The ABCs of EFCs: Eligible Financial Contracts and Energy Company Insolvency Proceedings
Canadian insolvency laws provide special treatment for complex financial instruments such as swaps, forwards, and other derivatives referred to as “eligible financial contracts” or “EFCs.” However, this special treatment continues to lead to disputes during insolvency proceedings as to whether various forms of energy trading contracts are properly characterized as EFCs. This article establishes that courts look at the essence of any contract and whether it serves an underlying financial purpose to determine if it can be characterized as an EFC. This article also aims to clarify the scope and limitations of the protections and legal remedies that may be available or unavailable to solvent counterparties to an EFC.
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