The Canadian loan market has become more cautious and lender-focused. As interest rates increased, credit conditions tightened, leverage declined and lenders demanded stronger covenant, reporting and security packages. Stable, mature loans are also experiencing covenant pressure, not necessarily because the underlying businesses are distressed, but because the covenants that were negotiated in a lower-rate environment no longer reflect current debt-service costs. This has resulted in more amendments, waivers and refinancing discussions.

Cross-border borrowers face added complexity, including currency risk, tax considerations, differing regulatory requirements, and the co-ordination and enforcement of security across jurisdictions. Clients in industries affected by tariffs and trade uncertainty are also experiencing greater scrutiny regarding supply chains, input costs and margin compression. For counsel, this means identifying these risks earlier, negotiating sufficient covenant flexibility and ensuring that financing structures can withstand further economic or regulatory disruption.

Global conflicts have had an impact on commodity prices, supply chains and economic uncertainty, thereby materially affecting the Canadian loan market. The war in Ukraine disrupted global supplies of wheat, corn, sunflower oil, fertiliser and certain metals; although Canada produces many of these commodities, Canadian borrowers remain exposed to higher input and transportation costs, volatile global pricing and perpetuating uncertainty in export markets.

More recently, the conflict involving Iran and the disruption through the Strait of Hormuz have affected far more than crude oil: the Strait is also a critical route for liquefied natural gas, refined petroleum products, petrochemicals and fertiliser feedstocks. Disruption has increased shipping times and freight and insurance costs, and has placed additional pressure on industries dependent on fuel, plastics, chemicals and fertilisers.

In particular, however, the current trade-conflict environment represents an elevated risk for the Canadian loan market. Canada’s dependence on cross-border trade means that tariffs, retaliatory measures and shifting trade policies can quickly affect a borrower’s revenue, costs, margins and access to customers and suppliers. Lenders are therefore placing greater scrutiny on tariff exposure, supplier and customer concentration, alternative sourcing and the borrower’s ability to absorb sudden cost increases.

From a financing perspective, this has contributed to more conservative financial covenants, enhanced reporting requirements, increased pricing and greater reserves or liquidity requirements for exposed industries. Borrowers, in turn, are seeking more covenant headroom and flexibility to address abrupt changes in tariffs, commodity prices and delivery timelines. For counsel, geopolitical, tariff and supply chain risks must now be considered at the outset of a financing deal rather than treated as remote or temporary concerns.

The high-yield market provides an important alternative for acquisitions, refinancings and leveraged transactions. In Canada, larger borrowers often access the deeper US market, while mid-market borrowers increasingly turn to private credit.

This has expanded the use of unitranche and other flexible structures. However, rising rates and economic uncertainty have led to greater lender selectivity, higher pricing, shorter maturities, stronger security and tighter restrictions on distributions and additional debt. Strong credits can still obtain competitive terms, while borrowers exposed to tariffs, commodity volatility or supply chain disruption face increased pricing and structural protections.

Canada has experienced significant growth in alternative credit providers, particularly private credit funds serving the mid-market. These lenders offer borrowers greater speed, execution certainty and greater flexibility than traditional bank financing, including unitranche, second-lien and bespoke financing structures.

Increased competition has expanded access to capital and provided greater covenant flexibility for strong borrowers. However, alternative credit generally carries higher pricing, more substantial fees and stronger call protection. It has also enabled more highly leveraged and complex transactions that fall short of satisfying traditional bank underwriting requirements.

Financing structures are increasingly being tailored to bridge valuation and funding gaps. Significant transactions frequently include seller financing and the rollover of equity by vendors, creating complex subordination, intercreditor and enforcement issues that must be addressed alongside senior debt.

There has also been an increase in the use of HoldCo debt, preferred equity, earn-outs and other hybrid instruments. These structures provide borrowers with additional capital and flexibility but require careful negotiation of payment restrictions, priority, governance rights and remedies to ensure that the respective interests of senior lenders, sellers and continuing investors are clearly established.

Canada continues to see activity in green loans, green bonds and sustainability-linked credit facilities, although the market has become more disciplined. Lenders and borrowers are placing greater emphasis on measurable targets, reliable reporting and the avoidance of greenwashing. Climate-risk requirements for federally regulated financial institutions and the development of Canadian sustainable-investment guidelines are also influencing diligence and disclosure.

These products are most prevalent in renewable energy, utilities, clean technology, infrastructure, transportation, real estate and natural resources. Green financing is generally tied to eligible projects or assets, while sustainability-linked loans adjust pricing based on targets such as emissions reductions, energy efficiency or renewable energy use. The economic benefit is typically modest, but the reporting, verification and reputational consequences of missing targets can be significant.

In Canada, banks are federally regulated under the Bank Act. A domestic bank must obtain letters patent from the Minister of Finance and an order from the Superintendent of Financial Institutions authorising it to commence business. Foreign banks establishing or operating Canadian branches require similar federal authorisation.

By contrast, non-bank and private credit lenders generally do not require a specific licence merely to provide commercial financing to a Canadian company, provided they do not accept deposits or hold themselves out as banks. However, lenders managing third-party capital may be subject to provincial securities and fund management requirements, while mortgage lending or brokering may require provincial licensing.

Foreign lenders must also consider Canadian business registration, tax and withholding tax requirements, sanctions and anti-money laundering rules, and whether their activities constitute carrying on business in Canada. Financings must comply with applicable interest rate restrictions and provincial laws governing guarantees, security and enforcement. Particular attention is required where private credit is combined with senior bank debt, seller financing, preferred equity or rollover equity, as these structures create more complex intercreditor, subordination and enforcement issues.

Foreign non-bank lenders are generally not prohibited from making commercial loans to Canadian borrowers and ordinarily do not require a Canadian lending licence.

However, they may need to register in order to carry out business in the relevant province, and to comply with applicable tax, interest rate, sanctions and sector-specific requirements. Licensing may also be required for certain activities, including mortgage lending or brokering. Foreign banks are subject to additional restrictions under the Bank Act if their activities amount to carrying on business in Canada, and may require federal authorisation to establish a Canadian branch. Tax structuring is also important. Interest paid to an arm’s length, non-resident lender is generally exempt from Canadian withholding tax, but withholding may apply to participating debt interest and certain non-arm’s length arrangements. Foreign lenders must also consider whether their activities constitute conducting business in Canada and whether treaty protection is available.

Foreign lenders are generally permitted to receive guarantees and security from Canadian obligors on the same basis as domestic lenders. Security must be properly created and perfected under the applicable provincial personal property, Québec civil law or real property regime. However, foreign non-bank lenders may not have access to certain statutory security, which is available exclusively to Canadian banks.

Enforcement against a regulated business may require regulatory approval regardless of whether the lender is Canadian or foreign. Foreign lenders may face additional restrictions if enforcement results in the acquisition or control of a Canadian business, including review under the Investment Canada Act, sector-specific foreign ownership limits and certain provincial restrictions relating to land ownership. These considerations generally affect the method and timing of enforcement rather than the initial taking of security.

Canada does not generally impose foreign exchange controls, and the Canadian dollar is freely convertible. Canadian borrowers may receive, hold and repay loans in foreign currencies, and contracts may expressly provide for payment in a foreign currency.

Cross-border transfers remain subject to requirements regarding anti-money laundering, beneficial ownership, sanctions and transaction reporting. Financial institutions may therefore require additional information regarding the source, purpose and recipients of funds, and transactions involving sanctioned countries or persons may be restricted or prohibited.

From a financing perspective, the principal concern is exchange rate risk. Loan documents commonly address currency conversion, judgment currency, increased costs and indemnification for exchange losses, and lenders may require borrowers with material foreign currency exposure to enter into hedging arrangements.

Canada does not generally impose statutory restrictions on a corporate borrower’s use of loan or debt security proceeds. Restrictions are typically contractual and require proceeds to be used for specified purposes, such as acquisitions, capital expenditures, refinancing or general corporate purposes.

Proceeds cannot be used for unlawful activities or transactions prohibited by sanctions, anti-money laundering or sector-specific legislation. Credit agreements also commonly prohibit distributions, acquisitions, investments or repayment of subordinated debt, except as expressly permitted.

For publicly offered debt securities, the intended use of proceeds must be accurately disclosed under applicable securities laws. Green bonds and other use-of-proceeds products are subject to additional contractual and disclosure requirements governing eligible projects, and the tracking and reporting of proceeds.

Agency and trust concepts are recognised throughout Canada, although Québec applies civil law concepts rather than the common law. Syndicated loan transactions commonly appoint an administrative agent and a collateral agent to hold and enforce security for the lending group. Debt securities are typically issued under a trust indenture, with an indenture trustee acting for investors.

In Québec, an agent may act under the rules governing mandate, and a hypothec may be granted in favour of a hypothecary representative for present and future creditors. This structure performs substantially the same function as a collateral agent structure.

Alternative structures, including parallel debt arrangements or security granted directly to each lender, are generally unnecessary and less common. Nevertheless, they may be considered in particular cross-border transactions where the governing law does not fully recognise an agent’s ability to hold security for a changing group of lenders.

Canadian loans are most commonly transferred through an assignment and assumption agreement. Novation is legally recognised but is less commonly used because it requires a borrower’s agreement and replaces the existing contractual relationship.

In syndicated financings, security and guarantees are generally held by a collateral agent for the benefit of the lenders from time to time. An incoming lender therefore obtains the benefit of the existing security package the moment they become a lender under the credit agreement, ordinarily without new security documents or registrations.

Where security is held directly by an individual lender, the security and guarantees must be assigned with the loan, and amendments or notices may be required under applicable provincial personal property, real property or Québec registration regimes. Guarantees generally follow the transferred debt, subject to their terms and applicable law.

Debt buybacks by a borrower or sponsor are generally permitted if they are contemplated by the loan agreement. The applicable prepayment or assignment provisions will govern the process, including any required notice, pricing, premiums and pro rata or Dutch auction requirements.

Loan agreements may also restrict voting rights attaching to debt acquired by the borrower, sponsor or their affiliates, and may require debt repurchased by the borrower to be cancelled.

For a Canadian takeover bid involving a cash consideration, the bidder must make adequate arrangements before launching the bid to ensure that the funds required to pay for all securities are available. The financing may contain conditions only where the bidder reasonably believes that there is only a remote possibility of those conditions preventing funding after the bid conditions have been satisfied or waived. A takeover bid therefore cannot effectively be subject to a financing condition (National Instrument 62-104, section 2.27).

Certain funds financing typically limits funding conditions to completion of the acquisition, specified fundamental representations, delivery of defined security documents and the absence of limited defaults, such as payment or insolvency defaults. Financing conditions are generally aligned with the acquisition agreement, so the purchaser is not obligated to complete the acquisition without being entitled to draw the financing.

Plans of arrangement, amalgamations and private acquisitions are not subject to the same statutory requirement and may technically include a financing condition. In practice, however, target boards and sophisticated vendors generally require committed financing without a broad financing condition. Certain funds or “SunGard-style” provisions are therefore common in significant public and private acquisition financings, although their scope varies according to the transaction and the parties’ bargaining power.

At signing, financing is usually documented through a relatively short commitment letter, detailed term sheet and separate fee letter. Long-form credit, guarantee and security documents are negotiated and completed before closing. The acquisition agreement and applicable disclosure document are generally filed openly for a public transaction. The financing arrangements must be described in the takeover bid circular, while commitment papers are filed only where required as material contracts, subject to available redactions for confidential commercial terms.

There does not appear to be significant recent reported Canadian case law materially changing the interpretation of the certain funds requirement; the governing principles continue to arise primarily from section 2.27 of National Instrument 62-104 and established securities regulatory practice. In May 2026, the Canadian Securities Administrators published proposed amendments to the takeover bid regime. Those proposals should be identified as proposed rather than current law, and do not displace the existing funding arrangements requirement unless and until they are adopted.       

Although the fundamental structure of Canadian acquisition financing documentation remains stable, several legal, regulatory and commercial developments have required updates to commitment letters, credit agreements, security documents and related agreements.

The transition from the Canadian Dollar Offered Rate (CDOR) to the Canadian Overnight Repo Rate Average (CORRA) has required revised benchmark definitions, interest calculation mechanics, fallback language and breakage provisions. CORRA-based provisions are now standard in Canadian dollar loan documentation.

Geopolitical conflict expanded sanctions and the elevated tariff environment have also resulted in broader sanctions, anti-money laundering, anti-corruption and beneficial ownership provisions, with lenders increasingly requiring reporting on supply chains, customer and supplier concentration, cybersecurity, privacy compliance and material incidents. Tariff exposure and margin pressure are also receiving greater attention in financial covenants, borrowing base calculations and reporting requirements.

Higher interest rates and the growth of private credit have produced tighter covenant packages, more detailed EBITDA adjustments and stronger restrictions on additional debt, distributions, asset transfers and liability management transactions. At the same time, US leveraged finance concepts – including SunGard-style conditionality, covenant flexibility, portability and expanded baskets – continue to influence larger Canadian sponsor-backed transactions.

Financing certainty has also become increasingly important. Cash takeover bids require adequate financing arrangements before launch, while target boards and sophisticated vendors generally expect committed financing for plans of arrangement and significant private acquisitions. Commitment papers therefore include more detailed “certain funds” provisions aligning lender funding conditions with the purchaser’s closing obligations.

Finally, the increased use of seller financing, rollover equity, HoldCo debt and preferred equity has required more detailed intercreditor, subordination, standstill and enforcement provisions. ESG and climate-related considerations have also influenced diligence and reporting, particularly for larger borrowers and regulated or emissions-intensive industries. Collectively, these developments have made Canadian acquisition financing documentation more detailed, negotiated and compliance-focused.       

Canada does not have traditional usury laws comparable to those in some US states, but interest is regulated principally by the Criminal Code and the federal Interest Act.

Section 347 of the Criminal Code prohibits interest exceeding 35% APR. “Interest” is broadly defined and includes many fees, commissions, penalties and other charges connected with the extension of credit. Commercial loans to non-natural persons are subject to important exemptions: loans exceeding CAD10,000 but not exceeding CAD500,000 may bear interest up to 48% APR, while commercial loans exceeding CAD500,000 are generally exempt from the criminal rate restriction.

The Interest Act also contains disclosure requirements where interest is calculated for a period of less than one year, and restricts increased rates on arrears secured by mortgages over real property. Canadian loan documents therefore commonly include annual rate disclosure language and criminal rate savings provisions.

These restrictions rarely affect mainstream acquisition or syndicated financings because they typically involve corporate borrowers and commitments exceeding CAD500,000. Nevertheless, the aggregate economic return, including applicable fees, must be reviewed for compliance.

Canada does not require all financial contracts to be publicly disclosed; the applicable requirements depend on the nature of the parties and the transaction.

Reporting issuers may be required under Canadian securities laws to file material credit agreements, indentures, financing commitments and other material contracts on SEDAR+. A financing that constitutes a material change may also require an immediate press release and material change report. Limited redactions may be permitted for confidential commercial information where the omitted information is not necessary to understand the contract.

Private company financing agreements are generally confidential. However, PPSA registrations, Québec registrations and real property mortgages provide public notice of security interests, without ordinarily disclosing the underlying credit agreement or its commercial terms.

Specialised contracts may be subject to additional regimes. For example, derivatives transactions may be reportable under provincial trade reporting rules, and regulated financial institutions have separate reporting obligations. Financial contracts may also become public through insolvency proceedings, litigation or regulatory processes.

Payments of principal under a loan are generally not subject to Canadian withholding tax. Interest paid by a Canadian borrower to an arm’s length non-resident lender is also generally exempt from Canadian withholding tax under the Income Tax Act (Canada).

Interest paid to a non-arm’s length, non-resident lender is generally subject to Part XIII withholding tax at a rate of 25%, and qualifies for any reduction or exemption available under an applicable tax treaty. Participating debt interest and certain other payments linked to profits, revenue or similar measures may also incur withholding tax.

Canadian credit agreements therefore typically contain detailed tax gross-up and indemnity provisions allocating the risk of withholding taxes between the borrower and lender.

Canada does not generally impose stamp duty or documentary tax on the execution of loan, guarantee or personal property security documents. Nominal or value-based registration fees may apply to PPSA registrations, Québec registrations and real property mortgages. Lending and the receipt of interest are generally exempt financial services for GST/HST purposes, although separate advisory, administration or other service fees may be taxable.

A foreign lender may be subject to Canadian income tax if its activities constitute conducting business in Canada, particularly through a permanent establishment. The structure and activities of the lender should therefore be considered together with any available tax treaty protection.

Borrower-side tax rules are also relevant to credit analysis. Canada’s thin-capitalisation and transfer-pricing rules may restrict the deductibility of interest paid to certain related non-residents. The excessive interest and financing expenses limitation rules may also limit a borrower’s net interest and financing expense deductions, generally by reference to 30% of adjusted taxable income, subject to statutory exclusions and elections.

Taxes may also arise on enforcement. A lender acquiring or disposing of collateral may incur land transfer tax, GST/HST, provincial sales tax or income tax, depending on the assets and enforcement structure. Canadian credit agreements therefore commonly include tax gross-up, indemnity and increased cost provisions, subject to negotiated exclusions.

The principal tax concern with foreign lenders is Canadian withholding tax. Interest paid to an arm’s length, non-resident lender is generally exempt, but withholding may apply to participating debt interest and interest paid to certain non-arm’s length lenders. Treaty relief may reduce or eliminate withholding, subject to residence, beneficial ownership and treaty entitlement requirements.

A foreign lender may also become subject to Canadian income tax if its lending activities constitute conducting business in Canada through a permanent establishment. On the borrower side, thin-capitalisation, transfer-pricing and excessive interest and financing expense limitation rules may restrict the deductibility of interest, particularly in related-party or highly leveraged structures.

These risks are commonly mitigated by using an arm’s length lender resident in an appropriate treaty jurisdiction, avoiding profit-participating returns, limiting the lender’s activities in Canada and obtaining tax advice before establishing a Canadian lending platform. Credit agreements typically include tax gross-up and indemnity provisions, lender tax representations and documentation requirements, together with restrictions on assignments that would increase the borrower’s withholding obligations.

Non-money centre and private credit lenders are generally subject to the same tax rules. However, their legal structure, jurisdiction, treaty eligibility and funding arrangements may require additional diligence before closing or permitting a loan transfer.

Lenders commonly take security over substantially all present and after-acquired personal property of the borrower and guarantors, including accounts receivable, inventory, equipment, bank accounts, intellectual property, insurance proceeds and shares of subsidiaries. Real property, aircraft, vessels and other significant assets may be subject to separate mortgages or asset-specific security.

In the common law provinces, security is typically granted through a general security agreement, together with specific assignments, share pledges, account control agreements and real property mortgages, where appropriate. In Québec, security generally takes the form of movable or immovable hypothecs. Guarantees are commonly obtained from material subsidiaries and other members of the credit group.

Personal property security is generally perfected by registration under the applicable provincial PPSA or, in Québec, publication in the Register of Personal and Movable Real Rights. Possession or control may be required or preferable for certain assets, including certificated securities and investment property. Real property security must be registered in the applicable land registry, and Québec immovable hypothecs require a notarial deed. Additional registrations may be made for intellectual property, aircraft, vessels and other federally regulated assets.

An unperfected security interest may remain enforceable between the parties but can lose priority to other secured creditors, purchasers, judgment creditors or an insolvency representative. Errors in the debtor’s name, collateral description or place of registration may also render a registration ineffective.

PPSA and Québec registrations can generally be completed electronically on the same day and involve relatively modest government fees, usually in the tens or hundreds of dollars, depending on the jurisdiction and registration period. Real property, intellectual property and specialised asset registrations require additional searches, documentation and fees, and may take several days or longer. Their costs vary materially by province, asset value and transaction complexity.

Canadian law permits lenders to obtain security over substantially all of a company’s present and future assets. In the common law provinces, this is typically achieved through a general security agreement covering all present and after-acquired personal property. Although the traditional floating charge concept has largely been subsumed within provincial personal property security legislation, a properly drafted and perfected general security agreement provides comparable all-assets security.

In Québec, a similar result is achieved through a movable hypothec over present and future property. Real property is generally secured separately through a mortgage, charge or immovable hypothec.

Security is typically perfected by registration under the applicable provincial PPSA or, in Québec, publication in the Register of Personal and Movable Real Rights. Failure to perfect may result in the lender losing priority to competing creditors or an insolvency representative.

Canadian law generally permits downstream, upstream and cross-stream guarantees, which are routinely used in acquisition financings and other secured lending transactions. There are no broad statutory restrictions on a corporation guaranteeing the obligations of its parent, subsidiary or affiliate.

However, directors must comply with their fiduciary duties, and a guarantee may be challenged under insolvency, preference or transfer-at-undervalue legislation if the guarantor is insolvent, receives inadequate benefit or grants the guarantee in circumstances that are prejudicial to its creditors.

These concerns are typically addressed through evidence of corporate benefit, solvency confirmations, board approvals and legal opinions. Acquisition financings commonly include joint and several guarantees from material subsidiaries, together with security over substantially all of their assets, share pledges and other collateral arrangements, where appropriate.

Canadian law does not generally prohibit a target company from granting guarantees, security or other financial assistance in connection with the acquisition of its own shares. Former statutory financial assistance restrictions have largely been eliminated, and no equivalent of the English law whitewash procedure is generally required. Consequently, it is common for the target and its subsidiaries to become guarantors and grant security supporting the acquisition financing at or immediately following completion of the acquisition. The documents may be executed in escrow and released concurrently with closing, once the purchaser has acquired control.

The principal limitations arise from directors’ fiduciary duties, solvency considerations and insolvency-related legislation governing preferences, transfers at undervalue and fraudulent conveyances. Existing contractual or regulatory restrictions may also apply. Lenders typically address these concerns through corporate approvals, solvency analysis, legal opinions and due diligence regarding corporate authority, corporate benefit and contractual restrictions.

Canada does not generally impose statutory restrictions comparable to works council approvals or employee consultation requirements in connection with granting guarantees or security. The principal restrictions arise from directors’ duties, insolvency considerations, industry-specific regulation and existing contractual arrangements.

Board approval is typically required, while third-party consent may be necessary where existing credit agreements, shareholder agreements, leases, licences or other contracts contain negative pledges, anti-assignment provisions or similar restrictive covenants. Security over specialised assets may require additional perfection steps, including land title registrations, control agreements and registrations under asset-specific regimes.

There are no significant stamp duties or financial assistance taxes associated solely with granting guarantees or security. The principal costs are legal fees, registration charges, searches, due diligence expenses, legal opinions and related transaction costs. Most personal property perfection steps can be completed electronically at or shortly following closing, although real property and specialised asset security may involve greater costs and longer timelines.

Security interests are generally released following repayment of the secured obligations, termination of the lending commitments or a permitted disposition of the relevant collateral. Security perfected by PPSA registration is released by filing a discharge or financing change statement in the applicable registry. In Québec, the corresponding registration is discharged from the RPMRR, while real property security is released by registering a mortgage discharge or similar instrument in the applicable land title registry.

Share pledges and other possessory security are released by returning the pledged collateral and terminating related control arrangements. Guarantees are released in accordance with the credit agreement, including in connection with permitted asset sales or corporate reorganisations.

In syndicated financings, the administrative or collateral agent typically has authority to execute releases on behalf of the lender group. The process is generally straightforward, can usually be completed promptly and involves modest filing and administrative costs.

Priority among competing security interests is generally determined under provincial personal property security legislation. In the common law provinces, the basic rule is priority by the earlier of registration or perfection. In Québec, priority is generally determined by the time of publication in the applicable registry. Real property security ordinarily ranks according to the order of registration.

These rules are subject to important exceptions, including purchase-money security interests, security perfected by possession or control, statutory liens, deemed trusts and certain Crown claims. Court-ordered charges granted in insolvency proceedings – including debtor-in-possession, administration and directors’ charges – may also obtain priority over existing security.

Creditors may contractually vary their relative priorities through intercreditor, priority and subordination agreements. These arrangements may provide for lien subordination, debt subordination or both, and commonly include payment blockages, enforcement standstills, turnover provisions and rules governing control of remedies and distributions. Priority may be varied among members of the same lending syndicate or between separate creditor groups.

Contractual subordination provisions are generally enforceable and survive the borrower’s insolvency. However, they operate among the contracting creditors and remain subject to mandatory statutory priorities, court-ordered charges and the broad powers of courts under Canadian insolvency legislation. Clear drafting is therefore required to address the distribution of enforcement and insolvency proceeds.

The most material claims that may prime a lender’s security in Canada include:

• Crown deemed trusts for unremitted employee source deductions, including income tax, Canada Pension Plan and employment insurance amounts;
• specified employee wage and pension claims;
• municipal real property taxes, construction liens and certain statutory repair, storage or possessory liens;
• purchase-money security interests that satisfy the applicable perfection requirements;
• environmental remediation obligations in certain circumstances; and
• court-ordered charges in insolvency proceedings, including administration, debtor-in-possession and directors’ charges.

The nature and priority of these claims vary by province, asset and proceeding. The expanded pension super-priority enacted by Bill C-228 is subject to a four-year transition period ending on 27 April 2027 for existing pension plans, so its application must be assessed by reference to the relevant plan and proceeding. Lenders typically address these risks through:

• tax, payroll, pension and lien searches;
• compliance representations and covenants;
• periodic reporting and officer certificates;
• borrowing-base reserves and exclusions; and
• requirements that statutory amounts be paid when due.

Construction financings commonly require statutory declarations, lien holdbacks and direct payment controls, while inventory and equipment lenders obtain purchase-money waivers or priority agreements where appropriate. Landlord, warehouse and processor waivers may also be used for collateral held by third parties. Environmental diligence, reserves and insurance may be required for regulated assets. Because many statutory claims cannot be contractually subordinated, lenders principally mitigate them through diligence, monitoring, cash management controls and reserves.

A secured lender may enforce its collateral following an event of default under the financing documents, subject to any applicable cure period, waiver, standstill or statutory restriction. For a demand loan, the lender must generally make demand and give the borrower a reasonable opportunity to pay before realising on security.

Available remedies commonly include:

• taking possession of collateral;
• collecting receivables;
• enforcing account control;
• selling or retaining collateral;
• exercising share-pledge rights;
• commencing an action on the debt or guarantees; and
• enforcing real property security through power of sale, foreclosure or judicial sale.

A lender may also assign a privately appointed receiver where the security permits, or seek the selection of a court receiver.

Where a secured creditor intends to enforce against all or substantially all of the inventory, accounts receivable or other business property of an insolvent debtor, Section 244 of the Bankruptcy and Insolvency Act generally requires at least ten days’ prior notice. Provincial personal property legislation also requires notice before the disposition of collateral, and obligates the secured party to act honestly, in good faith and in a commercially reasonable manner. Québec provides separate hypothecary remedies and prior notice requirements.

Enforcement may be stayed by bankruptcy, receivership, proposal or Companies’ Creditors Arrangement Act (CCAA) proceedings. Additional restrictions may apply to regulated businesses, agricultural borrowers, environmental liabilities and assets requiring governmental or third-party consent.

Guarantees are usually enforced by demand and court proceedings, subject to their terms and any available defences. Lenders must comply strictly with notice and enforcement requirements, preserve collateral and account for sale proceeds. Failure to follow the applicable procedures may delay enforcement, expose the lender to damages or impair its ability to recover enforcement costs or any deficiency.

Canadian courts will generally uphold a contractual choice of foreign governing law, submission to a foreign jurisdiction and waiver of immunity in commercial financing transactions. New York and English law are frequently selected in cross-border financings involving Canadian borrowers, and Canadian courts generally respect those choices unless:

• they are not bona fide or legal;
• they conflict with Canadian public policy; or
• there are other exceptional circumstances which apply.

Likewise, exclusive foreign jurisdiction clauses are generally enforceable. A resulting foreign judgment may be recognised and enforced in Canada where the foreign court had jurisdiction through consent or a real and substantial connection to the dispute, subject to limited defences, including fraud, denial of natural justice and public policy.

Certain matters continue to be governed by mandatory Canadian law regardless of the parties’ contractual choices, including:

• insolvency proceedings;
• the creation, perfection, priority and enforcement of security over Canadian assets; and
• rights relating to Canadian real property.

Where a sovereign or state-owned entity is involved, an express waiver of immunity is generally recognised in accordance with the State Immunity Act. However, a waiver of immunity from jurisdiction may not constitute a waiver from attachment or execution. Finance documents should therefore include separate waivers addressing suit, enforcement and execution, although certain diplomatic, military and central bank assets may remain immune.

Foreign court judgments and arbitral awards are generally enforceable in Canada without a retrial of the merits.

Canadian courts will ordinarily recognise and enforce a final and conclusive foreign judgment where the out-of-country court had jurisdiction based on the company’s submission or a real and substantial connection to the dispute. Recognition remains subject to limited defences, including fraud, denial of natural justice and public policy. Foreign penal, tax and certain other public law judgments may not be enforceable.

Canada is also a party to the New York Convention, and foreign arbitral awards are generally enforceable under the applicable federal and provincial arbitration legislation. Recognition may be refused only on narrow grounds, including:

• invalidity of the arbitration agreement;
• lack of proper notice;
• jurisdictional excess;
• procedural irregularity;
• non-arbitrability; or
• public policy.

In each case, the creditor must commence the applicable recognition or registration process and comply with provincial procedural and limitation requirements. Canadian courts do not ordinarily reconsider the substantive merits, and rather focus principally on whether the requirements for recognition and enforcement have been satisfied.

Foreign lenders may generally enforce loans, guarantees and security interests in Canada on substantially the same basis as domestic lenders. The principal limitations arise from:

• stays and other restrictions imposed under the Bankruptcy and Insolvency Act and the CCAA;
• Canadian perfection and priority rules, including statutory liens, deemed trusts, pension claims and court-ordered charges that may prime the lender’s security;
• statutory notice periods and provincial requirements governing the possession and disposition of collateral;
• regulatory approvals and foreign ownership restrictions where enforcement results in the acquisition of a regulated business, Canadian land or other restricted assets; and
• limitations on the assignment or transfer of licences, permits and contractual rights.

An enforcement-related acquisition of a Canadian business may also trigger notification or review under the Investment Canada Act. Foreign judgments and arbitral awards are generally recognisable and enforceable, although a recognition or registration proceeding is ordinarily required before enforcement measures may be taken against Canadian assets.

Canada does not generally impose foreign exchange controls, but cross-border transactions remain subject to sanctions, anti-money laundering and beneficial ownership requirements. These matters typically affect the timing, structure and cost of enforcement rather than the underlying validity of the foreign lender’s rights.

The commencement of insolvency proceedings under the Bankruptcy and Insolvency Act or the CCAA will generally restrict a lender’s ability to enforce its loan, guarantees and security through a stay of proceedings. Although a secured lender ordinarily retains the benefit of its security, enforcement is generally suspended during the restructuring process, unless the lender obtains court approval. Guarantees provided by non-debtor parties may remain enforceable, although a court may extend the stay where necessary to facilitate the restructuring.

In CCAA proceedings, courts may grant debtor-in-possession financing, administration and other court-ordered charges that rank ahead of existing secured creditors. Insolvency proceedings may also permit guarantees, security interests and pre-insolvency transactions to be challenged as preferences or transfers at undervalue. Subject to these considerations and applicable statutory priorities, secured creditors generally retain their security interests and participate actively in the restructuring or realisation process to maximise recoveries.

There is no single universal waterfall for every Canadian insolvency; the order of payment depends on the proceeding, the asset or fund in question, the validity and perfection of security, statutory deemed trusts, court-ordered charges and applicable priority agreements. Property owned by third parties or subject to a valid trust claim does not generally form part of the debtor’s estate.

At a high level, distributions are commonly analysed as follows, although particular claims may rank differently against different assets:

• court-ordered and statutory super-priority claims, including debtor-in-possession financing, administration and directors’ charges, and certain protected employee, pension, Crown and environmental claims;
• secured creditors, paid from the proceeds of their collateral according to applicable perfection and priority rules and any intercreditor or subordination arrangements;
• estate administration costs and preferred claims identified in the Bankruptcy and Insolvency Act, including certain trustee expenses, employee claims, municipal taxes, landlord claims and other prescribed amounts;
• ordinary unsecured creditors, who generally share rateably in the remaining proceeds;
• contractually or structurally subordinated creditors; and
• shareholders and other equity holders, who receive value only after all creditor claims have been satisfied in full.

The precise waterfall is highly fact-specific and may be affected by Crown deemed trusts, employee and pension claims, environmental liabilities and other statutory priorities. In proceedings under the CCAA, distributions may instead be governed by a court-approved plan of arrangement, although the plan must respect the applicable statutory priority requirements. Accordingly, a secured creditor’s expected recovery depends not only on the amount and value of its collateral but also on the existence of any claims or court-ordered charges ranking ahead of its security.

The duration of Canadian insolvency proceedings varies significantly depending on the process and the complexity of the debtor’s affairs. A straightforward bankruptcy or receivership may be substantially completed within six to 18 months, although disputed claims, litigation, regulatory issues or difficult asset sales can extend the process for several years. A restructuring under the Bankruptcy and Insolvency Act is subject to a relatively structured timetable, with a proposal generally required within six months after filing a notice of intention. Proceedings under the CCAA are more flexible and commonly last 12 to 24 months, or longer in complex or cross-border cases.

Canadian insolvency processes are generally transparent and court-supervised, but they do not guarantee recoveries equal to the company’s value upon entry into insolvency. Recoveries depend principally on asset values, the validity and priority of security, the availability of operating liquidity and the feasibility of a going-concern sale. Secured creditors with properly perfected security over valuable collateral generally have more predictable recoveries, while those for unsecured creditors are often materially lower and may be nominal.

CCAA restructurings and going-concern sales can preserve enterprise value more effectively than a piecemeal liquidation. However, professional fees, court-ordered priority charges, continued operating losses, market deterioration and delays in completing a sale can materially reduce recoveries. Accordingly, the Canadian system generally provides a reliable process for determining and distributing available value, but the amount ultimately recovered may be substantially less than the company’s reported or estimated value at the commencement of proceedings.

Canadian companies may pursue consensual restructurings without commencing formal proceedings under the Bankruptcy and Insolvency Act or the CCAA. These workouts commonly involve:

• forbearance or standstill agreements;
• covenant waivers or resets;
• maturity extensions;
• revised amortisation;
• interest deferrals;
• additional security;
• new-money financing;
• equity injections;
• debt exchanges;
• debt-for-equity conversions;
• asset sales; and
• operational restructuring.

Lenders will typically require enhanced reporting, financial adviser involvement, additional pricing and tighter controls during the workout period.

Out-of-court restructurings can be faster, less expensive, more flexible and more confidential than formal insolvency proceedings. However, they do not ordinarily provide an automatic stay, statutory super-priority financing or a general mechanism to bind dissenting creditors. Their success depends on obtaining the contractual consents required under the applicable financing documents. Holdout creditors and enforcement action by non-consenting stakeholders can make a fully consensual restructuring impracticable, particularly where the capital structure is complex.

A company may also use a court-approved plan of arrangement under the Canada Business Corporations Act or comparable provincial corporate legislation to implement a recapitalisation or a reorganisation of affected debt and equity rights without commencing formal insolvency proceedings. Such an arrangement can bind affected security holders where the required approvals are obtained, and the court determines that the arrangement has a valid business purpose and is fair and reasonable. It can be useful for reorganising bonds or other widely held debt, although it does not offer the full range of restructuring tools available under the CCAA.

The principal risk for a lender is that insolvency proceedings impose a stay preventing or delaying enforcement of the loan, guarantees and security. Although properly perfected security generally remains valid, the lender may require court approval to realise on its collateral, and may incur significant delay and professional costs while the debtor restructures or its assets are sold.

A lender’s priority and recovery may also be adversely affected by:

• court-ordered debtor-in-possession financing, administration and other super-priority charges;
• statutory deemed trusts and priority claims relating to source deductions, employee wages, pensions, environmental liabilities and other obligations;
• deficiencies in the creation, perfection or registration of security;
• prior-ranking secured creditors and contractual or structural subordination;
• deterioration in collateral or enterprise value during the proceeding;
• the disclaimer or termination of material contracts, leases, permits or licences; and
• challenges to guarantees, security or pre-insolvency transactions as preferences, transfers at undervalue or fraudulent conveyances.

Guarantees from solvent non-debtor parties generally remain enforceable, but enforcement may be stayed by court order or limited by insolvency defences, contractual standstills or the guarantor’s own financial condition. Recoveries may also be reduced by the costs of the proceeding and the risk that a going-concern sale cannot be completed. Lenders typically mitigate these risks through:

• comprehensive diligence;
• proper perfection;
• priority searches;
• intercreditor arrangements;
• financial covenants;
• reporting requirements;
• collateral monitoring; and
• early engagement when financial distress arises.

Canada has a mature and active project finance market, supported by domestic and international banks, institutional investors, private credit providers, pension funds and government-supported entities, including the Canada Infrastructure Bank. Activity remains significant, although higher construction costs, interest rates, regulatory approvals and supply chain risks have resulted in greater scrutiny of project economics, completion risk and contractual risk allocation.

The most active sectors include:

• renewable and conventional power generation, transmission and energy storage;
• public infrastructure;
• oil and gas, LNG and related midstream infrastructure;
• mining and critical minerals projects;
• data centres, telecommunications and digital infrastructure; and
• water, waste management, hydrogen, carbon capture and other energy transition projects.

Clean power, critical minerals, Indigenous-owned infrastructure and power and digital infrastructure for data centres are expected to remain important sources of activity. Indigenous equity participation is increasingly significant, supported by government loan-guarantee programmes and Canada Infrastructure Bank financing. Projects are commonly financed through syndicated bank facilities, private placements, institutional debt and government-supported capital, often combined with sponsor equity and long-term offtake or concession arrangements.

Canada has a mature public-private partnership (PPP) market, particularly for transportation, transit, healthcare, justice, education, water and other public infrastructure. Common structures include design-build-finance, design-build-finance-maintain and design-build-finance-operate-maintain models. A special-purpose project company typically enters into a long-term agreement with the relevant governmental authority and receives availability-based payments tied to completion and performance. The public authority generally retains ownership of the underlying asset.

There is no single Canadian statute governing all PPP transactions; projects are governed by federal, provincial or municipal legislation applicable to the procuring authority and the relevant sector, together with public procurement policies, environmental and impact assessment legislation, municipal law requirements and applicable trade agreements. Covered procurements must generally comply with transparency, non-discrimination and competitive tendering requirements under instruments such as the Canadian Free Trade Agreement, the EU–Canada Comprehensive Economic and Trade Agreement (CETA) and the WTO Agreement on Government Procurement.

The principal legal and commercial obstacles include:

• lengthy procurement and approval processes;
• environmental assessments;
• Indigenous consultation obligations;
• land acquisition;
• permitting;
• utility relocation; and
• political or budgetary risk.

Construction cost inflation, labour shortages, supply chain disruption and difficulty transferring fixed-price completion risk have also affected the viability of traditional PPP structures, and encouraged greater use of progressive procurement and collaborative risk-allocation models.

Because the public authority ordinarily owns the infrastructure, lenders generally take security over the project company’s assets, accounts, shares and contractual rights rather than the public asset itself. Financing therefore depends heavily on direct agreements providing lenders with notice, cure and step-in rights, restrictions on termination and the ability to transfer the project to a replacement operator. Statutory authority, governmental consent, appropriation risk and restrictions on assigning public contracts must be carefully addressed in each transaction.

Canadian law does not generally require construction contracts, power purchase agreements, offtake agreements or other project documents in order to be governed by Canadian law, nor for disputes to be resolved exclusively in Canadian courts; commercial parties may ordinarily select English or New York law and agree to international arbitration, and Canadian courts will generally respect those choices. Foreign arbitral awards are generally enforceable in Canada under the New York Convention and applicable federal and provincial arbitration legislation.

In practice, however, project documents relating principally to a Canadian project are commonly governed by the law of the province in which the project is located. This is particularly true for construction contracts, agreements with provincial utilities or governmental authorities, land arrangements and other contracts closely connected to the project’s regulatory framework. Mandatory Canadian laws concerning construction liens, prompt payment and adjudication, real property, environmental regulation, permits, Indigenous consultation, taxation, insolvency and the creation and perfection of security will apply regardless of the contractual governing law.

English or New York law and international arbitration are more common in cross-border offtake, supply, equipment, commodity and financing arrangements. Where a Canadian governmental authority, Crown corporation or regulated utility is a party, its enabling legislation, procurement requirements, statutory immunities and prescribed contractual terms must also be considered. From a financing perspective, the governing law and dispute resolution provisions across the project documents should be co-ordinated in order to minimise inconsistent decisions and permit the consolidation or co-ordinated resolution of related disputes where possible.

See 8.3 Governing Law.

Canadian projects are commonly owned through a bankruptcy-remote special-purpose vehicle formed as a corporation or limited partnership under federal or provincial law. The choice depends on tax treatment, governance, liability, ownership and financing considerations. Limited partnerships are frequently used where tax transparency is desirable, with a special-purpose corporation acting as general partner. The organisational documents and project agreements are typically structured to restrict unrelated activities, additional indebtedness, asset dispositions and distributions, and to preserve separateness from the sponsors.

The principal structuring issues include:

• allocating construction, completion, operating, revenue, supply, offtake, regulatory and force majeure risks;
• establishing an appropriate debt-to-equity structure;
• ensuring that permits and key contracts are transferable or subject to lender step-in rights; and
• creating and perfecting security over the project company’s assets, shares, accounts and contractual rights.

Tax structuring, withholding tax, thin-capitalisation and interest deductibility rules, Indigenous participation, environmental liabilities and the availability of government incentives or credit support must also be considered.

Project companies are subject to generally applicable corporate, tax, competition, employment, insolvency, sanctions and anti-money laundering laws, together with provincial personal property security or Québec hypothecary legislation. Depending on the project, additional assessments and requirements may apply, including:

• the environmental and impact assessment legislation;
• construction and lien legislation;
• Indigenous consultation obligations;
• real property, water, mining, energy and utilities regulation; and
• sector-specific licensing requirements.

Foreign investment is generally permitted, but an acquisition or establishment of a Canadian business may require notification or review under the Investment Canada Act, including national security review, regardless of transaction value. Greater scrutiny applies to critical minerals, energy, telecommunications, transportation, sensitive technology and critical infrastructure. Provincial restrictions on certain agricultural or other land, and sector-specific Canadian ownership requirements, must also be considered.

The Bank of Canada does not ordinarily approve project financings, and Canada generally has no foreign exchange controls restricting the conversion or remittance of project revenues. However, federally regulated banks and foreign bank branches are supervised by the Office of the Superintendent of Financial Institutions and are subject to capital, liquidity and prudential requirements. Sanctions, anti-money laundering and tax withholding rules may also affect cross-border cash flows.

Relevant international instruments may include the Canada-United States-Mexico Agreement, the CETA, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, WTO agreements, Canada’s bilateral foreign investment promotion and protection agreements and its extensive network of tax treaties. The New York Convention facilitates the enforcement of foreign arbitral awards. The availability of investment protections and investor-state dispute settlements must be reviewed treaty by treaty, as the rights and reservations differ materially between agreements.

Canadian project financings generally use a combination of sponsor equity and limited or non-recourse senior debt, with lenders relying primarily on the project’s assets, contracts and future cash flows. The financing package is commonly structured around:

• construction and completion milestones;
• reserve accounts;
• cash sweeps;
• distribution tests; and
• comprehensive security over the project company and its assets.

Bank financing remains the principal source of construction-stage debt. Facilities are commonly provided by a syndicate or club of Canadian and international banks, and may include:

• construction loans;
• term facilities;
• working-capital revolvers;
• letters of credit;
• hedging facilities; and
• debt-service reserve facilities.

Construction debt may convert into term debt upon completion or be refinanced through a longer-term institutional facility.

Export credit agencies may provide direct loans, guarantees, insurance or political-risk support where a project involves significant Canadian exports or imported equipment. Export Development Canada is particularly active in energy, infrastructure, mining, critical minerals and telecommunications. Other foreign export credit agencies may participate where equipment is sourced from their home jurisdictions. The Canada Infrastructure Bank may also provide debt, equity or other tailored support to qualifying revenue-generating infrastructure projects.

Project bonds and private placements are used principally for operational projects with stable and predictable cash flows. Canadian pension funds, insurance companies and other institutional investors are important sources of long-term fixed-rate debt. Bond or private placement proceeds may be used as a construction-loan takeout, particularly for power, infrastructure and PPP projects.

Alternative sources include:

• private credit and infrastructure debt funds;
• sponsor and private equity capital;
• government loans and guarantees;
• subordinated or mezzanine debt; and
• preferred equity.

In mining and natural resource projects, streaming, royalty, prepaid offtake and commodity trader financing are also common. These structures provide capital in exchange for future production, revenue interests or discounted commodity deliveries, but may create significant intercreditor, cash-flow and control issues for senior lenders.

Large projects increasingly combine several of these sources, including bank debt, institutional capital, government support, Indigenous equity financing and sponsor equity. The resulting structures require careful co-ordination of ranking, enforcement, draw conditions, completion support, hedging and distribution arrangements.

Canada has a highly developed natural resources sector and is a major producer and exporter of critical minerals, oil and gas, forest products and hydroelectric power. Resource projects are regulated principally at the provincial or territorial level, and commonly require licences, leases, claims, permits or other rights from the relevant Crown authority. Key project risks include environmental and impact assessments, Indigenous consultation obligations, permitting, infrastructure access and commodity price volatility.

Canada generally permits the export of natural resources and does not impose a broad national requirement that resources be beneficiated or processed domestically before export, although product-specific export permits, sanctions, trade controls, transportation regulation and regulatory approvals may apply. Foreign investment in natural resources projects is generally permitted but may be subject to notification or review under the Investment Canada Act, including national security review. Natural resources projects remain active users of project finance in Canada, particularly in the mining, critical minerals, energy and infrastructure sectors.

Environmental, health and safety regulation in Canada is shared among federal, provincial, territorial and municipal authorities. Designated projects within federal jurisdiction may be subject to the Impact Assessment Act, as amended in 2024 following the Supreme Court of Canada’s 2023 opinion, and oversight by the Impact Assessment Agency of Canada, together with applicable provincial or territorial assessment and permitting regimes. Project approvals commonly address emissions, water use, waste management, habitat protection and land use considerations. Occupational health and safety are governed principally by provincial or territorial legislation, except for federally regulated workplaces.

A particularly important feature of Canadian project development is the Crown’s duty to consult and, where appropriate, accommodate Indigenous peoples where contemplated conduct may adversely affect asserted or established Aboriginal or treaty rights. Regulatory oversight depends on the project and may involve environmental regulators, natural resource ministries, workplace safety authorities, municipal bodies and sector-specific energy, mining or transportation regulators.