Environmental Liabilities Open The Door To Partial Termination Of Agreements During Insolvency

It has long been the law that termination of contracts is permissible under the Companies' Creditors Arrangement Act (CCAA) and Bankruptcy and Insolvency Act (BIA) with the effect of the termination being to create an unsecured claim for damages in place of the contract. What has not been permitted is allowing insolvent companies to pick and choose parts of an agreement to terminate. Following a recent decision arising out of receivership proceedings in the Yukon, it may now in some circumstances be possible to terminate parts of an agreement.

In Yukon (Government of) v. Yukon Zinc Corporation, 2020 YKSC 16, the Court found that it has the authority to authorize a partial termination of a contract pursuant to section 243 of the BIA and section 26 of the Judicature Act. The facts involved a receiver issuing a notice of partial disclaimer of a Master Lease. The Master Lease applied to approximately 572 items, namely equipment, tools, vehicles and infrastructure being