Beware the Copybook Headings: Looming Changes to Canada’s Insolvency Regime for Postsecondary Education Institutions

Postsecondary institutions face the looming prospect of neither being able to file for bankruptcy under the BIA nor propose an arrangement with their creditors under the CCAA. Meanwhile, questions about the financial viability of public universities are growing more urgent.

Kieran Moloney
February 12, 2025

In 2023, I wrote an article featured by the Insolvency Institute of Canada detailing Laurentian University’s plunge into insolvency proceedings and speculating how the corporate restructuring of a publicly-funded institution might inspire legislative change.

A year after my article’s publication, Bill C-59 was given Royal Assent.

This omnibus piece of legislation contained a subtle but important amendment to the definition of “Corporation” under Canada’s two insolvency statutes: the Companies' Creditors Arrangement Act (CCAA) and the Bankruptcy and Insolvency Act (BIA). Both insolvency statutes have been amended to exclude from their ambit “prescribed post-secondary educational institutions”.

In short, the change seeks to prevent public colleges and universities from following in the footsteps of Laurentian and seeking creditor protection through the courts. Because of Bill C-59s’ double exclusion, postsecondary institutions face the looming prospect of neither being able to file for bankruptcy under the BIA nor propose an arrangement with their creditors under the CCAA.

This change has been met with a celebratory sigh of relief from post-secondary institutions and their faculty associations. To them, the Laurentian insolvency represented a crack in the foundational idea of the university as a public good—a place insulated from creditors and economic realities by virtue of its role in the social contract.

While the amended CCAA and BIA definitions have been passed by legislators, their coming into force date—the date upon which they will have the effect of law—has been delayed for two years. Meanwhile, questions about the financial viability of public universities—and what happens to their creditors when they become insolvent—are growing more urgent.

There is plenty of empirical evidence that Laurentian’s insolvency could be more of a conflagration than a flash in the pan.

Ontario’s Auditor General has repeatedly highlighted the poor financial performance and mounting debt loads of numerous colleges and universities across the province, and it has been remarked that some of the country’s largest postsecondary institutions have reached a level of debt that poses a significant risk to their future survival. The beginning of 2025 has already been marked by a growing number of Canadian colleges and universities announcing major budget cuts, program cancellations, and academic furloughs. The high level of reliance by public colleges and universities on international students means that recent federal policy changes limiting the issuance of international student visas will only exacerbate existing financial pressures.

The delayed implementation of these legislative amendments suggests that policymakers may still be struggling with a crucial question: What happens when a university is bankrupt in all but name? The exclusion from the BIA and CCAA without a clear alternative creates an impermissible legislative vacuum. In the absence of a statutory mechanism for the enforcement of creditor rights, courts may be asked to fill the gaps, invoking their inherent jurisdiction to grant relief and ensure creditors can realize their rights.

Perhaps the quiet part that Bill C-59 fails to say out loud is the implicit suggestion that provincial governments ought to serve as a financier of last resort for distressed public colleges and universities. However, this is a policy position that lacks legal cognizability. Beyond the absence of any legal requirement for provinces to provide emergency liquidity to postsecondary institutions, there is a glaringly obvious moral hazard that such an implicit guarantee would signal.

Beyond the unlikely (and highly problematic) proposition of government-backstopped balance sheets for postsecondary institutions, it is possible that some kind of alternative insolvency regime is percolating its way through Ottawa’s bureaucracy. The goal of such a regime would likely be to better account for the public interest that exists in the restructuring of publicly-funded corporations; a cleavage that Ottawa has determined is unfairly prejudiced in the existing creditor-centric statutes. But a novel regime would be a tall task for policymakers.

Ultimately, dispensing with this legislative tinkering and accepting that public corporations are eligible under the BIA and/or CCAA in some modified capacity may still be what comes of all of this. The merits of such an approach are perhaps best evidenced in the salvaging of at least one mismanaged Ontario university.

In the era of elaborate government, we were promised abundance for all; By robbing selected Peter to pay for collective Paul; But, though we had plenty of money, there was nothing our money could buy; And the Gods of the Copybook Headings said: "If you don't work you die."

Kipling's Gods of the Copybook Headings are the grim custodians of seemingly forgotten wisdom. When cash is plentiful but the underlying productivity falters, collapse is inevitable.

Exemption from insolvency remedies by legislative decree will be unable to mask the structural deficiencies that are increasingly edging postsecondary institutions into financial precarity.

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Kieran Moloney holds a law degree from Osgoode Hall Law School and a Public Affairs and Policy Management Degree from Carleton University. He is a former political and policy advisor to Canadian political leaders on Parliament Hill and at Queen’s Park. Kieran’s paper on public sector restructurings was awarded first prize by the Insolvency Institute of Canada’s 2023 Law Student Writing Awards.