License Agreements, Legislative Amendments And The Implication For Restructurings

The recent amendments to the Bankruptcy and Insolvency Act (the "BIA") and the Companies' Creditors Arrangement Act (the "CCAA") have sought to address contractual rights amongst parties during restructuring. These amendments have codified the common law principle that an insolvent debtor has the power to disclaim agreements. Still, it is important to recognize that the amendments have also legislated that some agreements cannot be disclaimed during a restructuring. The resulting implications can have unexpected consequences on the restructuring process, particularly with respect to intellectual property.

Historically, the general principle was that receivers or trustees in bankruptcy were free to disclaim license agreements not in the interests of the estate, subject to applications for relief from the disclaimer. However, innocent licensees will now have some protection under the BIA and CCAA. After the amendments are proclaimed in force¹, an insolvent licensor who