Not paid today and may not be paid tomorrow: Developments in post-filing obligations of CCAA debtors

Twenty years after the introduction of section 11.01, it is clear this provision has failed to live up to the promise of Quintette. Section 11.01 has effectively been replaced by a model order regime. Neither adequately serve a debtors’ post-filing counterparties.

U.S. Steel and Essar Steel Algoma are merely the bellwether of these issues. Creative debtors and their counsel will continue to look for more post-filing obligations to stay. The standard imposed by the courts for this stay is so low as to almost be negligible. Debtors need only prove that they are suffering from a lack of liquidity that could be ameliorated by staying municipal taxes, or related party payments or whatever other payment is next proposed. But by their nature debtors almost always suffer from a lack of liquidity. And there seems to be little regard to the prejudice to the counterparties themselves. In Essar Steel Algoma, the ceased municipal taxes and related party payment would cut off significant revenue for both those counterparties. This did not trouble the Court. It may not be long before most CCAA debtors seek to stay municipal taxes as a matter of rote.

Nor are initial orders a stopgap. Even if a counterparty is assured payment from an initial order, a debtor may now seek to modify it because of new liquidity constraints (U.S. Steel) or unilaterally cease payment and retroactively ask for permission (Essar Steel Algoma—municipal taxes) or litigate whether the payments were ever protected in the first place (Essar Steel Algoma—ports).

These problems are inherent in Parliament’s drafting of section 11.01 and its reliance on immediate payment. This is exacerbated by the Court’s narrow reading of the provision, limiting the field of those who can rely on it. Parliament has created a tension between protecting the liquidity of the debtor and protecting counterparties.

When faced with this choice, most courts have sided with the debtor. Many would not pause to second guess this choice. After all, to paraphrase the rationale in U.S. Steel and Essar Steel Algoma, stakeholders in the aggregate are better off in the event of a successful restructuring. This is the very remedial purpose of the CCAA, after all.

But the restructuring purpose of the CCAA is not only served by the result but also the means themselves; stakeholders must be treated as advantageously and fairly as possible.29 Staying certain post-filing obligations allows the debtor to pick and choose which third party bears the additional costs of the CCAA. It also conscripts the efforts of third parties to fund a CCAA process for the benefit of pre-filing creditors. If there are under-secured creditors, those post-filing counterparties may, effectively, be working for free to preserve the value for secured creditors. Ratepayers in a local municipality may query why they have to shoulder additional taxes to help a lender preserve its recovery.

Legislative change is the clearest way forward. But short of changing legislation, courts should do more to recognize the important bargain existing in section 11.01 and Quintette. Counterparties will continue to assist a post-filing debtor only if they receive protection. Debtors may have to choose to bear the liquidity constraints of immediate payment or to more broadly use critical supplier charges to protect those with whom they do business. But counterparties should not have to suffer the lacuna they find themselves in: not paid today and no guarantee to be paid tomorrow.


29 Re Ted Leroy Trucking [Century Services] Ltd, 2010 SCC 60 at para 70.


Many thanks to Alex Bogach and Melody Burke for their invaluable editing and research assistance. Thank you also to Alison Bauer for her thoughtful assistance with the U.S. law in this piece.


Jeremy first presented this piece at the Annual Review of Insolvency Law Conference.

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