On April 17, 2025, Earth Boring Co. Limited (EBCL) sought protection under the Companies’ Creditors Arrangement Act (the CCAA). Among the provisions of the court’s initial order was a temporary stay preventing claims being made on certain performance bonds. This temporary stay led some in the construction industry to question the value of performance bonds during an insolvency. The outcome of the EBCL case, however, demonstrates the objectives of the CCAA process can be achieved without prejudicing the rights of project owners who want to ensure that their bonded contracts are completed.
Background
- Contract surety bonds are used primarily in the construction industry. These bonds protect the obligee (the project owner or general contractor) from financial loss if the principal (the contractor or subcontractor, as the case may be) fails to fulfill the terms and conditions of their contract. The obligee is protected against a contractor's inability to complete a job.
- Performance bonds serve this express purpose, and allow obligees, subject to the terms and conditions of the relevant performance bond, to assert claims against the surety that issued the performance bond.
- Typically, in addition to performance bonds, obligees will also require labour and material payment bonds, which (again subject to their terms and conditions) ensure the payment of subcontractors and suppliers of the contractor in the event of non-payment by the contractor.
- These bonds are essential tools in the construction industry to ensure effective completion of construction projects.