When Insolvency and Restructuring Law Supercedes Contract
AbstractThe impact of counterparty insolvency on contracts has become an area of concern for those in the energy industry. The Bankruptcy and Insolvency Act, Companies’ Creditors Arrangement Act, Alberta Business Corporations Act, and Canada Business Corporations Act; are all statutes that override or diminish strict contractual rights. This article examines six ways in which these pieces of legislation accomplish this: (1) restructuring proceedings; (2) stays of proceedings; (3) replacement and default clauses; (4) disclaimers of contracts; (5) assignment of contracts without the consent of the solvent counterparty; and (6) plans of arrangement. Public policy considerations support this legal framework, but it has a significant impact on the solvent party when trying to achieve restructuring or insolvency objectives and preserving legitimate bargains. Therefore, it is crucial for energy law practitioners to understand these policy considerations and this area of law to be able to properly advise clients of the inherent risks and options available.
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