Bill C-309 amends the definitions of “corporation” in the Bankruptcy and Insolvency Act (BIA) and “company” in the Companies’ Creditors Arrangement Act (CCAA) to add an explicit exclusion for “public institutions that receive government operating grants and that are subject to federal or provincial policy directives and operating procedures related to governance, accountability, finance and administration.” Practically, entities meeting that description would fall outside the scope of both statutes.
That change removes the option to use federal bankruptcy or CCAA restructuring processes against those public institutions. The bill creates a significant legal and commercial gap — it prevents court-supervised insolvency or restructuring under two of Canada’s core federal regimes without creating an alternative process or clarifying which bodies qualify as “public institutions.” Compliance officers, creditors, and public-sector counsel need to assess exposure and contractual protections now governed by provincial rules or bespoke government intervention rather than by federal insolvency law.
At a Glance
What It Does
The bill replaces the statutory definitions of corporation/company in the BIA and CCAA to add paragraph (e), excluding from those Acts any public institution that (1) receives government operating grants and (2) is subject to federal or provincial policy directives and operating procedures about governance, accountability, finance and administration. Entities meeting both criteria are not “corporations” or “companies” under those Acts.
Who It Affects
Publicly funded entities—examples include universities, hospitals, school boards and other institutions that regularly rely on government operating grants and follow government policy directives—creditors and suppliers to those entities, insolvency practitioners, and the federal and provincial governments who may be pressed to respond when such institutions face financial distress.
Why It Matters
By removing BIA and CCAA jurisdiction, the bill shifts insolvency risk away from federal bankruptcy and restructuring routes to alternative remedies (provincial statutory regimes or political interventions). That alters creditor recovery strategies, financing risk assessments, and the legal tools available for reorganizing distressed public-sector entities.
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What This Bill Actually Does
Bill C-309 makes a narrow-looking but potent textual change: it carves a class of “public institutions” out of the BIA and the CCAA by excluding them from the Acts’ core definitions. The exclusion uses two linked criteria — receipt of government operating grants and subjection to policy directives and operating procedures tied to governance, accountability, finance and administration — so only institutions meeting both will be outside federal insolvency law.
If an entity meets the test, it cannot be the subject of a bankruptcy filing under the BIA or a court-supervised CCAA restructuring.
The immediate legal effect is procedural and jurisdictional. Trustees, receivers, or a court under the CCAA will have no statutory authority to take control of an excluded institution’s assets or to administer its affairs under those Acts.
Creditors who would normally commence proceedings under the BIA or seek a CCAA stay and restructuring will have to look elsewhere — enforcement through provincial remedies, contract-based security enforcement, or political/governmental responses (bailouts, provincial takeover, or statutory remedies) become the practical alternatives.The bill does not establish any replacement insolvency regime for the excluded institutions, nor does it define who decides whether a particular organization meets the statutory test. That omission leaves a series of operational questions: which institutions qualify, how to resolve disputes over classification, how existing secured creditors are affected, and how intergovernmental responsibilities for distressed public institutions will be allocated.
For creditors and counsel, the result is greater legal uncertainty and the need to reassess contract clauses, security interests, and credit risk where counterparties receive operating grants and operate under governmental directives.
The Five Things You Need to Know
The bill inserts paragraph (e) into the definition of “corporation” in section 2 of the Bankruptcy and Insolvency Act to exclude certain public institutions from the Act’s reach.
It makes a parallel amendment to subsection 2(1) of the Companies’ Creditors Arrangement Act, removing the same class of public institutions from the CCAA’s definition of “company.”, The exclusion applies only to institutions that both receive government operating grants and are subject to federal or provincial policy directives and operating procedures on governance, accountability, finance and administration.
Entities excluded under the new paragraph cannot be placed into bankruptcy under the BIA or into court-supervised restructuring under the CCAA, eliminating those federal insolvency remedies for creditors.
The bill does not create an alternative insolvency or restructuring mechanism, nor does it specify a process for determining whether an entity qualifies as an excluded “public institution.”.
Section-by-Section Breakdown
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BIA definition change — excludes certain public institutions
Section 1 replaces the Bankruptcy and Insolvency Act’s definition of “corporation” and adds paragraph (e) excluding public institutions that receive operating grants and are governed by policy directives and operating procedures. Mechanically, that exclusion removes such institutions from the BIA’s statutory universe: trustees, proposals, bankruptcy applications and many creditor remedies that rely on the BIA’s definition will no longer be available against excluded entities. Practically, creditors cannot trigger BIA processes to realize assets or force reorganizations for those bodies.
CCAA definition change — removes eligibility for court-led restructurings
Section 2 substitutes the CCAA’s definition of “company” to include the same paragraph (e) exclusion. Since access to CCAA relief depends on being a “company” under the Act, institutions that meet the exclusion criteria will be ineligible for CCAA protection — no stay of proceedings, no court-sanctioned compromise, and no court-appointed monitor or plan of arrangement under that Act. Large, complex restructurings that normally would proceed under the CCAA must instead be handled through other means if this bill applies.
Two-part test determines who is excluded
The exclusion turns on two conjunctive facts: receipt of government operating grants and subjection to government policy directives and operating procedures concerning governance, accountability, finance and administration. That language creates a functional, not formal, test: incorporation status alone won’t determine coverage. The text leaves significant interpretive questions open — for example, whether occasional grants or limited policy oversight suffice — which will matter for litigated classification disputes.
No replacement regime, no guidance on enforcement or dispute resolution
The Act makes no provision for alternative insolvency procedures, compensation for creditors, transitional rules, or an administrative mechanism to classify institutions. It does not direct federal or provincial governments to assume liabilities or specify how secured interests should be handled where BIA or CCAA remedies are unavailable. Those omissions shift the burden to existing provincial statutes, contractual remedies and political actors when distress occurs.
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Who Benefits
- Publicly funded institutions (e.g., hospitals, universities, school boards): The exclusion removes the risk that a federal trustee or court-supervised CCAA process will seize assets or impose a federally managed restructuring, preserving operational continuity and insulating them from creditor-driven insolvency processes.
- Government funders (provincial and federal): Governments gain greater control over handling troubled institutions because distress will more likely be resolved through political, administrative or provincial legal mechanisms rather than federal insolvency courts.
- Institutional managers and boards: Officers and boards of qualifying institutions face reduced threat of third-party insolvency intervention, giving them more latitude to implement recovery plans without federal insolvency oversight.
Who Bears the Cost
- Unsecured creditors and suppliers to excluded institutions: Without BIA or CCAA remedies, these parties face diminished collective enforcement options and greater recovery risk; they must rely on contract law, provincial remedies, or negotiate directly with government actors.
- Bondholders and commercial lenders: Lenders lose a predictable federal restructuring path (CCAA) and may demand higher risk premiums, stricter covenants, or additional security when dealing with institutions that might be excluded.
- Insolvency practitioners and creditors’ committees: Professionals who specialize in trustee or CCAA work lose opportunity and statutory authority in cases involving excluded institutions, reducing available tools for managing claims and value maximization.
- Provincial governments and taxpayers: If exclusion causes governments to intervene financially to preserve services, provincial budgets (or federal transfers) may bear additional cost; political pressure could translate into bailouts or takeover arrangements funded by the public sector.
Key Issues
The Core Tension
The bill pits the protection of public-service continuity and governmental control over public institutions against creditor protections and commercial certainty: insulating public institutions from federal insolvency processes reduces the risk of disruptive creditor-driven seizures but also removes predictable legal remedies for creditors and may increase fiscal pressure on governments to fund or assume failing entities.
The bill’s central practical challenge is definitional uncertainty. The conjunctive test — receipt of operating grants plus subjection to policy directives and operating procedures — is functional and leaves room for multiple interpretations.
Many entities receive a mix of grant types (project versus operating), and “policy directives and operating procedures” may be formal statutes, informal memoranda, or funding agreements. Disputes about classification will likely require judicial interpretation, producing case law that could take years to stabilize.
A second major tension is the absence of a replacement framework. By removing federal insolvency remedies without creating an alternative, the bill transfers the problem of distressed public institutions to provinces, to contractual law, or to ad hoc political solutions.
That shift preserves public-service continuity in the short term but may produce worse outcomes for creditors and long-term credit availability. Finally, the amendments raise federal–provincial jurisdiction questions in practice: provinces may already have tailored mechanisms for municipal or public-sector distress, but the line between provincially regulated bodies and those captured by the federal exclusion could trigger intergovernmental disputes and litigation over responsibility for failing institutions.
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