Many commercial landlords are increasingly alarmed that COVID-19 may cause a surge in tenant bankruptcies or restructurings. We outline below the major issues for landlords arising from tenant defaults and insolvencies and suggest best practices to minimize losses.

In 2020, several significant judicial decisions were rendered across Canada relevant to commercial lenders, businesses and restructuring professionals. This bulletin summarizes the core issues of importance in each case and provides status updates on the cases reported on in our January 2020 bulletin, Key Developments in Canadian Insolvency Case Law in 2019.

Part 1

Without question, the top story over the last year has been the COVID-19 pandemic and its tremendous ongoing effects felt across Canada and the world.

This time has had a significant impact on Canada’s energy industry and many of the changes and developments that took place in 2020 will continue to influence trends, business decisions and the future growth of Canada’s energy industry in 2021.

In the recent decision in PricewaterhouseCoopers Inc. v Perpetual Energy Inc., 2021 ABCA 16 (Perpetual Energy), the Alberta Court of Appeal has reversed the Honourable Justice D.B. Nixon’s decision, striking out or summarily dismissing claims by PricewaterhouseCoopers Inc. in its capacity as trustee in bankruptcy (the Trustee) of Sequoia Resources Corp. (Perpetual/Sequoia).

In 7636156 Canada Inc. (Re)[1], the Ontario Court of Appeal ("OCA") confirmed the right of a commercial landlord to draw on a letter of credit given as security pursuant to a lease, even when the draw takes place after the termination of the lease by the tenant's trustee in bankruptcy.

Many commercial landlords are increasingly alarmed that COVID-19 may cause a surge in tenant bankruptcies or restructurings. We outline below the major issues for landlords arising from tenant defaults and insolvencies and suggest best practices to minimize losses.

Businesses are facing unprecedented challenges as a result of the COVID-19 pandemic. For some businesses, the impact has been immediate such as in the travel and events industries where sales have come to a sudden halt. For many other client facing businesses, such as in the hospitality and retail industries, revenues have taken a sharp decline due to social distancing measures. The effects of the COVID-19 pandemic on the economy are expected to continue well after the easing of restrictions and re-opening of various sectors of the economy.

Prior to December 23, 2020, it had been unclear whether a court had the jurisdiction to grant an order assigning a contract without counterparty consent, on application by a court-appointed receiver (a “Receiver”).

In a year quite unlike any other, the landscape of Canadian restructuring law saw significant developments in 2020. The COVID-19 crisis put novel issues before the courts, challenged businesses in unforeseen ways and saw various supports and concessions offered to struggling businesses from governments and creditors. Ultimately, while the supports and concessions enabled many businesses to avoid insolvency proceedings in 2020, many others sought the protection of an insolvency filing, with industries such as the retail industry particularly impacted.

Since the beginning of the COVID-19 pandemic, insolvent companies have sought court intervention relating to the payment of rent during lockdown periods. In the most recent decision on this issue, the Quebec Superior Court (Court) ruled that a debtor undergoing a restructuring under the Companies’ Creditors Arrangement Act (Canada) (CCAA) should not be relieved of its obligation to pay post-filing rent, even in circumstances where its ability to use the leased premises is constrained by governmental orders.