C. Set-Off

Author:Roderick J. Wood
Profession:Faculty of Law. University of Alberta

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Courts long took the view that their power to stay proceedings under the CCAA extended to extra-judicial remedies including the exercise of a right of set-off.60Orders granted under the CCAA usually contained a provision that prevented parties from exercising a right of setoff against the debtor company. An amendment to the CCAA in 1992 changed the law on this point. The CCAA now provides that the law of set-off applies to all claims made against a debtor company and to all actions instituted by it for recovery of debts due to the company.61

No amendment to the commercial proposal provisions of the BIA was required, since the right to exercise set-off was already recognized in the statute.62A creditor who owes an obligation to the debtor is therefore able to set-off obligations that are owed to it by the debtor if the ordinary conditions for exercising the right of set-off have been satisfied.63In Re Blue Range Resource Corp.,64a purchaser suffered damages as a result of a termination by the debtor company of a long-term supply contract after the commencement of restructuring proceedings. The purchaser was able to set-off this claim against debts that it owed to the debtor in respect of goods that it purchased both before and after the commencement of restructuring proceedings. Legal set-off was not available because the claim for damages was not a debt. However, equitable set-off

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was available, since an unliquidated claim can be set-off against a debt so long as the two claims are closely connected.

The matter becomes more problematic when legal set-off is asserted in respect of claims between the parties that arise after the commencement of restructuring proceedings. In order to exercise a right of setoff, the cross-claims must be between the same parties in the same right. In bankruptcy proceedings, post-bankruptcy debts cannot be setoff against pre-bankruptcy debts.65In Re Air Canada,66 the court held that the same reasoning does not hold true in restructuring proceedings. Unlike bankruptcy or winding-up proceedings, there is no vesting of property in the debtor or other alteration in the legal status of the debtor. As a consequence, debts that arise after the commencement of restructuring proceedings can be set-off against pre-existing debts.

The ability to exercise a right of set-off in restructuring proceedings can operate to improve greatly the position of one creditor at the expense of the other creditors...

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