If your key supplier in Ontario files for Companies’ Creditors Arrangement Act (CCAA) protection, an automatic stay of proceedings generally prevents you from terminating your contract or seizing your deposits. You must continue performing your obligations, but you can work with the court-appointed Monitor to ensure the supplier continues to deliver critical goods or services to your business.
Discovering that a key supplier has filed for insolvency protection can send a shockwave through your business. In Canada, large corporations with more than $5 million in debt often seek protection under the Companies’ Creditors Arrangement Act (CCAA). 📍 Unlike a standard bankruptcy, the CCAA allows the supplier to keep operating while it attempts to restructure its debts. For businesses in Ontario that rely on these suppliers for raw materials, inventory, or critical services, a CCAA filing creates a massive supply chain risk. You cannot simply walk away from your contract, but you also cannot risk business disruption. Knowing how to navigate this complex federal statute is critical to protecting your own company’s operations and financial health.
Step-by-Step Process in Ontario
Whether your business is headquartered in London, Windsor, or downtown Toronto, managing a relationship with a supplier in CCAA requires strict adherence to court orders. The process is generally overseen by the Commercial List of the Superior Court of Justice in Ontario. Here is how you should respond.
Step 1: Review the Initial Order from the Court
When a supplier files for CCAA, the Superior Court of Justice issues an Initial Order. You will likely receive a copy of this document from the court-appointed Monitor (usually a large accounting firm). Read this order very carefully. It outlines the automatic stay of proceedings, which bans you from terminating your supply agreement or enforcing default clauses without court permission.
Step 2: Understand the Ipso Facto Rules
Many supply contracts contain an “ipso facto” clause, which states you can cancel the agreement if the supplier becomes insolvent. Under Canadian law, you cannot enforce this clause during a CCAA proceeding. 📍 You are legally required to continue honouring your end of the contract, meaning you must keep paying for and accepting their deliveries under the agreed terms, provided the supplier continues to perform.
Step 3: Secure Your Supply and Future Deliveries
While the supplier is restructuring, they are expected to keep delivering goods. However, if you are concerned they cannot perform, you can contact the Monitor to clarify how your supply will be maintained. If you have outstanding pre-paid deposits with the supplier, these may be frozen under the stay, making it crucial to negotiate that future deliveries are secured by court-approved debtor-in-possession (DIP) financing.
Step 4: File a Proof of Claim for Pre-Filing Claims
If the supplier owed you money (such as pre-payments, rebates, or damages for non-delivery) before the filing, this is a pre-filing claim. The Monitor will send you a Proof of Claim form. You must list your claims, attach all supporting documents (like purchase orders or proof of payment), and submit it before the strict court-ordered claims bar date to participate in any distribution.
Pre-Filing vs. Post-Filing
| Type of Claim / Transaction | Definition | Your Rights Under CCAA |
|---|---|---|
| Pre-Filing Claims / Deposits | Deposits or advance payments made to the supplier before the Initial Order. | Frozen by the stay. You cannot demand immediate refunds; must file a Proof of Claim. |
| Post-Filing Deliveries | Goods or services that the supplier delivers to you after the Initial Order date. | You must pay the supplier for these in the ordinary course of business. If they fail to deliver, you can ask the court or Monitor for relief. |
How Much Does it Cost in Ontario?
Participating in a CCAA proceeding as a customer or creditor does not require any government filing fees, but protecting your supply chain will likely incur professional costs:
- Filing a Claim: Submitting your Proof of Claim for any lost deposits or pre-payments is completely free of charge.
- Lawyer Fees: Having a commercial law firm review the Initial Order and advise on your rights to receive continued supply will typically cost between $400 and $800 CAD per hour.
- Financial Losses: If your pre-paid deposits are lost or your supply is permanently halted, your business may suffer substantial losses, requiring you to source alternative suppliers at higher costs.
How Long Does the Process Take?
CCAA proceedings are notoriously lengthy. The initial stay of proceedings is granted for just 10 days, but the Superior Court of Justice will routinely grant extensions of 30, 60, or 90 days. Complex corporate restructurings can take anywhere from 6 months to several years before a final Plan of Arrangement is put to a creditor vote and approved by the court.
Frequently Asked Questions (FAQ)
What if the insolvent supplier stops delivering goods?
While you must honour the contract, the supplier must also perform. If they fail to deliver post-filing goods as agreed, you can notify the Monitor immediately. If the non-performance continues, you can petition the court for permission to terminate the contract and find an alternative vendor.
Can I sue the supplier’s directors personally for non-delivery?
Generally, no. The CCAA stay of proceedings usually extends to protect the supplier’s directors and officers from personal lawsuits for breach of contract while the corporate restructuring is underway.
Who is the Monitor and do they work for me?
The Monitor is an independent, court-appointed accounting firm (such as a Licensed Insolvency Trustee). They do not work for you, nor do they work for the debtor. Their job is to oversee the company’s cash flow and report back to the judge.
What is the difference between CCAA and the BIA?
The CCAA is designed exclusively for large corporations owing over $5 million. The Bankruptcy and Insolvency Act (BIA) handles smaller corporate bankruptcies, proposals, and all personal consumer insolvencies.
Can I just refuse to pay the supplier for new shipments?
No. You must pay for all goods or services delivered post-filing according to the terms of the contract or court order. Deliberately withholding payments for post-filing deliveries can result in you being held in contempt of court or sued for breach of contract.
Leave a Reply