Impact of Insolvency Proceedings on Disputes and Commercial Relationships

A counterparty’s insolvency can suddenly affect a business relationship, accounts receivable, supply arrangements, enforcement of security, and ongoing litigation. Once a debtor enters a formal insolvency process, ordinary commercial leverage may change: payment claims may be stayed, contracts may be assigned or disclaimed, and creditors may need to participate in a court-supervised or trustee-administered claims process.

Insolvency proceedings in Canada are primarily governed by two key statutes: the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA) and the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 (CCAA). These legal frameworks provide mechanisms for businesses facing financial distress to restructure or liquidate.

The immediate and long-term impact on creditors depends on the nature and details of the insolvency proceeding.

More information is available about:

• proposal to creditors or bankruptcies under the BIA;
• proceedings under the CCAA; and
• receiverships.

Insolvency proceedings under the BIA and CCAA are critical tools for managing financial distress in Canada. These proceedings can affect lawsuits, enforcement rights, payment expectations, contracts, and commercial relationships. Businesses should act quickly when a counterparty becomes insolvent: identify the applicable proceeding, diarize claims deadlines, review security and contract rights, assess whether the stay affects any pending dispute, and consider whether court relief is needed to protect its position.