Canada: Protecting Lien Rights In The Face Of A CCAA Application: Practical Lessons Learned From Newpage

Last Updated: January 4 2013
Article by Misty Watson

When an owner is unable to meet its financial obligations, it may, under certain circumstances, seek protection under the Companies Creditors Arrangement Act, RSC 1985, c.C-36 ("CCAA").

The CCAA is a remedial statute which grants the court broad powers to facilitate the making of an arrangement or compromise between the debtor company and its creditors while the debtor company either attempts to reorganize its affair. Or, in more recent times, to sell substantially all of its assets to preserve it as a going concern under new ownership, or to wind up or liquidate.1

The outcome of an unreported motion in NewPage Port Hawkesbury Corp., (Re)2 this summer is a reminder that when faced with the insolvency of an owner, there are steps you may take to protect your lien rights and minimize potential losses.

NewPage's builders' lien discharge motion

In September, 2011, NewPage sought and obtained protection under the CCAA. Among NewPage's creditors were various builders' lien claimants. On July 27, 2012, counsel for NewPage brought a motion seeking an order vacating and discharging these builders' liens, the certificates of pending litigation registered against lands owned by NewPage and the actions associated with the liens.

The motion was ultimately successful and on August 1, 2012, Deputy Prothonotary Wood issued an order vacating the liens, discharging the certificates of pending litigation and dismissing any actions associated with them on the effective date set out in the Plan of Compromise and Arrangement.

The circumstances of the various lien claimants varied. Some appear to have not perfected their liens within the time prescribed in the Builders' Lien Act, RSNS 1989, c. 277. Others failed to file a proof of claim within the time stipulated in the claims process order. Others consented to being treated as unsecured creditors.

What can I do?

When an owner enters CCAA protection, it is clear that there is not enough money to go around. As such, it may not be possible to recover all that is owed to you. However, by knowing the rights and remedies available under builders' lien legislation and the CCAA, you'll put yourself in the best possible position to maximize recovery.

Preserve and perfect:

Under builders' lien legislation, a lien arises in favour of a contractor as soon as he or she begins work or furnishes materials to the project. However, the lien does not become an effective charge against the owner's interest in land until it is preserved and perfected. A claimant with a preserved and perfected lien is a secured creditor for the purposes of the CCAA3.

A lien is preserved when a claim for lien is registered against the owner's interest in the subject property pursuant to legislation.

A lien is perfected by issuing a statement of claim and/or registering a certificate of pending litigation.

Typically, in a CCAA proceeding, the court will afford protection to the debtor company by "staying" all proceedings against the insolvent company. This stay prevents any party from commencing or continuing any legal action, including the preservation or perfection of a lien, against the debtor. In these circumstances, the court will generally permit a claimant to preserve or perfect its lien either with the consent of the monitor or by motion.

If you have not preserved or perfected your lien prior to the debtor company entering CCAA protection, it is critically important to apply to the court to lift the stay for the purpose of allowing you to do so before the time in the applicable builders' lien statute expires. Once this time limit has passed, your lien will expire and cannot be revived by the court.

Continuing the lien action:

In some builders' lien statutes, such as New Brunswick's Mechanics' Lien Act, a preserved and perfected lien must be (a) set down for trial or (b) an application must have been made to the court to continue the action within a year of being commenced.4 Much like the time limits within which to preserve or perfect a lien, once the year elapses without the required action being taken, the lien expires and cannot be revived by the court.

Therefore, it is important to be aware of any expiration provision in builders' lien legislation in the province in which you're working. and if necessary, to apply to the court to lift the stay to allow you to continue your lien action before the expiry of the relevant time period.

Proof of claim:

In proceedings under the CCAA, a court may set out in an order a claims process which includes a claims bar date. A typical order will state that if a proof of claim is not filed by the claims bar date it is "forever barred and extinguished". In ScoZinc Ltd., (Re.)5, the Nova Scotia Supreme Court affirmed that authorizing such a process, whereby claims must initially be identified and assessed by a court appointed monitor, is a valid exercise of the court's inherent jurisdiction. Therefore, it is important not to unnecessarily abandon your claim by failing to file a proof of claim on or before the claims bar date.

However, if you have missed the claims bar date, all may not be lost. The court may, on application, permit a claimant to file a claim beyond the claims bar date in certain circumstances. These circumstances will depend on the specific facts of each case6 but generally include whether the claimant's delay was caused by inadvertence, whether the claimant has acted in good faith and the relative prejudice that may result in allowing the late claim7.

What this means for you

The best protection against a potentially unpleasant situation is to see it coming. Each of the mechanics' lien statutes in Atlantic Canada allow a lienholder to, at any time, demand specific information from various parties, ranging from the mortgagee to unpaid vendors, contractors, subcontractors or the owner. Although this right appears to be rarely used, it can provide you with valuable information regarding the financial shape of the project, including the names of parties to a contract, the state of various accounts and details of the state of payment under mortgages.


1 First Leaside Wealth Management Inc., Re, 2012 ONSC 1299 2 NSSC, Hfx No. 355063 3 CCAA, s.2

2 NSSC, Hfx No. 355063

3 CCAA, s.2.

4 RSNB 1973, c.M-6, s. 52.1

5 2009 NSSC 136

6 BA Energy Inc. (Re.), [2010] A.J. No. 920 (Q.B.)

7 Blue Range Resources Corp. (Re.), [2000] A.J. No. 1232 (CA).

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.

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