The Supreme Court of Canada, in a decision that has implications for borrowers and lenders alike, particularly where pension funds are involved, has raised some new hurdles for the country’s banks and their business customers and, at the same time, has bolstered protection for lenders of last resort who finance insolvent companies.

The court’s decision in Sun Indalex Finance, LLC v. United Steelworkers, issued earlier this year, addresses critical questions in insolvency law regarding pension funds and DIP financing. 

A debtor's decision to assume or reject an executory contract is typically given deferential treatment by bankruptcy courts under a "business judgment" standard. Certain types of nondebtor parties to such contracts, however, have been afforded special protections. For example, in 1988, Congress added section 365(n) to the Bankruptcy Code, granting some intellectual property licensees the right to continued use of licensed property, notwithstanding a debtor's rejection of the underlying license agreement.