SCC Rules No Absolute Bar On Pre-post Compensation (setoff), Overrules Kitco And Provides Roadmap For Possible Pre-post Setoff In CCAA Cases

On December 10, 2021, the Supreme Court of Canada ("SCC") rendered its decision in Montréal (City) v. Deloitte Restructuring Inc.¹ and established a test for situations that might allow pre-filing claims to be set off against post-filing claims in proceedings under the CCAA². In doing so, the SCC rejected the absolute prohibition proposed by the Quebec Court of Appeal in Agence du revenu v. Kitco Metals Inc. ("Kitco")³, concluding that a court has the discretion to allow pre-post compensation (or set-off in common law provinces) in appropriate cases⁴. In tempering the principle in Kitco, the SCC noted that "the instances in which a court should not stay the right to effect pre-post compensation in an initial order will be rare, however"⁵ it is open for creditors to seek leave from the stay. In considering a creditor's request for relief from the stay to assert its pre-post compensation, the supervising judge's discretion must be exercised in furtherance of the CCAA's