The Companies’ Creditors Arrangement Act (“CCAA“) proceedings involving Carillion Canada and related entities (collectively, “Carillion Canada”) have been an ongoing area of interest for the construction industry since proceedings began in early 2018.

The governmental restrictions and social customs implemented to combat the spread of COVID-19 have led to significant fallout throughout the economy. Many companies, particularly those with significant retail, hospitality, and personal services operations, may become insolvent and may have to consider their options for avoiding bankruptcy. Creditors looking to recover from insolvent companies may find their claims subject to a debtor’s reorganization proceedings under the Companies’ Creditors Arrangement Act, RSC 1985, c-36 (“CCAA“).

In Chandos Construction v Deloitte Restructuring, the Supreme Court clarified one aspect of bankruptcy law – the scope and application of the anti-deprivation rule – while leaving an unsettled area of contract law – the penalty doctrine – to be resolved for another day. Here, we consider the implications of the newly-clarified anti-deprivation rule as it applies to the construction industry.

Background

Subcontractors may find themselves in a difficult position if an owner or general contractor fails to pay for labour and materials provided to a project. This failure to pay may occur for any number of reasons, but is often a result of a dispute or insolvency. One of the most commonly used methods to mitigate the risk of non-payment by an owner or general contractor is the use of labour and material payment bonds.