March 28, 2025Calculating...

President Trump’s tariffs: The value of releases in restructuring scenarios

Torys’ Canadian and New York offices will be providing regular briefs on the legal ramifications of the tariffs and other cross-border policy developments on the horizon.

Depending on the industry, tariffs have either been imposed on, or are a looming concern for, Canadian companies. Certain industries and companies are also contending with retaliatory tariffs and other potential countermeasures. The result is uncertainty with no end in sight.

In scenarios in which this uncertainty gives way to financial distress, contingency planning around restructurings may become prudent for management and boards of directors. For companies that experience tariff-related cost increases that imperil cash flow and solvency, it will be advantageous to get ahead of events. Having a plan in place can be effective insurance in times of economic uncertainty in which economy-wide forces are largely beyond a company’s control.

The benefits of releases

By design, Canadian businesses have been provided with the necessary tools to restructure, whether under corporate statutes such as the Canada Business Corporations Act (CBCA) or under restructuring statutes such as the Companies’ Creditors Arrangement Act (CCAA). In the context of restructuring plans and business sales, broad and robust releases from claims of creditors and others (including litigation claimants) are typically available to the company, officers and directors and other third-party stakeholders if the requisite planning is in place. These releases act as a bar to being sued. In the auto industry, for example, product liability and similar claims could be released. These can be very valuable outcomes for participants in a successful restructuring, the prospects of which are enhanced by early and prudent planning.

The balance of this bulletin highlights the circumstances under which these broad releases will be made available to process participants in restructuring plans under the CBCA and the CCAA, with the primary distinction between them being that the former statute is for solvent companies and the latter statute is for insolvent companies.

The availability of releases

Generally, releases for third-party stakeholders tend to be the focus of the court’s analysis, with releases for the company and officers and directors being more widely available. The court will consider releases after requisite creditor approvals have been obtained and in the context of its sanction or approval of a restructuring plan or in connection with the sale of the business. In assessing plan releases, the court will consider, among other things:

  1. whether the parties to be released are necessary and essential to the restructuring of the company and if the claims to be released are rationally connected to the purpose of the plan;
  2. whether the parties to be released are contributing in a tangible and realistic way to the plan;
  3. the extent to which the plan benefits stakeholders (in addition to the company);
  4. whether the parties to be released would otherwise have indemnity claims against the company and if they were the product of a negotiated settlement;
  5. whether the voting creditors who have approved the plan did so with knowledge of the nature and effect of the releases;
  6. whether the monitor considers the scope of the releases to be reasonable in the circumstances of the plan; and
  7. whether the releases are fair and reasonable and not overly broad or offensive to public policy.

There is a lot of work to be done by management and boards of directors around tariff-related planning. Contingency planning for potential financial distress and the consideration of restructuring options should be a component of this planning—and the value of releases for management, directors and other third-party stakeholders should be top of mind.

 
Read more Tariffs and trade briefs.


To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

© 2025 by Torys LLP.

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