing for the acquisition of the shares of the debtor companies. The RVO would allow the prospective purchaser to continue to carry on the operations of the debtor companies in a highly regulated environment by maintaining their existing permits, licenses, authorizations, essential contracts and fiscal attributes. Liabilities not to be assumed by the purchaser were to be vested out of the acquired companies.

Two shareholders, one of whom was also a creditor, objected to the approval of the RVO on multiple grounds, including the court’s lack of authority to grant a vesting order for anything other than a sale or disposition of assets, and the impossibility under the CCAA for debtor companies to emerge from CCAA outside of a plan of compromise or arrangement, approved by creditors and the court.

The CCAA judge granted the RVO, noting the purpose and efficiency of the RVO in maintaining the going concern operations of the debtor companies, the remedial objective of Canadian insolvency laws, and the important role and wide discretion of the CCAA supervising judge. The CCAA judge also considered the criteria pursuant to section 36 of the CCAA as relevant to the granting of an RVO, which lists the factors a court should consider with respect to the disposition of assets and concluded that the criteria were met. The objecting parties sought leave to appeal.

The QCA dismissed the application for leave to appeal the CCAA judge’s decision. The QCA noted that even if the RVO transaction was put to a vote of creditors as a plan of compromise or arrangement, the objecting creditors would not be able to determine the vote as they did not have significant claims. One of the factors to consider in granting leave is the impact the appeal would have on the CCAA case. The QCA noted that an appeal would potentially hinder the progress of the CCAA proceedings and compromise closing of the transaction, which would seriously prejudice creditors.


An application for leave to appeal this decision to the SCC has been filed and a leave decision is pending.


The decision of the QCA recognizes RVOs as a tool for insolvency practitioners to affect the transfer of going concern operations in a distressed context in line with the remedial purposes of the CCAA.

Southern Star Developments Ltd. v Quest University Canada, 2020 BCCA 364
Date of Decision: December 17, 2020

In January 2020, Quest University Canada (Quest) commenced proceedings under the CCAA. Quest’s interests included a limited partnership agreement with Southern Star Developments Ltd. (Southern Star), the general partner and Southern Star Developments Limited Partnership (Southern Star LP). Southern Star LP constructed certain residences on land owned by Quest. Quest and Southern Star anticipated building a fifth residence on a vacant lot (Lot E) owned by Quest. In anticipation of the fifth residence, Quest and Southern Star entered into a ground lease by which Quest leased the vacant lot to Southern Star and a sublease by which Quest would lease the residence from Southern Star once built. The ground lease was incomplete in many respects and was not registered at the Land Title Office.

Since January 2020, Quest worked to identify prospective purchasers for its real property assets, including Lot E. Following a court supervised sale or investment solicitation process, Quest entered into a sale transaction with Primacorp Ventures Inc. (Primacorp). To facilitate the Primacorp transaction, Quest and Primacorp sought the issuance of an RVO vesting off Southern Star’s interest in Lot E by declaring that any claims arising from the incomplete ground lease shall not attach to Quest’s assets that were to be acquired by Primacorp in the share purchase, and enjoining Southern Star from registering the ground lease against title to Lot E.

Southern Star objected to the RVO for reasons that included that (a) the court has no jurisdiction to grant the RVO under the CCAA because the RVO was essentially a disguised disclaimer of a real property interest (section 32(9)(d)) of the CCAA prohibits disclaimer of leases of real property by a landlord), and (b) if such jurisdiction exists under the CCAA, the relief sought was not fair and equitable in the circumstances.

The supervising judge found that the court’s jurisdiction to grant a RVO lies in sections 11 and 36(6) of the CCAA, which allows the court to exercise its jurisdiction to authorize the disposition of assets free and clear of security, charges and “other restrictions”.

The supervising CCAA judge also found that the RVO was not prohibited by section 32(9)(d) of the CCAA as a disguised disclaimer of a real property interest. The parties did not intend for the ground lease to become effective until certain conditions were satisfied; namely that Southern Star would decide to build a residence on Lot E and arrange financing to construct the residence. The conditions were never satisfied and, accordingly, no valid and enforceable lease existed with respect to Lot E.

The RVO appeared to be granted, at least in part, because of and not in spite of, Southern Star’s objection. Southern Star’s claim relative to other creditors created the possibility that Southern Star could effectively veto a restructuring plan if one had been required. Thus, a plan was not a viable option. Additionally, a critical requirement of the Primacorp transaction was that Quest remain a viable entity with the ability to grant university degrees. Quest’s ability to confer degrees was not transferable. The RVO was the only transaction proposed that would resolve the financial affairs of the debtor and avoid liquidation or bankruptcy. In these circumstances, the court considered a RVO to be appropriate.

The British Columbia Court of Appeal (BCCA) denied Southern Star’s application for leave to appeal, finding the prospect that the BCCA would interfere with the supervising CCAA judge’s exercise of discretion was remote. As a general rule, decisions of a supervising judge in a restructuring with respect to matters of contractual interpretation are reviewed on a highly deferential standard. An appeal court must be persuaded that the supervising judge made palpable and overriding errors in their conclusion. The BCCA also noted the disastrous consequences granting leave to appeal would have on stakeholders affected by Quest’s financial circumstances as it was unlikely an appeal would be heard in the timeframe required to preserve the transaction. Granting leave would therefore frustrate the purposes of the CCAA.


This decision was not appealed and is final.


This decision reinforces that, while not yet the most typical solution in a CCAA proceeding, RVOs will be considered appropriate where an RVO is the only transaction available to resolve the financial affairs of a debtor company and facilitate the remedial objectives of the CCAA.

Bellatrix Exploration Ltd (Re), 2020 ABQB 809
Date of Decision: December 22, 2020

Following the decision of the Court of the Queen’s Bench of Alberta discussed above, in which the Contract between Bellatrix and the EP was found to be an EFC, Bellatrix ceased delivery of natural gas under the Contract, despite being prevented from disclaiming the Contract. The EP argued that this failure to perform the terms of the Contract constituted a post-filing breach by Bellatrix and that it was entitled to payment for its resulting damages in priority to Bellatrix’s secured creditor.

The EP submitted that if its claim was not found to be a priority claim, the practical effect of Bellatrix’s failure to perform its duties under the Contract would be to render the disclaimer rules of the CCAA meaningless. The EP contended that if CCAA debtors are allowed to breach EFCs at will, the result is identical to disclaimer: the solvent counterparty has a provable claim, unsecured unless otherwise provided under the contract. The EP submitted that if that were true, the prohibition on disclaimer of EFCs in the CCAA would be without a purpose as the solvent counterparty would not have performance of the contract and would be left with the same remedy as it would have if the EFC were disclaimed.

The court considered the protections offered to EFC counterparties under the CCAA and found that the CCAA does not compel a CCAA debtor to continue to perform an EFC that has not been terminated, nor does it provide the counterparty with any priority for its claim. The CCAA offers additional protection to solvent counterparties to an EFC in that such counterparty has the ability to terminate the EFC and crystallize the resulting loss, despite the stay provisions of the CCAA.

Therefore, unlike regular contractual counterparties, counterparties to EFCs can terminate the EFC if the insolvent party fails to perform its duties under the contract, an action which the EP chose not to take. The court declined to imply an obligation to perform an uneconomic contract that may affect the ability of the CCAA debtor to restructure, finding that if Parliament intended this, more direct statutory language would be required.


The EP has sought leave to appeal this decision to the Alberta Court of Appeal. The application for leave to appeal was heard on February 17, 2021, but a decision has not yet been rendered.


Subject to review by the ABCA, where an insolvent debtor is prevented from disclaiming an EFC but nonetheless ceases to perform its obligations under an EFC, the solvent counterparty cannot compel performance of the contract. It can terminate, crystallize its losses and claim as an unsecured creditor for its damages.



Canada v. Toronto-Dominion Bank, 2020 FCA 80
Date of Decision: April 29, 2020

The Federal Court of Appeal (FCA) upheld the decision of the Federal Court rendered on May 25, 2018.

Like the Federal Court, the FCA found that, absent a bankruptcy, the Excise Tax Act (Canada) (ETA) imposes an obligation on secured creditors to repay money received out of proceeds of sale, which, at the time the proceeds are received, are otherwise subject to a deemed trust for unremitted HST/GST (i.e. federal/provincial sales tax) under the ETA. This obligation is imposed by section 222 of the ETA which creates a deemed trust with respect to amounts that are collected as goods and services tax. Subsection 222(3) extends the trust to the property of the tax debtor and property of the tax debtor held by any secured creditor of the person that, but for a security interest, would be property of the debtor.

The FCA found that, when a bank lends money to a debtor with an existing HST/GST liability and takes its security interest, the debtor’s property, to the extent of the tax debt, is already deemed beneficially owned by the Crown. The FCA also found that such bank cannot raise the defence of a bona fide purchaser for value because, if such defence were available to a secured creditor, the deemed trust provisions of the ETA would be rendered meaningless. 

In its decision, the FCA confirmed that the obligation to repay money received from a debtor, which is otherwise subject to an existing deemed trust for unremitted HST/GST, does not extend to unsecured creditors who receive payments from a debtor in the ordinary course on the basis that Parliament made a considered policy choice to prioritize the protection of the Crown over the interests of secured creditors.   


An application for leave to appeal this decision to the SCC was filed on July 6, 2020 and a leave decision is pending.


Subject to review by the SCC, this decision holds that absent a bankruptcy, secured creditors will be forced to disgorge an equivalent sum of money to money received that was subject to a pre-existing HST/GST deemed trust, upon demand from the CRA.  


9354-9186 Québec Inc. v. Callidus Capital Corp, 2020 SCC 10
Date of Decision; May 8, 2020

The SCC reversed the decision of the QCA and reinstated the decision of the Quebec Superior Court (QSC).

In this case, a secured creditor of the debtor brought forward a CCAA plan and proposed to vote on the plan in the same class as the debtor’s unsecured creditors on the basis that its security was worthless. The proposed plan included a release of significant litigation claims against the secured creditor in exchange for the secured creditor funding a distribution to the debtor’s creditors.

The QSC found that in appropriate circumstances, it is possible for a creditor to bring forward a CCAA plan and vote on it, but that in this particular case, the creditor was using the CCAA plan for improper purposes to secure the release of litigation claims against it and should not be allowed to vote on the plan. The QSC also approved a litigation funding agreement (LFA) to fund a lawsuit against the same secured creditor.

The QCA reversed the decision of the QSC and found that there was nothing improper about a creditor proposing a plan from which it stands to gain in exchange for valuable consideration, and that there was no justification on the facts to deny the creditor its right to vote. The QCA also reversed the QSC’s decision on the LFA, finding that, in the circumstances, the LFA impacted creditors’ rights and, as such, constituted a plan of arrangement that should have been submitted to creditors for approval.

The SCC unanimously reversed the decision of the QCA and in doing so confirmed a supervising CCAA judge’s broad discretion to assess and balance the remedial objectives of the CCAA, and to make a variety of orders that respond to the factual circumstances of each case, including an order to bar a creditor from voting on a plan where such creditor is acting for an improper purpose. One such improper purpose is where the creditor is seeking to use its voting rights in a manner that frustrates, undermines or runs counter to the remedial objectives of the CCAA. It is not, however, an improper purpose for a creditor to vote in its own self interest.

With respect to litigation financing, the SCC held that the question as to whether litigation financing should be approved as interim financing and granted any priority charge, is a case-specific inquiry that should have regard to the text of Section 11.2 of the CCAA and, more generally, to the remedial objectives of the CCAA. The supervising judge is therefore best placed to conduct this inquiry.

For more information, please see our May 2020 Blakes Bulletin: The SCC Has the Final Word: Litigation Financing and Improper Purpose by a Creditor in Restructuring.


Chandos Construction Ltd. v. Deloitte, 2020 SCC 25
Date of Decision: October 2, 2020

The SCC dismissed the appeal, confirming that the anti-deprivation rule forms part of Canadian common law. The anti-deprivation rule is a principle of common law that renders contractual provisions void that remove value upon insolvency or bankruptcy that would otherwise be available to creditors.

A contract between the contractor, Chandos, and a subcontractor contained a clause (Insolvency Clause) stating that the subcontractor would forfeit 10 per cent of the total contract price in the event that, among other things, the subcontractor became bankrupt. The subcontractor assigned itself into bankruptcy, engaging the Insolvency Clause. At the time of bankruptcy, the contractor owed the subcontractor C$150,000 and argued that this amount should be reduced as a result of the Insolvency Clause.

The SCC confirmed that the anti-deprivation rule exists in Canadian common law and prevents contractual provisions from frustrating the priority scheme of the BIA and the maximization of global recovery for all creditors in accordance with the priorities set out in the BIA. The SCC held that this common law rule had not been eliminated by any decision of a court or by Parliament.

The SCC also concluded that the anti-deprivation rule has two parts: the relevant clause is triggered by an event of insolvency or bankruptcy, and the effect of the clause is to remove value from the insolvent person’s creditors, whether or not the intention of the contracting parties was commercially reasonable. This is the effects-based test.

Contractual provisions that eliminate property from the estate, but do not eliminate value, may not offend the anti-deprivation rule, nor will provisions whose effect is triggered by an event other than insolvency or bankruptcy. The court also confirmed that the anti-deprivation rule is not offended when commercial parties protect themselves against a contracting counterparty’s insolvency by taking security, acquiring insurance or requiring a third party guarantee. 


The SCC has confirmed that the common law of Canada includes an anti-deprivation rule which applies in all commercial bankruptcy and insolvency proceedings.


Canada v. Canada North Group Inc., 2019 ABCA 314
Appeal heard on December 1, 2020.
The Alberta Court of Queen’s Bench considered whether a CCAA court can order that charges, such as charges for debtor-in-possession financing or administration charges, rank ahead of the statutory deemed trust in favour of the Crown for unremitted source deductions. The court held that it did have such authority.

On appeal, the majority of the ABCA upheld the lower court’s decision, ruling that the Crown’s interests under the statutory trust provisions of the Income Tax Act (Canada), Canada Pension Plan (Canada) and Employment Insurance Act (Canada) for unremitted source deductions are deemed trusts, not true trusts (which, as a proprietary interest, cannot be primed by court-ordered charges). The Crown’s interest in unremitted source deductions is therefore akin to a security interest. The ABCA went on to hold that, as the CCAA permits security interests to be primed, a CCAA court can order that charges rank ahead of these deemed trust interests.

Updated Status

Leave to appeal to the SCC was granted on March 26, 2020. The appeal was heard on December 1, 2020. At this time, no decision has been released
For further information, please contact:

Pamela Huff               416-863-2958
Linc Rogers                416-863-4168
Aryo Shalviri               416-863-2962       
Caitlin McIntyre         416-863-4174

or any member of our Restructuring & Insolvency group.