When in doubt, file.
On March 4, 2025, the Ontario Superior Court of Justice (Commercial List) released its decision in Re JBT Transport Inc., 2025 ONSC 1436, ruling on whether the JBT Group of companies (“JBT Group”) should be entitled to continue their restructuring under the Companies Creditors ArrangementAct (“CCAA”) and proceed with a sale and investment solicitation process (“SISP”) supported by a stalking horse bid (“Stalking Horse Bid”) or whether a receiver should be appointed.
Debtors should take note of a sea change in the Court’s treatment of insolvent companies and their willingness to protect operating businesses. This article provides several important considerations for debtors facing economic headwinds.
Facts
The JBT Group had over 58 trucks, 162 dry vans and refrigerated units, and over 100,000 square feet of state-of-the-art, GDP Gold-certified food storage and warehouse spaces. They employed 83 full-time employees and 23 independent owner-operators, serviced 187 frequent customers, and regularly worked with over 125 carriers and suppliers.
On January 15, 2025, the JBT Group’s senior secured lender, The Toronto-Dominion Bank (“TD Bank”), served demands and a notice of intention to enforce with respect to a $16.2 million debt owed to it.
Prior to the issuance of demands, from December 2023 to April 2024, the JBT Group and TD Bank worked cooperatively to address the JBT Group’s defaults without a formal forbearance agreement. In particular, the JBT Group voluntarily engaged a financial advisor at TD Bank’s choosing, effected the sale of a real property and other assets, and implemented an operational restructuring to decrease operating costs and enhance JBT Group’s market position. In April 2024 (prior to their engagement of restructuring counsel), the forbearance arrangements between the JBT Group and TD Bank were formalized in a forbearance agreement, which was amended on multiple occasions (“Forbearance Agreement”). As a result of the efforts of the JBT Group, the indebtedness owed to TD Bank was reduced from approximately $25 million in January 2024 to $16.2 million in December 2024.
At no time did the JBT Group miss a payment to TD Bank. Aside from the outstanding TD Bank loan, the business was consistently profitable and cash flow positive over the year leading up to filing. However, during the forbearance period, the JBT Group were unable to refinance TD Bank in full as required by the Forbearance Agreement. This is not atypical, and debtors are likely to experience greater difficulty refinancing given the current economic climate.
In response to TD Bank’s demands, and to preserve the operations and going-concern value of the JBT Group, the JBT Group filed Notices of Intention to Make a Proposal (“NOI”) under the Bankruptcy and Insolvency Act on January 24, 2025. The JBT Group pivoted to seek protection under a CCAA proceeding to deal with prejudicial self-help steps being taken by transport carriers whom they relied upon to continue to carry on their business.
In response to the CCAA application, TD Bank served an application seeking the appointment of a receiver pursuant to s. 243(1) of the Bankruptcy and Insolvency Act (“BIA”).
TD Bank had the right under its security documents to appoint a receiver. Notably, the JBT Group had also agreed to a term in the Forbearance Agreement that consented to the appointment of a receiver. Such term would become a key fact in the Court’s analysis.
At the initial hearing, the Court granted the JBT Group protection under the CCAA pursuant to an Initial Order without prejudice to all issues raised or to be raised at a de novo comeback hearing (the “Comeback Hearing”) two weeks later. At the Comeback Hearing, the JBT Group sought an Amended and Restated Initial Order as well as approval of the SISP with a supporting Stalking Horse Bid, submitted by the JBT Group’s management.
At the Comeback Hearing, TD Bank advanced its receivership application, and the JBT Group argued for expanded relief under the CCAA. Ultimately the Court held that while either of the requested orders could be justified, it was more appropriate, just and convenient in the circumstances to appoint a receiver. Accordingly, the JBT Group were placed into receivership, effectively terminating a family run operation and the employment of their 83 full time employees.
Important Lessons For Debtors
Forbearance Agreements Should be Short and Sweet, or Not At All
Parties commonly enter into forbearance agreements to allow a debtor time to cure a default of its obligations to creditors. During the 2021-2022 economic downturn in the transportation industry, the JBT Group defaulted on their borrowing base covenant, which default was compounded by TD Bank changing the borrowing base calculation without notice.
Prior to the execution of the initial Forbearance Agreement in April 2024, the parties worked together for months with the assistance of a financial advisor to liquidate real property assets and to shift the JBT Group’s business to the more profitable logistics services. These efforts were successful, with TD Bank’s debt being reduced by almost $9 million. However, the December 2024 amendment to the Forbearance Agreement contained stringent terms, including the requirement to fully refinance the TD Bank debt within a short window of time.
Additionally, the Forbearance Agreement contained a term pursuant to which the JBT Group consented to the appointment of a receiver upon default. Such “consent to receiver” terms are standard in many forbearance agreements. Unfortunately, while the JBT Group obtained refinancing commitments, the refinancing commitments were not sufficient to fully pay out the TD Bank’s debt in full as required by the Forbearance Agreement.
Courts have previously held that terms in a forbearance agreement agreeing to the appointment of a receiver upon default do not dictate the availability of CCAA relief. However, this Court held that the JBT Group’s consent to a generic term agreeing to the appointment of a receiver in the Forbearance Agreement, as well as the JBT Group’s failure to obtain refinancing that would pay the bank out in full was sufficient rationale to appoint a receiver over the operating enterprise. Specifically, the Court held:
[53] However, where a creditor has a contractual right to appoint a receiver upon the debtor’s default, has already agreed to forbear and defer exercising its enforcement remedies and, in exchange, has received further confirmation of the Debtors’ consent to the appointment of a receiver if the forbearance did not lead to the promised refinancing of the debt: “Commercial certainty for all stakeholders dictates that parties should expect that courts will hold them to their bargains, absent further agreement or circumstances that would make it appropriate to nullify or remove the order”: see ATB Financial v. Mayfield Investments Ltd., 2024 ABKB 635, at para 40.
[54]That expectation reasonabl[y] arises in this case. This is not a situation where TD Bank has come rushing to court to seek the appointment of a Receiver without affording the Debtors any opportunity to explore the possibility of other options; the Debtors had a long period of forbearance and were not able to achieve a refinancing or sale that was satisfactory to their senior secured lender. They were given a final further opportunity to come up with a plan that their senior secured creditor could support when the Initial Order was made. They have been unable to do so.
Debtors should consider the implications of forbearance on their ability to seek creditor protection should their efforts under forbearance not bear fruit. The Court’s decision suggests that debtors who are ultimately not able to restructure under forbearance would likely not be granted CCAA protection. Under this analysis, the de facto outcome of any failed forbearance agreement is a receivership. Debtors ought to be especially careful given the current economic climate in which refinancing efforts are likely to be protracted and challenging. In the wake of this decision, debtors should avoid executing a forbearance agreement at all as they cannot be certain that the agreement will not be used to deny CCAA relief if their out-of-court restructuring efforts should fail, or if time should run out.
Instead of taking on the risk of arranging a refinancing or sale in time to meet strict milestones of a forbearance, it may be more prudent to proceed directly to a filing under the CCAA or BIA. A forbearance agreement may only be appropriate where it does not empower a creditor to take enforcement steps like appointing a receiver and instead reserves all rights and remedies of the debtor.
“Collateral Deterioration” has an Expanded Definition
Banks will typically freeze a line of credit on or before a filing to ensure that it does not inadvertently advance further credit to a borrower. In this case, TD Bank failed to do so, although the debtor made continued requests of the bank post NOI filing to freeze the line of credit. As a result, certain nominal pre-authorized debits were automatically withdrawn against the line of credit post-filing.
In its application, TD Bank claimed that the JBT Group had continued to actively use the defaulted line of credit post-filing, and that such use meant that TD Bank was a “de facto interim lender” of the JBT Group’s restructuring. The JBT Group adduced evidence to the contrary: they had asked TD Bank to reverse certain automatic charges and to cap the line of credit to prevent further automatic withdrawals.
Notwithstanding these facts, the Court found that this “use” of the line of credit and the fact that the debtor was not servicing the TD Bank’s loan during the restructuring amounted to the debtor forcing TD Bank to finance the business in a debtor-led CCAA.
Debtors ought to be aware that their pre-authorized debit and automatic payments may be deemed to be prejudicial to their bank lenders, even though banks often have sole control to allow or deny such automatic payments.
Stalking Horse Bids Should Be Accompanied by a Binding Financial Commitment
Stalking horse bids have routinely been approved by Courts for the benefits that they provide to a sale process and to maximize value in a restructuring process, including (i) establishing a baseline price and deal structure to encourage superior bids from interested parties, and (ii) providing stakeholders with certainty that a going concern solution for the business has been identified and will be implemented.
To address TD Bank’s and the Court’s concerns at the initial hearing that the JBT Group may not have a sufficient “plan” for the CCAA proceeding—notwithstanding that the initial affidavit evidence filed indicated that the JBT Group intended to run a sale process—the JBT Group developed the SISP and negotiated a Stalking Horse Bid with the assistance of their financial advisor and the Monitor.
The Stalking Horse Bid was unconditional, in a form typical for stalking horse bids in insolvency proceedings, and included a 10% cash deposit. There were no conditions to financing and the deposit would be forfeited if the transaction failed to close.
To proactively quell any concerns about its ability to consummate the transaction, the stalking horse bidder agreed to provide the Monitor with a letter by March 31, 2025 to demonstrate sufficient financing. The letter was to be received three weeks before the bid deadline in the SISP.
The Court found that the evidence of the JBT Group and the independent Court-appointed Monitor was that the Stalking Horse Bid would provide superior recovery to stakeholders, including TD Bank, in comparison to a liquidation scenario.
Notwithstanding that the Stalking Horse Bid was not conditional on financing, had a cash deposit and would provide a superior recovery to stakeholders, the Court concluded that the Stalking Horse Bid was “uncertain” because it was not accompanied by a binding financing commitment from a lender. On this basis, the Court held that the Stalking Horse Bid introduced complications into the SISP and was a reason to ground TD Bank’s loss of confidence in management’s ability to fulfill their professed CCAA objectives.
The decision that an unconditional stalking horse bid with a 10% cash deposit is uncertain if it is not accompanied by a binding commitment from a lender is a stark change in the jurisprudence for the approval of stalking horse bids. Debtors should be aware that stalking horse bidders may now be required to provide the Court with a binding commitment of financing for the bid to not be considered uncertain and to be approved by a Court.
Creditors Can Lose Confidence Over Time: No Need for Bad Faith
One factor Courts consider in competing CCAA and receivership applications is whether there is an objective loss of confidence in the debtor’s management. Debtors should take heed that the Court in JBT Group has signalled a major shift in the creditor “loss of confidence” test, namely, a much broader interpretation of what constitutes an objective loss of confidence in management.
No longer will a loss of confidence only be found in circumstances where there is a lack of candour, non-disclosure, lack of cooperation, or even fraud. Instead, the Court in JBT Group expanded where a Court will find an objective basis for a loss of confidence to circumstances where a candid and cooperative debtor acting in good faith has not met refinancing milestones under a forbearance agreement.
The Court in JBT Group found there had been a loss of confidence in management on the sole basis that the JBT Group had not successfully refinanced TD Bank:
[47] However, here the loss of confidence of TD Bank in management of the JBT Group is not generic. It is specific and there is an objective basis for it: TD Bank has lost confidence in management’s ability to do that which they say they are trying to do under the CCAA process, namely to sell or refinance the Business on a going concern basis. This is what management has been trying to do since at least October 2023 if not longer, with the benefit of TD Bank’s forbearance. [Emphasis added]
The evidence before the Court was that the JBT Group had not previously conducted a sale process for their business as a going concern and, in the past year had sold material but redundant parts of their assets, such as real estate, on a piecemeal basis, as well as sought refinancing. The Court also found that the JBT Group had been acting in good faith as supported by the evidence of the Monitor. Nevertheless, the Court found that the loss of TD Bank’s confidence in the JBT Group was not generic, but was “specific” and “objective.”
This is a significant change in the law of loss of confidence in a debtor. A creditor-controlled process is now seen as more appropriate where the debtor has failed to make significant enough headway (in this case- 10 months) toward refinancing a lender in full. A creditor is now entitled to claim that it has rightfully lost confidence in a debtor that has not shown bad faith, but which took too long to repay the debt in full.
Given the lowered standard for a loss of confidence, debtors should be mindful that the length of and efforts to restructure during a forbearance period can be a basis to reject relief under the CCAA. Debtors that are entering into forbearance agreements with creditors should be sure to explore all possible options of restructuring as it may be their only chance to do so.
No Difference between Liquidating CCAA or Receivership
The Court has historically held that liquidating CCAA proceedings have an important place in restructuring going-concern businesses in Canada. In JBT Group, the Court has signalled a marked shift in respect to its views on liquidating CCAA proceedings by holding that a receivership is preferable to a liquidating CCAA. Specifically, the Court stated there was little distinction between a receivership and liquidating CCAA:
[44] …Further, it has been made clear that in a CCAA scenario, the focus will be on selling the Business, rather than a more traditional restructuring of an operating business. In other words, this would be a liquidating CCAA. While recognized in appropriate cases, the fact that this is a liquidating CCAA detracts somewhat from the underlying rationale of utilizing the CCAA over the BIA to preserve a going concern business. Further, there is nothing to prevent the stalking horse bidder from presenting its bid to the Receiver. TD Bank has not foreclosed the possibility of a going concern sale within the receivership. [Emphasis added]
Where debtors face creditor opposition to their CCAA proceeding, debtors should be particularly cautious if their intention is to conduct a liquidating CCAA that will end in a sale, rather than a plan of arrangement. In such circumstances, debtors should consider providing evidence as to why the liquidating CCAA is superior to the receivership process. However, what evidence may be available to convince a Court that a liquidating CCAA is superior to a receivership is uncertain. In particular, the authors note that the Court in JBT Group did not find it persuasive that a liquidating CCAA was superior, even though the CCAA permitted the business to operate as a going concern for the benefit of 83 employees, whereas the receiver may not continue going concern operations.
Practical Reality of Appeal Rights for Debtors
A denial of CCAA relief is nearly always final. While debtors subject to Court decisions may want to appeal, appeals may not always be practical as there is likely to be insufficient cash flow to continue to operate a business through the appeal period, much less continue to fund the appeal, without DIP financing. Further, the net effect for debtors is that clients, customers and receivables can evaporate quickly pending appeal as a result of the doubt regarding the survival of the business, effectively rendering the business dead-on-arrival at the appellate court’s doorstep. Accordingly, an appeal of a decision dismissing an application for a competing CCAA application is often practically impossible.
Conclusion
Despite the numerous affected stakeholders, including the JBT Group’s 83 full time employees, the fact that they never missed a payment to TD Bank, the JBT Group’s positive cash flow, and the JBT Group’s historical cooperation with TD Bank, the Court has found that precedence must now be given to receiverships and creditor enforcement efforts instead of business preservation. This decision is a distinct move away from the Supreme Court of Canada’s expansive reasons in Century Services.
The JBT Group made very reasonable efforts to work cooperatively with TD Bank over a less than 12-month forbearance period to try to satisfy TD Bank’s demands outside of a formal restructuring proceeding. Before this decision, the JBT Group’s pre-filing efforts may not have impacted their ultimate application for CCAA relief. However, the Court has now indicated that debtors should conduct themselves with greater restraint in challenging circumstances, lest they disqualify themselves from ultimately seeking creditor protection. This decision is all the more reason to seek advice early and often. And when in doubt: just file.
