Canada: Ontario Court Of Appeal Confirms Bondholders Not Entitled To Post-Petition Interest

Last Updated: December 30 2015
Article by John J. Salmas and Sara-Ann Van Allen

The Ontario Court of Appeal (Court) recently affirmed the decision of the Ontario Superior Court of Justice in Nortel Networks Corporation (Re) (Nortel),1 that the "interest stops" rule applies in proceedings under the Companies' Creditors Arrangement Act (Canada) (CCAA)2. Specifically, the Court held that the "interest stops" rule applies in liquidating CCAA proceedings, such as Nortel, as parties retain the right to provide for the payment of post-filing interest in a CCAA restructuring plan.

The "interest stops" rule requires that creditors' claims stop accruing interest as of the date of an insolvency filing. Accordingly, the Court held that the appellant bondholders were not entitled to claim interest accruing post-CCAA filing.


The appeal was brought by the Ad Hoc Group of Bondholders, representing a substantial number of unsecured "crossover bonds", for which various US and Canadian Nortel entities are liable as either principal obligors or guarantors. The CCAA does not expressly prohibit asserting a claim for post-filing interest. As a result, the crossover bondholders took the position that they were entitled to claim post-filing interest pursuant to the terms of the relevant indentures under which their bonds were issued, providing for the continuing accrual of interest until payment. 

Holders of the crossover bonds filed claims for principal and pre-filing interest in the amount of US$4.092 billion against the applicable Canadian and US Nortel debtors. They also claimed an entitlement to post-filing interest which, as of December 13, 2013, amounted to approximately US$1.6 billion. These amounts represent a substantial portion of the approximately US$7.3 billion total proceeds available for distribution to all of Nortel's creditors, generated from the worldwide sale of its businesses. A successful claim for post-filing interest by the crossover bondholders would substantially reduce the amount of proceeds available for distribution to Nortel's other creditors—notably pensioners and former employees—who do not enjoy either a contractual or statutory right to post-filing interest.

The decision

Prior to the release of the lower court's decision in Nortel, it was unsettled whether unsecured creditors could claim for post-filing interest in CCAA proceedings.3 In contrast, the Bankruptcy and Insolvency Act (Canada) (BIA) does not allow unsecured creditors to claim for post-filing interest unless there is a surplus remaining after payment of all debts (not including interest).4  

The Court [DJ1] in Nortel found that the "interest stops" rule applies in CCAA proceedings. However, the Court expressly clarified that its ruling does not prevent a CCAA restructuring plan from providing for the payment of post-filing interest, which is common practice. 

In support of its analysis for the application of the "interest stops" rule in CCAA proceedings, the Court noted that this rule is a necessary corollary of the pari passu principle. This principle, which is a governing principle of insolvency law in Canada and many other legal jurisdictions, provides that the assets of an insolvent debtor are to be distributed rateably amongst the debtor's unsecured creditors (subject to the claims of prior-ranking creditors). Without the "interest stops" rule, the Court held, the fairness and orderly distribution sought to be obtained by the pari passu principle could not be achieved.

The Court cited various additional reasons for imposing the "interest stops" rule in CCAA proceedings, including:

  1. It harmonizes the CCAA with the BIA,
  2. It ensures that creditors without a contractual right to post-filing interest will not be incentivized to prefer liquidation proceedings over a CCAA reorganization,
  3. It  preserves the status quo post-filing, and
  4. It reinforces the principle of fairness.

Previous judicial decisions had permitted claims for interest post-filing in CCAA proceedings5; however the Court of Appeal in Nortel limited those decisions to their specific facts and noted that they should be read in light of the Supreme Court of Canada's more recent decisions that emphasize the need to harmonize the two statutory schemes under the BIA and CCAA.

For these reasons, the Court of Appeal dismissed the crossover bondholders' appeal.

It should be noted that the Court of Appeal in Nortel only considered the bondholders' contractual entitlement to post-filing interest. Pursuant to the decision of the Supreme Court of Canada in Canada 3000 (Re), discussed by the Court in Nortel, post-filing interest may be available where the entitlement to such interest is provided for by statute.6


1. Re Nortel Networks Corporation, 2015 ONCA 681 affirming Re Nortel Networks Corporation, 2014 ONSC 4777.

2. Companies' Creditors Arrangement Act, RSC 1985, c C-36.

3. Re Nortel Networks Corporation, 2014 ONSC 4777 at para 24 [Nortel].

4. Bankruptcy and Insolvency Act, RSC 1985 c. B-3 at ss.122(2) and 143.

5. See Canada 3000 Inc., Re; Inter-Canadian (1991) Inc. (Trustee of), 2006 SCC 24 [Canada 3000 (Re)] and Stelco Inc. (Re), 2007 ONCA 483.

6. See Nortel, supra, at paras 67-69 and Canada 3000 (Re), supra, at paras 93-96.   

About Dentons

Dentons is a global firm driven to provide you with the competitive edge in an increasingly complex and interconnected marketplace. We were formed by the March 2013 combination of international law firm Salans LLP, Canadian law firm Fraser Milner Casgrain LLP (FMC) and international law firm SNR Denton.

Dentons is built on the solid foundations of three highly regarded law firms. Each built its outstanding reputation and valued clientele by responding to the local, regional and national needs of a broad spectrum of clients of all sizes – individuals; entrepreneurs; small businesses and start-ups; local, regional and national governments and government agencies; and mid-sized and larger private and public corporations, including international and global entities.

Now clients benefit from more than 2,500 lawyers and professionals in 79 locations in 52 countries across Africa, Asia Pacific, Canada, Central Asia, Europe, the Middle East, Russia and the CIS, the UK and the US who are committed to challenging the status quo to offer creative, actionable business and legal solutions.

Learn more at

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. Specific Questions relating to this article should be addressed directly to the author.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
30 Aug 2017, Seminar, Rio de Janeiro, Brazil

The Dentons and Vella Pugliese Buosi Guidoni Tax Partners are pleased to invite you to a cocktail networking reception at Tano Cucina Italiana, located in the Grand Hyatt Rio de Janeiro.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.