Use Of "Guillotine" Orders In CCAA Proceedings

In Teal Jones Holdings Ltd. (Re), 2025 BCSC 2291, the Supreme Court of British Columbia recently granted what appears to be the first "guillotine" order issued in a Companies' Creditors Arrangement Act ("CCAA") proceeding. The Court required a losing bidder in a sale process that challenged the loss of its deposit to post security for costs and provided that its motion would automatically be deemed to be dismissed and the deposit could be distributed to creditors if it failed to do so by the deadline.

While a "guillotine" order may only available in rare circumstances, it is another tool that can potentially be used to facilitate the progress of insolvency proceedings.

Background

• Teal Jones Holdings Ltd. ("Teal Jones") commenced proceedings under the CCAA and ran a sale and investment solicitation process for its assets, including two sawmills.
• In April 2025, Teal Jones agreed to sell the sawmills to Mercury Merchant LLC ("Mercury"). The agreement was governed by Delaware law. Mercury paid a deposit of USD $850,000 and an approval and vesting order was granted by the Court in June 2025.
• Mercury was unable to obtain the financing necessary to close the deal. After extending the closing date twice, Teal Jones terminated the Mercury agreement and the deposit was retained.
• Teal Jones agreed to sell one of the sawmills to another purchaser and sought court approval in September 2025.
• Mercury sought an adjournment so that it could put together evidence to argue that its agreement continued in effect under Delaware law.
• The Court dismissed the adjournment application, approved the transaction, and authorized the distribution of the sale proceeds to Teal Jones' creditors. Mercury sought leave to appeal this decision which was recently denied: 2025 BCCA 399.
• The Court gave Mercury until October 3, 2025 to file an application relating to the forfeiture of its deposit, failing which the deposit could also be distributed to creditors. Mercury filed its application by the deadline (the "Deposit Application").
• The interim lenders filed an application seeking security for costs from Mercury on the Deposit Application.

Security for Costs Ordered

The Court ordered Mercury to post security for costs in the amount of $75,000; less than the $250,000 sought. The Court noted that (i) Mercury was a shell corporation, (ii) there were significant doubts about Mercury's ability to establish that it was entitled to relief from forfeiture of its deposit under Delaware law, and (iii) Mercury had been able to pay an $850,000 deposit so there was no reason to believe that Mercury could not pay security for costs if it believed it had a strong case for a return of the deposit.

The Court provided Mercury until November 28, 2025 – 10 days from the release of the decision – to post the security.

"Guillotine" Order Granted

The interim lenders also sought a "guillotine" order, which would operate to automatically dismiss the Deposit Application should the security not be posted by the deadline.

"Guillotine" orders for failure to post security for costs are the subject of a significant body of case law in British Columbia. The British Columbia Court of Appeal has cautioned on multiple occasions that they should only be granted in "exceptionally unusual circumstances" because of the risk of prejudice due to a litigant such as Mercury losing substantive rights because of an accidental failure to comply.¹ However, they have been granted in several previous cases,² although it does not appear that a "guillotine" order has previously been made in CCAA proceedings.

It does not appear that a "guillotine" order has been granted in Ontario for a failure to post security for costs.³ "Guillotine" orders have been ordered by Ontario courts for a failure to comply with a timetable established at a status hearing due to delay in litigation proceeding to trial.⁴

The Court in Teal Jones held that it was an appropriate case to include a "guillotine" order if Mercury failed to post security for costs by the deadline. The distribution of the deposit to the creditors had already been approved, subject to resolution of the Deposit Application. Including the "guillotine" order would allow the funds to be distributed if the security was not posted by the deadline without the parties having to come back to court again. It seems that the Court thought that Mercury had been given enough of an indulgence to pursue what it viewed as a weak application and was not inclined to grant Mercury any further leeway.

Takeaways

Teal Jones is notable as the apparent first use of a "guillotine" order in a CCAA proceeding. It is another potential tool in the toolkit that parties should keep in mind where the progress of insolvency proceedings is contingent on the disposition of an application or motion brought by another party and that application/motion going ahead is contingent on something occurring by a particular deadline (such as the posting of security for costs). The inclusion of a "guillotine" order can potentially allow the insolvency proceedings to progress without a further motion being needed if that deadline is not met. Parties should bear in mind that courts will be cautious in granting such "guillotine" orders to avoid depriving parties of substantive rights. But, in the appropriate circumstances, it can move things along and reduce costs.

Foonotes

1. See e.g. Global Banking Systems Inc. v. Datawest Solutions Inc., 2006 BCCA 577 at paras. 19-22 and the cases cited therein.

2. See e.g. 1600 Davie Limited Partnership v. Metal Yapi Holding A.S., 2025 BCSC 979; A B & A Matthews et al. v. Dixon, 1999 BCCA 333.

3. Rule 56.06 of the Rules of Civil Procedure (Ontario) provides that if a plaintiff or applicant defaults in posting the security, the court may on motion dismiss the proceeding; so the dismissal is not automatic under the Rules and it does not appear that an automatic dismissal for failure to post security for costs has been ordered by an Ontario court.

4. See e.g. 1239122 Ontario Inc. v. Russell, 2012 ONSC 2375; Samborski v. Pristine Capital Inc., 2011 ONSC 3383.

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