Hudson's Bay Company: Debtor Can't Be Deprived Of A Right It Doesn't Have (Yet)

Introduction

In a notable decision from the Hudson's Bay Company ("HBC") CCAA¹ proceedings, the Ontario Superior Court of Justice (the "Court") has confirmed that careful drafting can help preserve a solvent party's contractual rights in insolvency even where the result is to reduce the recovery for creditors.² In its October 24, 2025 decision, the Court declined to invalidate lease provisions that prevented the tenant or assignees from reviving valuable, legacy lease terms. The Court reasoned that the impugned provisions did not divest the tenant of an existing asset upon insolvency but rather set out legitimate conditions precedent for the acquisition of a future right and therefore did not engage any rules intended to preserve value for creditors in an insolvency proceeding.

The decision offers a potential roadmap for landlords and other solvent parties negotiating concessions with a distressed counterparty to manage insolvency risk without running afoul of the common law anti-deprivation rule or statutory protections under the CCAA.

The Legal Framework

(i) Ipso Facto Clauses and the Anti-Deprivation Rule

The common law "anti-deprivation rule" operates alongside the statutory protection contained in section 34 of the CCAA against ipso facto clauses:

• The anti-deprivation rule voids contractual provisions that are triggered by a party's bankruptcy or insolvency and have the effect of removing value from the insolvent person's estate that would otherwise have been available to their creditors. The Supreme Court of Canada has adopted an effects-based test requiring two elements: the clause must be triggered by insolvency or bankruptcy, and its effect must be to remove value from the estate.³
• Section 34 of the CCAA codifies a related, but distinct, ipso facto protection.⁴ It prohibits a counterparty from terminating or amending an agreement, or claiming an accelerated payment or forfeiture of term, by reason only that CCAA proceedings commenced or that the company is insolvent.

(ii) Section 11.3 of the CCAA

Section 11.3 of the CCAA empowers courts to order the assignment of a debtor company's agreements, including commercial leases, to a third party even over the objection of the solvent counterparty.⁵ This mechanism allows an insolvent company to monetize the value of its agreements for the benefit of its creditors.

The Facts

In late 2023, HBC was facing financial challenges and approached one of its landlords, Ivanhoé Cambridge ("IC"), for assistance. HBC and IC agreed to a portfolio-wide transaction that provided for, among other things, significant monetary payments by IC to HBC in exchange for the termination of certain leases (the "Original Leases") and replacement of such Original Leases with new leases (the "New Leases").⁶

The Original Leases contained attractive lessee-favourable terms, including restrictive covenants and renewal options, while the New Leases did not. The New Leases offered a path for HBC to effectively revive the legacy terms of the Original Leases provided HBC did not default on lease payments or other monetary obligations and did not become bankrupt or insolvent.⁷

The enforceability of these reinstatement conditions became a central issue during HBC's CCAA proceedings. As part of its restructuring, HBC agreed to assign a number of its commercial leases, including the New Leases, to Ruby Liu Commercial Investment Corp. (the "Purchaser"). If closed, this transaction would have generated significant value for HBC's creditors and was conditional upon, among other things, a court order pursuant to section 11.3 of the CCAA compelling the assignment and the Purchaser receiving the benefit of the more favourable legacy terms.⁸

The Issue

HBC sought an order, among other things, (i) assigning HBC's interest in the applicable leases to the Purchaser, and (ii) declaring that the provisions which purported to prevent the reinstatement of the Original Leases were void and unenforceable so that the New Leases, including the right to reinstate the Original Leases, could be assigned to the Purchaser with the valuable legacy terms effectively reinstated.⁹

The Court's Analysis

Although the Court ultimately declined to exercise its discretion under section 11.3 to approve the proposed lease assignment (rendering further analysis unnecessary), it nonetheless proceeded to analyze the enforceability of the reinstatement provisions.¹⁰ Even if the assignment had been approved, the Court would have declined to invalidate the reinstatement conditions for the following reasons:

1. The 2023 portfolio-wide transaction terminated the Original Leases. Citing the plain language of the agreement and the cross-examination evidence of HBC's representative, the Court determined that the Original Leases were terminated and replaced with the New Leases.¹¹ In other words, the valuable rights that HBC sought to preserve did not exist under the current contractual arrangement.
2. The reinstatement conditions were conditions precedent. The Court articulated the difference between a condition precedent, which specifies an event that must occur before a right is acquired, and a condition subsequent, which alters or terminates an existing right.¹² The Court explained that the right to reinstatement "does not operate as a condition subsequent removing existing rights...[r]ather, it provides that if certain conditions precedent are met at a date in the future...then certain rights are acquired at that time."¹³
3. The anti-deprivation rule was not offended. With this foundation, the Court held that the reinstatement conditions did not offend the anti-deprivation rule.¹⁴ The Court's reasoning was anchored in the principle that the rule is "triggered only when existing rights are taken away because of an insolvency".¹⁵ Effectively, HBC's insolvency did not cause the loss of an existing property right; it prevented the fulfillment of a condition precedent to acquiring a new property right in the future.
4. Section 34 of the CCAA did not apply. Similarly, the Court concluded that the statutory protection against ipso facto clauses in section 34 of the CCAA did not apply.¹⁶ The Court emphasized that the legislative purpose of section 34 is to protect a debtor by preserving its existing contracts and preventing counterparties from cancelling or terminating solely as a result of insolvency.¹⁷ Since HBC did not have an existing right to access the valuable legacy lease terms, the reinstatement conditions did not violate section 34 of the CCAA.¹⁸

Practical Considerations

For parties asked to provide concessions to a distressed counterparty to a long-term agreement, the Hudson's Bay decision shines a light on an opportunity to manage insolvency risk through careful drafting. While the Court's conclusion in this case is rooted in the specific facts of a significant, complex and highly publicized commercial leasing dispute, it nonetheless serves as an example of how a deal may be structured to preserve valuable rights in a potential insolvency.

More broadly, the Hudson's Bay decision may also complicate a key path to recovery for creditors by diminishing the ability for some debtors to monetize commercially valuable contracts for the benefit of their creditors.

Navigating these issues requires integrated expertise. The lawyers in McMillan's Restructuring & Insolvency and Commercial Leasing groups work together seamlessly to structure agreements that protect our clients. Please reach out for strategic advice on all your commercial agreements.

Footnotes

1 Companies' Creditors Arrangement Act, RSC 1985, c C-36 ("CCAA").

2 In Re Hudson's Bay Company, 2025 ONSC 5998 ("Hudson's Bay").

3 Chandos Construction Ltd. v. Deloitte Restructuring Inc., 2020 SCC 25 at para 31.

4 CCAA, s. 34.

5 CCAA, s. 11.3; Hudson's Bay at para. 29.

6 Hudson's Bay at para. 150-152.

7 Hudson's Bay at para. 153-154.

8 Hudson's Bay at para. 44.

9 Hudson's Bay at para. 9.

10 Hudson's Bay at para. 144.

11Hudson's Bay at para. 175-176.

12 Hudson's Bay at para. 168.

13 Hudson's Bay at para. 183.

14 Hudson's Bay at para. 179.

15 Hudson's Bay at para. 167.

16 Hudson's Bay at para. 180.

17 Hudson's Bay at para. 181.

18 Hudson's Bay at para. 182.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2025