Completed PPSA enforcement means equipment lessor not stayed

Walgre Transport Inc. (Re), 2025 ONSC 7143
Can an equipment lessor take possession of its collateral despite the BIA/CCAA stay?

Summary: The Ontario Superior Court held that an equipment lessor that has validly terminated its lease agreements and completed required enforcement steps under the PPSA before the commencement of insolvency proceedings is not bound by the BIA or CCAA stay from taking possession of its equipment, emphasizing that the stay preserves only the debtor’s legal status quo as of the filing date and cannot revive rights that have already been extinguished. TD Equipment Finance Canada, as owner of trucks and trailers leased to Walgre, had terminated the lease agreements, delivered BIA section 244 and PPSA notices, and allowed the redemption period to expire before Walgre filed its NOI, meaning Walgre had no remaining contractual or possessory rights when the statutory stay arose. The Court rejected Walgre’s argument that the leases should be treated as financing agreements whose enforcement would be stayed, finding that the outcome turned instead on termination timing and contractual interpretation, not lease characterization. Because termination was a final remedial step rather than an ongoing enforcement action, TD’s claim to possession flowed from ownership, not from a stayed remedy against the debtor or its property. Even if the stay had applied, the Court stated it would have exercised its discretion to lift it, and accordingly granted TD’s motion for possession, clarifying that equipment lessors who comply with PPSA and BIA notice requirements and complete termination before an insolvency filing may enforce their ownership rights notwithstanding a subsequent NOI or CCAA proceeding.

TD Equipment Finance Canada, a division of The Toronto-Dominion Bank (“TDEF”), was one of about 30 equipment lessors/financiers from which Walgre leased or financed trucks and trailers for Walgre’s trucking business. Pursuant to the TDEF lease agreements, TDEF financed the acquisition of the TD Leased Equipment by paying the suppliers selected by Walgre after Walgre had selected the Leased Equipment and the suppliers. TDEF, not Walgre, owned the Leased Equipment. Walgre’s rights and entitlements with respect to the Leased Equipment were governed by the TDEF Lease Agreements and applicable statutes.

In early 2025, as Walgre faced financial difficulties and liquidity constraints, it began to default on payments owing to its lessors/financiers and secured creditors. Walgre became unable to meet its obligations as they came due, including those under its equipment lease and financing agreements with TDEF and others. On June 4, 2025, TDEF, among others, delivered a demand and termination letter to Walgre, terminating the TDEF Lease Agreements, and demanding the return of the Leased Equipment. TDEF also enclosed a notice of intention to enforce security pursuant to s. 244 of the Bankruptcy and Insolvency Act and a notice pursuant to s. 63(4) of the Personal Property Security Act, which set out TDEF’s intention to dispose of the Leased Equipment if Walgre did not exercise its right to pay the amounts due and redeem the Leased Equipment within the prescribed time limits. Walgre ultimately did not do so.

Walgre filed a notice of intention to make a proposal under the BIA on June 27, 2025 (the “NOI Proceedings”). On July 11, 2025, Walgre sought and obtained an order, among other things, authorizing Walgre to surrender equipment that it, in consultation with Grant Thornton as the Proposal Trustee, deemed non-essential. Pursuant to that order, Walgre voluntarily surrendered three trucks to TDEF, but it deemed the remainder of the Leased Equipment from TDEF to be essential to its continuing business and did not return it.

TDEF issued an action on July 10, 2025 against the personal guarantor, Grewal, on his guarantee of Walgre’s obligations to TDEF. Grewal was noted in default by TDEF, and TDEF later served a motion for Summary Judgment on the guarantee, seeking judgment in the amount of $3,056,663.39 (including interest) against Grewal plus full indemnity costs.

The NOI Proceedings were continued under the CCAA (the “CCAA Proceedings”) by the CCAA Initial Order granted on October 8, 2025. The applicants’ request for the CCAA Personal Guarantor Stay in favour of Grewal was part of the motion to continue the NOI Proceedings under the CCAA. TDEF brought a cross-motion for possession of 8 trucks and 41 trailers comprising the Leased Equipment, and, if necessary, to lift the stay of proceedings for it to take possession of the Leased Equipment. The motions were heard together. With respect to TDEF’s motion, the Court had to determine whether the statutory stay under s. 69(1) of the BIA (the “BIA Stay”) in the NOI Proceedings (in effect as of June 27, 2025) applied to and bound TDEF so as to prevent it from taking possession of the Leased Equipment, and if the s. 69(1) statutory BIA Stay did apply, whether it should be lifted to allow TDEF to take possession of the Leased Equipment.

The TD Lease Agreements were the sole source of Walgre’s rights to use and possess the Leased Equipment. TDEF argued that, once the TD Lease Agreements were terminated, Walgre’s rights to use and possess the Leased Equipment ended. The BIA Stay came into effect on June 27, 2025, when the NOI notice was filed, which was after the TD Lease Agreements had been terminated and after the PPSA redemption period had expired on June 20, 2025. Because of the required statutory notice periods under the BIA and the PPSA, TDEF’s Termination Notice was on hold pending the possibility that Walgre might exercise statutory rights of redemption, but that never occurred. Accordingly, the Court found that the termination was in effect by the time the NOI notice was filed on June 27, 2025.

Walgre pointed to the principle that if it is determined that a lease is, in substance, a financing agreement, then the lease payments are considered debt obligations and subject to the stay of proceedings (as opposed to true lease obligations, which by virtue of s. 11.01(a) of the CCAA and s. 65.1(4)(a) of the BIA, are not stayed). However, TDEF’s success on its motion did not depend on the court finding that the TD Lease Agreements were not financing agreements. The Court noted that they very likely were. Rather, the motion turned on the proper interpretation of the TD Lease Agreements, which granted TDEF a contractual right of termination, which it exercised before there was any stay in favour of Walgre.

The BIA Stay preserves the status quo for the debtor as at the date it is initiated. The status quo for Walgre, as at June 27, 2025, was that it no longer had any rights to use and possess the Leased Equipment under the TD Lease Agreements, which had been terminated. The legal relationship between Walgre and TDEF changed when TDEF terminated the TD Lease Agreements, a step that was taken before the s. 69(1)(a) BIA Stay came into effect on June 27, 2025. The changed legal relationship was the only status quo that the stay could protect. Walgre’s after-the-fact designation of certain Leased Equipment under the TD Lease Agreements as essential to its restructuring efforts under the NOI Proceedings, and subsequently under the CCAA Proceedings, could not resurrect any rights that Walgre may have had under those already terminated TD Lease Agreements.

Walgre analogized the exercise of remedies of possession, power of sale and foreclosure under financing agreements to mortgage remedies that are stayed under the BIA and CCAA. However, the Court noted that TDEF had already taken its terminal enforcement step by the time the BIA Stay was first initiated by the NOI Notice. The only reason why TDEF was not in possession of the Leased Equipment at the time of the NOI Notice was because Walgre had not disclosed the precise location of the Leased Equipment. TDEF’s motion was not in respect of Walgre’s property or its assets, nor did it deal with a claim provable in bankruptcy. As such, the remaining question was whether TDEF is pursuing a remedy against Walgre.

The Court found that TDEF’s termination of the Lease Agreements was not a continuing remedy, but rather a final remedial step taken prior to the NOI notice. Once the notice periods lapsed, TDEF’s enforcement action was complete. Its further remedies (e.g., for damages) could be stayed, but its absolute right, as the owner, to the use and possession of the Leased Equipment pre-existed the BIA Stay. The overlay of Part V of the PPSA and the protections it affords did not change the legal reality that the Leased Equipment had always been owned by TDEF under the contractual arrangements between the parties. It may have been treated as collateral or security for purposes of invoking the notice provisions and protections of Part V of the PPSA, but that did not change the legal title or the fact that the TD Lease Agreements were terminated. TDEF was not exercising a right to possession upon default under s. 62 of the PPSA. Rather, TDEF was exercising its rights attendant upon its ownership of the Leased Equipment.

Walgre did not file its NOI Notice in time to prevent the termination of the TD Lease Agreements and the BIA Stay did not bind TDEF so as to prevent it from taking possession of the Leased Equipment. Nevertheless, the Court concluded that even if the BIA Stay did apply to the Leased Equipment, the Court would have exercised its discretion under s. 69.4 of the BIA and s. 11 of the CCAA to lift the stay and allow TDEF’s motion. The Court granted TDEF’s motion.

Judge: Justice Kimmel

Professionals involved:

• Timothy Dunn and Alexandra Teodorescu of Blaney McMurtry for TD Equipment Finance Canada

• Jason Berall, Aiden Nelms and Josh Foster of Bennett Jones for the Applicants/Debtors, Walgre Transport Inc. and 2793309 Ontario Ltd.

• George Benchetrit of Chaitons for the CCAA Monitor, Grant Thornton Limited

• Samantha Hans of Aird & Berlis for Royal Bank of Canada

• Malika Grewal of Simmons da Silva for Kanwaldeep Singh Grewal