Disclaimer of contracts in insolvency

A buyer of a distressed business may meet this term when deciding which leases and contracts to take on. A debtor in a restructuring may be able to end some agreements, which changes what is left to buy. Both Acts are federal. See how to buy assets from an insolvent company through a BIA process.

How it works

Under CCAA section 32(1), a debtor company may disclaim or resiliate an agreement it was party to when proceedings began, on notice to the other parties and the monitor, and may not give notice unless the monitor approves; without that approval it may apply to court for an order. BIA section 65.11 is similar for a debtor that filed a notice of intention or a proposal. Within 15 days of notice, the other party may apply to court for an order that the agreement not be disclaimed. If no application is made, or the court dismisses it, the agreement is disclaimed 30 days after notice, or on a later day the court fixes. A party who suffers a loss has a provable claim. Both Acts list exceptions, including eligible financial contracts and collective agreements.

What to ask

• Whether a notice of disclaimer has been given and on what date
• Whether the other party has applied to court
• Whether the agreement falls within an exception in section 32(9) or 65.11(10)

See also the CCAA.