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

Introduction

| Jacob Babad

This piece explores a debtor’s obligations after filing for protection under the Companies’ Creditors Arrangement Act (CCAA). Specifically, it considers in detail the history and changing interpretations of section 11.01. While originally intended to ensure that no supplier of goods or services to a CCAA debtor went unpaid, what could have been a robust protection has been carved back to a narrow application.

Since the renewed popularity of the CCAA in the mid-1980s, creditors and courts have called upon parliament to provide greater clarity and prevent unjust outcomes for the provision of services delivered after the date of filing. As this piece will demonstrate, while section 11.01 appears to have been intended to deliver such a result, the subsequent case law interpreting the provision has failed to create the desired clarity, and, in certain areas, has facilitated the types of outcomes courts sitting in bankruptcy initially sought to avoid. Recent developments suggest creative moves by debtors to even further limit the protections for post-filing counterparties. These moves have sown even greater confusion when it comes to post-filing obligations.

The section titled “Protections for CCAA” considers the obligations imposed by current interpretations of section 11.01 and explores the comprehensive history of why the provision was enacted and how judicial attitudes towards the provision have evolved. It examines obligations with respect to four specific areas: employees, landlords, taxation authorities, and providers of goods and services. “Comparison between Canadian and American post-filing obligations” compares post-filing obligations under the CCAA to comparable provisions in U.S. legislation under Chapter 11 of the U.S. Bankruptcy Code (Chapter 11). The “Model orders” section examines the current regime in Canada imposed using Model Initial Orders. “Recent developments questioning the protection and scope of post-filing obligations” examines recent developments in the case law surrounding section 11.01, specifically regarding obligations towards municipal taxation authorities, which further suggest the entrenchment of section 11.01 as concerning the provision of credit.

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This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

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