Court clarifies how to preserve lien rights in insolvency

MCAP Financial Corporation v. Vandyk-The Buckingham North - Grand Central Limited, 2025 ONSC 6358
What's the appropriate process for preserving lien rights in an insolvency?

Summary: In this case, the Court commented at length on the appropriate process to be followed to preserve lien rights in an insolvency. The Court confirmed that lien claimants can seek protective orders in an insolvency to prevent their claims from being dismissed under the Construction Act’s two-year deadline when a receivership stay has blocked the action from being set down for trial. While insolvency proceedings often justify delaying the adjudication of most creditor claims until realizations are clearer, the Court stressed that lien rights sit in a distinct priority position, can survive bankruptcy, and are meant to be addressed promptly, so efficiency concerns alone cannot override the deadline set by the Construction Act. Given the complexity of the projects and the genuine risk that even priority recoveries were uncertain, the Court accepted that the claimants acted reasonably in not seeking to lift the stay sooner and granted the requested orders to avoid automatic dismissal. At the same time, it warned that parties should not wait until the eve of statutory deadlines without evidence supporting the need for relief and should be prepared to show how any proposed process aligns with the Construction Act’s framework.

The lien claimants, PCL Constructors Canada Inc., Kohn Partnership Architects Incorporated, and Aquila Project Solutions Ltd., sought orders protecting their lien claims from being dismissed by operation of ss. 37 and 46 of the Construction Act, RSO 1990 c C.30 due to the claims not being set down for trial within two years of being commenced. The lien claims had not been set down for trial because they were stayed by the orders that commenced the receiverships.

Insolvency proceedings always carry the risk that some creditors will not be paid. Uncertainty as to the amount of proceeds expected to be realized in a proceeding has several effects. Highest priority claims typically can be expected to be paid or payable. While creditors with high priority claims may commence the proceedings, if they are not at practical risk of going unpaid, usually little time is spent dealing with them. Unless their claims are likely to go unpaid by the available assets, there is usually little prejudice to high priority claimants by simply waiting. At the other end of the priority ladder, some creditors will clearly be out of the money. They really have no cognizable financial interest in the proceedings. In the middle are creditors who may be paid some amount depending on the outcome. Their claims are typically prejudiced by delay and additional costs.

As a result of uncertainty of the final value of future asset realization by the receiver or other court officer, it is usually considered a better approach to defer assessing the validity and quantum of creditors’ claims until the final proceeds available for distribution are known. Waiting saves time and money for all by avoiding the cost of proving claims that have no value in any event. It also avoids challenges by creditors against other creditors whose claims are higher on the priority ladder. If it can be shown that, due to the amount of funds available for distribution, a potential challenge will not result in the challenger obtaining any funds even if successful, lengthy and costly internecine litigation can be avoided.

Lien claimants occupy an unusual space in an insolvency. The priority of liens and trusts under the Construction Act can survive bankruptcy. Under s. 78 of the Construction Act, liens may take priority over pre-existing mortgages in some circumstances. To some extent, liens are at or near the top of the priority ladder. Proving liens, and especially quantifying them, can be expensive. However, lien claims must not be automatically consigned to the “wait and see” pile in every insolvency proceeding. There are cases where the identification of holdbacks or other priorities may be both necessary and not that difficult. As well, the Construction Act provides for liens to be dealt with expeditiously where possible.

The Court held that the desirability to defer the cost of determining claims in receivership proceedings until proceeds were realized did not necessarily trump the legislative intent for lien claims to be dealt with expeditiously. Absent tangible prejudice to the receivership goals, simply asserting that “it may save money to wait” is not a sufficient basis to ignore or circumvent the statutory requirements of the Construction Act.

The Court did not fault the lien claimants for not seeking to lift the stay while realization was under consideration. The assets were complex and even priority recovery could be at risk on at least one of the project sites. The Court was satisfied that the orders sought should be made to avoid upcoming dismissal dates under s. 37, and the processes employed were not undermining the policy of the Construction Act.

The Court cautioned that claimants should not wait until the last minute for these types of orders without a good basis in law, supported by evidence. Courts ought to ask questions like:

1. Why couldn’t the stay have been lifted or a process put in place before the end of the two-year period to better protect lien claimants’ rights to the earliest feasible recovery while the receivership proceeds? and

2. How is the process sought consistent with the statutory scheme of the Construction Act?

The Court granted the Orders sought.

Judge: FL Myers J

Professionals involved:

• Roger Gillott and David Rosenblat of Osler for the Receiver, KSV Restructuring Inc.

• Wojtek Jaskiewicz and Hayden Trbizan of WeirFoulds for PCL Constructors Canada Inc.

• Kenneth Movat of Fogler Rubinoff for Kohn Partnership Architects Incorporated and Aquila Project Solutions Ltd.