Fasken's 2025 Insolvency Insights

Case

Key Takeaways

Discharge of Student Loans in Bankruptcy

Piekut v Canada (National Revenue), 2025 SCC 13

The Supreme Court of Canada ("SCC") confirmed that the "single-date" approach applies to calculating the 7-year period under the exception for discharging student loans under section 178(1)(g) of the Bankruptcy and Insolvency Act (Canada) ("BIA"). As a result, a bankruptcy will not discharge a bankrupt from their student loans if their bankruptcy occurred within 7 years of the date that the person ceased being a student, regardless of whether later studies were self-funded. Piekut reduces the scope of dischargeable student loans in order to balance the ability of students to seek financial assistance for their studies with the policy objective of ensuring the sustainability of student financial assistance programs.

Fasken's full summary of the decision in Piekut is available here.

Reverse Vesting Orders

His Majesty the King in Right of the Province of British Columbia v Peakhill Capital Inc, et al, 2025 CanLII 38366 (SCC)

In 2024, the British Columbia Court of Appeal confirmed that Canadian courts have jurisdiction to issue an RVO in receivership proceedings pursuant to section 243(1)(c) of the BIA (see British Columbia v Peakhill Capital Inc, 2024 BCCA 246 and Fasken's full summary here). The Province of British Columbia sought leave to appeal the decision to the SCC. In 2025, the SCC refused leave to appeal.

Cleo Energy Corp (Re), 2025 ABKB 621

The Court of King's Bench of Alberta dismissed the receiver's application to approve a transaction by way of an RVO. Cleo Energy, an insolvent oil and gas company, sought to use the RVO structure to transfer unwanted assets and liabilities (cash, cash equivalents and the purchase price) to a new entity, ResidualCo, while retaining valuable Crown mineral leases without paying pre-filing royalty and rent arrears owed to Alberta Energy. The Court found that the receiver failed to substantiate the necessity of the RVO structure, particularly regarding claims of cost, delay, and risk associated with licence transfers by the regulatory body, and emphasized that creditors' rights under traditional insolvency frameworks should not be circumvented. Additionally, the Court raised concerns about fairness, the treatment of executory contracts, and potential adverse impacts on former employees' Wage Earner Protection Program (WEPP) payments. The application was dismissed without prejudice, allowing the receiver to submit additional evidence or propose a restructured transaction. Ultimately, the receiver did just that and the RVO was subsequently approved by the Court.

Vesting out of Royalty Interest

Invico Diversified Income Limited Partnership v Newgrange Energy Inc, 2025 ABCA 392

The Alberta Court of Appeal upheld the chambers decision to vest out a gross overriding royalty (GOR) from the subject lands pursuant to a reverse vesting order granted under the CCAA. The Court affirmed that the construction of the particular GOR's underlying agreements and the surrounding circumstances did not create an interest in land to shield the GOR from being vested off in insolvency proceedings. In applying the two-part "Dynex" test, the Court's reasons confirmed that parties must take care and precision in the drafting of royalty agreements to create an interest in land.

Fasken's full summary of the decision is available here.

"Interest Stops" Rule & Secured Creditors

Easy Legal Finance Inc v Law Society of Alberta, 2025 ABCA 112

The Alberta Court of Appeal confirmed that the "interest stops rule" does not apply to secured claims. This case arose in the context of a limited scope receivership proceedings over specified properties of a law firm. The custodian and the Law Society of Alberta sought to apply the interest stops rule for all creditors, including the law firm's secured creditors. Prior to the chambers decision, the interest stops rule had not previously been applied to secured creditor claims. The Court of Appeal found no legal basis or supporting authority for expanding the rule to include secured claims. The decision confirms that secured creditors are entitled to payment of their post-filing interest while unsecured creditors are not.

Directors & Officers Releases

Arrangement relatif à Lion Electric Company,2025 QCCS 4192

The Quebec Superior Court considered the scope and availability of directors' and officers' releases in CCAA proceedings. The Court restricted the releases sought by the debtor company's directors and officers in connection with a sale transaction, mainly by creating a carve out for a class action claim. The Court held that compelling evidence is required to establish that releases are necessary and essential to the restructuring, and that the mere fulfillment of their fiduciary duties does not automatically entitle directors and officers to a release. The Court held that the releases lacked a rational connection to the restructuring and that the directors and officers had not provided meaningful contributions to justify such protections.

Delta 9 Cannabis (Re), 2025 ABKB 52

The Alberta Court of King's Bench approved the release of directors in a sale transaction under the CCAA, despite the objections of the Canada Revenue Agency ("CRA"), which sought to lift the stay of proceedings to issue directors' liability assessments for excise tax arrears.

In approving the release sought, the Court noted the proposed release in favour of the directors was essential to the success of the transaction and the overall restructuring. While courts will not approve releases simply because they form conditions precedent to a transaction, parties opposing proposed releases must provide evidence to demonstrate why the releases are not integral to the debtor's restructuring efforts.

Freedom Cannabis Inc (Re), 2025 ABKB 272

Similar to its earlier decision in Delta 9 Cannabis, the Alberta Court of King's Bench approved the release of directors in connection with a transaction in CCAA proceedings despite the objections of the Canada Revenue Agency. The Court emphasized that the releases were necessary for the transaction to proceed, which was beneficial to both the debtors and creditors. The decision illustrates the Court's willingness to issue director releases where they are considered necessary to a debtor's restructuring, and reiterates the Court's authority to issue releases that would extinguish a director's personal liability for excise tax arrears.

Preferential Payments

RPG Receivables Purchase Group Inc. v American Pacific Corporation,2025 ONCA 371

The Court of Appeal for Ontario allowed an appeal from a lower court decision finding that certain payments by a debtor to a trade creditor were not preferences within the meaning of section 95 of theBIA. The lower court held that the debtor had rebutted the presumption that it intended to prefer one of its creditors over others because the payment was made with the intention to stay in business.

The Court of Appeal held that it is not enough for a debtor to assert that it made the payment to stay in business; rather, there must be evidence that the debtor's actual intent in making a preferential payment is to continue in business and there is a business continuation plan that a reasonable debtor could believe will achieve net benefits for its creditors, generally. On the facts of this case, the Court found that there was no evidence of actual intent to remain in business and, consequently, ordered that the impugned payments were void and must be repaid. The trade creditor has sought leave to appeal this decision to the SCC.

My Mortgage Auction Corp. (Re), 2025 BCSC 1520

The Supreme Court of British Columbia granted a summary application brought by a trustee in bankruptcy to claw back and recover amounts paid to over 500 investors in a multi-million dollar Ponzi scheme. The Court rejected objections that the trustee should have commenced separate actions against each of the investors from whom the trustee sought to claw back funds, and agreed with the Trustee's position that a single, summary procedure for addressing the payments made under the Ponzi scheme was a practical, effective, and efficient means of balancing the interests of all investors.

Meanwhile, the whereabouts of Greg Martel, the alleged perpetrator of the Ponzi Scheme, remain unknown and warrants for his arrest have been issued in Canada and the United States.

Recognition of Single-Proceeding Model

Investissements D. Vachon inc. c. Ernst & Young inc, 2025 QCCA 476

The Quebec Court of Appeal upheld a decision of the Superior Court rejecting an application for the partial lifting of the creditor's stay under the CCAA, brought by the former minority shareholders of the debtor company. The minority shareholders sought recognition of their rights to certain tax refunds under a constructive trust by invoking New York State law to enforce the arbitration agreement and assert ownership of those refunds.

The Court emphasized the importance of an orderly restructuring and prompt resolution of claims to ensure efficient debt collection. The Court noted that while the constructive trust is a concept recognized by New York State law, this concept was not recognized under Quebec law and could not be relied on. The decision clarifies the limits of the influence of foreign legal concepts in Quebec's legal system. The former minority shareholders have sought leave to appeal this decision to the SCC.

Fasken's full summary of the decision is available here.

Implications of Bad Faith Conduct in Insolvency Proceedings

Dematic Limited c Atallah Group Inc, 2025 QCCA 1649

The Quebec Court of Appeal granted leave to appeal an order confirming a disputed settlement reached hours before the debtor company entered CCAA proceedings. The counterparty to the settlement agreement argued that its consent to the agreement was vitiated by the debtor company's fraudulent concealment of its insolvency.

In granting leave to appeal, the Court found that the impact of a contractual provision regarding insolvency on a party's duty of good faith to its co-contracting party and on the notion of fraudulent concealment raises a series issue for insolvency practice.

Re Proex Logistics Inc., 2025 ONCA 832

The Court of Appeal for Ontario upheld the lower court's decision denying a party standing to challenge a motion brought by the trustee because of significant unpaid costs awards, evidence that the party had dissipated the debtor corporation's assets, and the fact that the party was continuing to pay legal counsel despite claiming he had insufficient funds to pay the costs orders. In this case, the costs awards totalled over $1 million and had been outstanding for more than one year.

Re V K Delivery & Moving Services Ltd., 2025 BCSC 2454

The Supreme Court of British Columbia denied the VK Group's application for a stay extension in its CCAA proceedings, and instead granted the Royal Bank of Canada's (RBC) application to appoint a receiver. The VK Group, consisting of various logistics companies, had failed to produce a viable path forward in its CCAA proceedings during the seven months it was subject to creditor protection. RBC opposed the extension, citing bad faith conduct by the VK Group, including the misuse of funds and failure to reduce its debt effectively, while the Monitor cautiously supported the extension. The Court found that the VK Group's financial situation had not improved, its operations lacked stability, and its actions undermined confidence. Given RBC's contractual rights as a first-ranking secured creditor and the VK Group's insufficient progress toward restructuring, the Court deemed receivership necessary to protect creditors and ensure oversight of the VK Group's assets.

Teal Jones Holdings Ltd (Re),2025 BCSC 2291

In the context of an application for security for costs, the Supreme Court of British Columbia granted a "guillotine" order against a losing bidder who challenged the loss of its deposit under a sale process. The Court ordered that the losing bidder's motion would automatically be deemed to be dismissed, as if adjudicated on its merits, and the deposit forfeited if it failed to post the security by the court-ordered deadline. This case marks the first use of a "guillotine" order in aCCAAproceeding.

Investor Standing to Commence CCAA

Angus A2A GP Inc (Re), 2025 ABKB 51

The Court of King's Bench of Alberta upheld the standing of equity investors to initiate CCAA proceedings against a debtor group of companies. The Court emphasized that the CCAA does not prohibit equity investors from commencing proceedings and determined that the Applicants were "persons interested" under section 11 of the CCAA. While the Applicants' use of the CCAA was novel, it was consistent with the statute's remedial purposes, including preserving and maximizing asset value, ensuring equitable treatment of claims, and facilitating efficient resolution of insolvency. The Court further noted that investors who were also bondholders were creditors due to unpaid interest, reinforcing their legitimacy as proper parties in the proceedings.

Denial of Request for "Regulatory Stay"

AlphaBow Energy Ltd (Re), 2025 ABKB 622

The Alberta Court of King's Bench dismissed AlphaBow's application to stay the Alberta Energy Regulator's request for a security deposit for the duration of its restructuring proceedings.

The Court confirmed that a regulator body's security deposit requirement does not necessarily constitute "enforcement of payment" in restructuring proceedings. AlphaBow adds to existing case law recognizing that remediation is a public issue, and that environmental obligations take priority over creditor claims.

Fasken's full summary of the decision in AlphaBow is available here.

Anti-Deprivation Rule

ATB Financial v Mayfield Investments Ltd, 2025 ABKB 61

The Alberta Court of King's Bench considered the enforceability of a forced share sale provision which permitted the purchase of shares at a discount with generous payment terms upon the corporation's insolvency or receivership.

The Court found that the provision violated the anti-deprivation rule, as articulated in the Supreme Court of Canada in Chandos Construction Ltd. v Deloitte Restructuring Inc.¸ 2020 SCC 25, as it removed value from the insolvent estate to the detriment of creditors. Consequently, the provision was declared void.

Piercing the Corporate Veil

In the Matter of the Bankruptcy of Wolverine Energy and Infrastructure Inc. et al.

The Court of King's Bench of Alberta granted an application by a trustee in bankruptcy to pierce the corporate veils of two separate corporations and hold their mutual director personally liable to repay certain payments in respect of reviewable transactions. The Court relied upon the authorized agency test for piercing the corporate veil, for which there is little discussion in the case law.

The Court held that the authorized agency path required demonstrating that the corporations were acting in such a way to "legally affect" their mutual director's legal position. This decision reinforces that courts may pierce the corporate veil and expose directors to personal liability when corporations are used as an agent for their personal benefit.

Fasken's full summary of the decision is available here.

Duration of Transition Services Agreement in Insolvency

Wallace & Carey Inc. (Re), 2025 ABKB 750

The Alberta Court of King's Bench held that a purchaser may rely on third-party vendors under a court-approved Transition Services Agreement (TSA) until the transition period is genuinely complete. In the CCAA sale of certain Wallace & Carey assets to 7-Eleven Canada, the TSA required temporary use of Digiflex-licensed logistics software. Although the licenses were excluded contracts and Digiflex argued that 7-Eleven was using the CCAA process to avoid renegotiating fees, the Court found that the continued access to the software was part of the intended transition and that Digiflex had not met the high threshold to lift the stay. Balancing prejudice, good faith, and the CCAA's remedial purpose, the Court maintained the status quo but set a firm end date and ordered that the stay would be lifted as regards Digiflex at that time.

Treatment of Construction Liens in CCAA

Earth Boring Co. Ltd. (Re), 2025 ONSC 2422

At the initial hearing in CCAA proceedings commenced by multiple related construction companies, the Ontario Superior Court of Justice granted an initial order and a lien regularization order ("LRO") that impacted the remedies available to lien claimants, project owners, and sureties under performance bonds issued pursuant to the Construction Act (Ontario). In particular, the stay granted under the initial order extended to the enforcement of and any call on performance bonds for projects that the debtors intended to continue, except with the written consent of the debtors and the Monitor, or with leave of the Court. Under the LRO, lien claimants could preserve their rights under the Construction Act by delivering certain lien notices to the Monitor, and, upon delivering such a notice, were granted a lien charge equivalent to the lien rights provided for under the Construction Act.

The Court held that the rights granted to the lien claimants under the LRO were substantively consistent with those available under the relevant provincial legislation and, consequently, they were not prejudiced by the issuance of the LRO.

Denial of Forced Lease Assignments

In Re Hudson's Bay Company, 2025 ONSC 5998

The Ontario Superior Court of Justice dismissed a motion brought by Hudson's Bay Company to forcibly assign several of its retail leases to a third party. The Court reviewed and distilled the key principles emerging from the case law on the discretion afforded to courts under section 11.3 of the CCAA to force a contract assignment. In this case, the Court concluded that the proposed lease assignments were not appropriate in the circumstances, particularly considering the lack of support by the Monitor, the number of leases to be assigned, and concerns regarding the feasibility of the third party's business plans.

Fasken's full summary of the decision is available here.