Can a supplier or landlord cancel a contract just because the company filed for bankruptcy protection?

The rule, in both statutes

The two provisions are near-identical, both under the marginal note “Certain rights limited”. BIA s.65.1(1) blocks termination, amendment, accelerated payment or forfeiture “by reason only that (a) the insolvent person is insolvent; or (b) a notice of intention or a proposal has been filed in respect of the insolvent person”. CCAA s.34(1) says the same thing for “a debtor company by reason only that proceedings commenced under this Act or that the company is insolvent”. A public utility cannot discontinue service on the same reasons either, under s.65.1(3) and CCAA s.34(3), and s.65.1(5) and CCAA s.34(5) void any contract clause that tries to achieve the same result by agreement — a private “ipso facto” termination clause has no force once the filing happens.

What is not protected

“By reason only” is doing real work. Both sections carry an exception: a person may still “require immediate payment” or cash-in-advance for anything supplied after the filing, and nothing forces further credit to be extended. A landlord is a partial exception of its own — s.65.1(2) folds unpaid rent for a period before the filing into the protected list for a lease, but under CCAA s.34(2) a lessor specifically may not terminate for pre-filing unpaid rent either, which is the opposite default a landlord usually expects from an ordinary arrears clause.

The debtor still needs an active remedy for the contracts it wants gone

This section stops a counterparty from walking away on its own; it does not stop the debtor from keeping a bad contract alive by default. The debtor’s own tool for shedding an agreement it no longer wants is the disclaimer power in BIA s.65.11 or CCAA s.32, covered in the previous question — a different provision, pointed the other way, and available only to the debtor with the trustee or monitor’s approval.

Case Files

The agreement the seller disclaimed before closing is the mirror-image mechanic: there the debtor disclaimed a contract the buyer was relying on. This section is what stops the other direction — a counterparty trying to walk away from the debtor because of the filing itself. A buyer diligencing a target under a notice of intention should expect key contracts to survive the filing on this rule, right up until the debtor elects to disclaim one of them under s.65.11.

Sources

• • Bankruptcy and Insolvency Act, s.65.1 — marginal note Certain rights limited: (1) the termination bar; (2) leases and licences; (3) public utilities; (4) acts not prevented; (5) overriding contrary agreements.
• • Companies’ Creditors Arrangement Act, s.34 — the equivalent CCAA provision, with the lessor-specific rule in (2).
• • Not covered in Treadstone Law’s published library: a search of their site turned up no article addressing insolvency-triggered (“ipso facto”) termination clauses specifically; no link is added rather than pointing to an adjacent but off-point piece.