Retail Therapy Denied: Court Dismisses Motion To Assign Hudson's Bay Leases

In the recent decision of In Re Hudson's Bay Company("HBC")¹, the Ontario Superior Court of Justice (the "Court") dismissed a motion by Hudson's Bay Company ("Hudson's Bay") to assign 25 of its department store leases to a new tenant. The main issue before the Court was whether a contract counterparty of an insolvent entity should be compelled to continue its contractual relationship with a new party to maximize the recovery for the creditors. In the circumstances of this case, and in particular upon a weighing of the equities, the Court answered the question in the negative, and found in favour of the counterparty landlords.

Background Facts

On March 7, 2025, Hudson's Bay, the oldest corporation in North America and a cornerstone of Canadian history, commenced proceedings under the Companies' Creditors Arrangement Act (the "CCAA").² Multiple orders and endorsements have been issued in the proceedings to date. Given the company's long and storied history, and significant retail footprint in Canada, Hudson's Bay's restructuring efforts, and in particular the handling of its store leases, have attracted widespread media attention.

The motion before the Court concerned a proposed Asset Purchase Agreement between Hudson's Bay and Ruby Liu Commercial Investment Corp. ("Central Walk"), pursuant to which, among other things, Hudson's Bay's interest in 25 department store leases would be assigned to Central Walk (the "Transaction"). Of the proposed assignments, 24 were vigorously opposed by the counterparty landlords who raised concerns about Central Walk's business plan.

In addition, Hudson's Bay also sought a declaration that certain provisions in its leases with Ivanhoe Cambridge were void and unenforceable as ipso facto clauses in violation of the common law anti-deprivation rule and section 34 of the CCAA, which prohibits a contract counterparty from, among other things, terminating an agreement with a debtor company by reason only of the company's insolvency or commencement of proceedings under the CCAA.

On October 24, 2025, Justice Osborne released his highly anticipated decision.

The Decision

Assignment of Contracts Under the CCAA

The Court's assessment of the Central Walk Transaction turned primarily on the issue of the assignment of contracts. Section 11.3 of the CCAA provides courts with discretion to assign contracts, even without the relevant counterparties' consent. In noting the extraordinary nature of the judicial discretion found under section 11.3, Justice Osborne cited with approval the following passage from Justice Dunphy's decision in Dundee Oil and Gas Limited (Re):

Section 11.3 of the CCAA is an extraordinary power. It permits the court to require counterparties to an executory contract to accept future performance from somebody they never agreed to deal with. But for s. 11.3 of the CCAA, a counterparty in the unfortunate position of having a bankrupt or insolvent counterpart might at least console themselves with the thought of soon recovering their freedom to deal with the subject-matter of the contract. Unlike creditors, the counterparty subjected to a non-consensual assignment will be required to deal with the credit-risk of an assignee post-insolvency and potentially for a long time. Creditors, on the other hand, will generally be in a position to take their lumps and turn the page.³

Section 11.3(3), in particular, requires that courts consider, among other things, the following three elements in deciding whether to make an order assigning rights and obligations of a debtor company:

1. whether the monitor approved of the proposed assignment;
2. whether the person to whom the rights and obligations are to be assigned would be able to perform the obligations; and
3. whether it would be appropriate to assign the rights and obligations to that person.⁴

Having canvassed authorities which have considered section 11.3 or the analogous section 84.1(4) of the Bankruptcy and Insolvency Act,⁵ the Court enumerated a list of guiding principles:

1. the onus is on the party requesting the assignment to prove its appropriateness;
2. the applicant must demonstrate compliance with the mandatory requirements under section 11.3 of the CCAA;
3. the relevant standard for assessment is reasonableness;
4. the analysis is fact-specific;
5. there must be an evidentiary basis to support a finding that the proposed assignee would be able to perform the required monetary and non-monetary obligations, to the reasonableness standard, but a guarantee of their performance is not required. The assessment in this regard is not limited to the proposed assignee's financial wherewithal;
6. the factors to be considered under section 11.3(3) of the CCAA are neither mandatory nor exhaustive;
7. if the proposed assignment is part of an asset sale, the court must also consider the factors set out in section 36(3) of the CCAA and the Soundair principles must be considered, as well as whether there has been compliance with any court-approved sales process;
8. since section 11.3 permits the court to approve an assignment without the consent of the contractual counterparty, the counterparty's consent or refusal, and the reasonableness of any such refusal, are not relevant to the court's analysis;
9. the remaining term of the contract is a relevant factor in the analysis, especially where the remaining term including renewal terms involve an extended duration. A consideration of the contractual counterparty's ability to meet ongoing obligations for a contract with a single payment requirement, as compared to a long-term lease with ongoing monetary and non-monetary obligations; and
10. the appropriateness of an assignment involves a consideration of:
    1. what is just and equitable in the circumstances;
    2. the interests of all stakeholders;
    3. whether the proposed assignment supports a going concern outcome or facilitates an asset sale as part of a liquidation process;
    4. the relative importance and materiality of the proposed assignment to the overall restructuring or liquidation; and
    5. whether the contract is proposed to be assigned without amendments or subject to amendments.⁶

Applying the principles described above, the Court concluded that the proposed assignment of leases under the Central Walk Transaction was not appropriate in the unique circumstances of this case. Key facts influencing the court's decision included, for example, lack of support by the Monitor, the number of leases to be assigned and the size of the anchor tenant space involved, the significant remaining terms of the leases (which in some instances approached 100 years if all options were exercised), the lack of retail bona fides of the proposed assignee and concerns regarding the feasibility of its business plan, the transaction having arisen in the liquidation context and not a broader going concern acquisition, and the conduct of Central Walk and its principal during the events leading to the proposed assignment motion.

In particular, much of the Court's analysis focused on the business plan presented by Central Walk for operations on the leased premises. The Court acknowledged the concerns of the counterparty landlords regarding Central Walk's ability to meet its monetary and non-monetary obligations under the leases, and accepted the landlords' evidence that Central Walk's projected revenue, cost and time estimates were not realistic, and that the business plan did not appreciate the complexity of the work required to establish and open a new department store chain. The lack of experience of senior management and Central Walk's insufficient financial resources were also noted. Ultimately, the Court held that the business plan was "deficient" and that Central Walk fell "well short of any reasonableness standard with respect to the second factor in s. 11.3(3)".⁷

The Court stated that the fundamental question to be determined was which stakeholder group's interests ought to be prioritized, as between one of the secured creditors who would benefit from the proceeds of the assignment, and the counterparty landlords.⁸ Given the absence of a potential going concern outcome, the Court did not find a compelling reason to prefer the interest of the secured creditor over those of the counterparty landlords. In concluding, the Court noted that permitting the proposed assignment would "represent an extraordinary exercise of the discretion of the court to affect rights of private parties for almost a century, pursuant to what is already an extraordinary power unders.11.3 of the CCAA".⁹

Accordingly, Justice Osborne dismissed the motion to approve the assignments to Central Walk, noting the "unique" circumstances of the case.¹⁰ Subsequent to the Court's decision, Hudson's Bay issued notices of disclaimer in respect of theleases at issue.¹¹

Ipso Facto Clauses

Since the Court did not approve the lease assignments, it did not need to consider the motion with respect to the disputed provisions in the Ivanhoe Cambridge leases (the "IC Leases"). However, Justice Osborne provided commentary in obiter about anti-deprivation and ipso facto clauses, noting that the Court would not have declared the provisions to be void and unenforceable.

The impugned provisions arose as part of a larger 2023 portfolio review between Ivanhoe Cambridge and Hudson's Bay. This review resulted in an agreement that terminated a number of original leases, which contained tenant-favourable terms, and provided for the reinstatement of these original leases in November 2028 if Hudson's Bay was not then in default of any obligations under its leases. Under the IC Leases, the tenant's insolvency was an event of default.

The common law anti-deprivation rule provides that a contractual provision that removes value from a debtor's estate to the detriment of creditors upon the debtor's insolvency or bankruptcy (also referred to as an ipso facto clause) is deemed void and unenforceable. Section 34 of the CCAA codifies the anti-deprivation rule and renders unenforceable a contractual provision that, by reason of the debtor's insolvency or insolvency filing, triggers the termination or amendment of, or results in an accelerated payment or forfeiture of the term under an agreement.¹²

Here, Justice Osborne noted that the impugned clauses under the IC Leases did not involve the deprivation of an existing right. In this regard, the Court considered whether Hudson's Bay would have the right to revert to the original leases today, but for its insolvency. Under the new IC Leases, the determination of whether Hudson's Bay had any right to revert to the original leases would not take place until 2028. A number of conditions precedent would have to be met before Hudson's Bay would be entitled to the right to revert to the original leases. In other words, no right has been taken away. Even if the Court had approved the assignment of the leases, it would have declined to grant a declaration that the provisions concerning reinstatement of the original leases were ipso facto and in violation of the common law anti-deprivation rule and section 34 of the CCAA.

Implications and Key Takeaways

HBC provides clarity as to the principles considered when a court is asked to forcibly assign a contract under section 11.3 of the CCAA. As was the case in HBC, we expect increased judicial scrutiny on applications for forcible contract assignments, including of the proposed assignee's business plan and financial wherewithal to satisfy ongoing contractual obligations. Furthermore, where the term of the agreement being sought to be assigned is significant, this may be a compelling factor weighing against forced assignment. Another factor that may militate against a forced assignment is where the debtor is pursuing a liquidating CCAA rather than a restructuring. The decision is also a reminder that the interests of secured creditors are not the sole relevant factor to consider on CCAA applications, and that all stakeholder interests must be considered and balanced.

Footnotes

1 In Re Hudson's Bay Company, 2025 ONSC 5998 HBC.

2 Companies' Creditors Arrangement Act, RSC 1985, c C-36 CCAA.

3 HBC at para 27, citing Dundee Oil and Gas Limited (Re), 2018 ONSC 3678 at para 27.

4 CCAA at s 11.3(3)

5 Bankruptcy and Insolvency Act, RSC 1985, c B-5, as amended.

6 HBC at para 43.

7 HBC at para 101.

8 HBC at para 133.

9 HBC at para 142.

10 HBC at para 142.

11 See: In the Matter of HUDON'S BAY COMPANY ULC et al, Ontario Superior Court of Justice File No. CV-25-00738613-00CL, dated November 3, 2025.

12 CCAA, s 34

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.