Do you have to tell the other side you're insolvent before you settle? Not always.
A company can negotiate a settlement while insolvent without disclosing it, Quebec's Court of Appeal has ruled, upholding a $10-million deal.
In a decision released July 10, 2026, the Quebec Court of Appeal dismissed an appeal by US-based supply chain automation company Dematic Limited and left its settlement with Montreal online retailer SSENSE intact. The appeal was dismissed with legal costs.
The dispute goes back to a November 4, 2020 agreement, under which Dematic was to install the machinery, software and systems to upgrade SSENSE's order fulfilment centre for a total price of $40 million. The system was never implemented as planned, and settlement talks began in February 2025.
Over two days that August, the parties exchanged emails. Dematic's president offered $10 million in cash, a transfer of consignment parts on site, and waivers on unpaid invoices and project fees. SSENSE's chief operating officer accepted the terms on August 27, 2025 and asked for a formal agreement to be drafted.
That same day, one of SSENSE's lenders, the Bank of Montreal, moved to bring it under the Companies' Creditors Arrangement Act. SSENSE filed its own CCAA application, and an initial order was issued on September 12, 2025, with Ernst & Young Inc. appointed as monitor.
When SSENSE followed up to finalize the deal, Dematic went quiet. It later refused to sign, arguing no binding agreement had been reached and that SSENSE had negotiated in bad faith by concealing its financial trouble.
SSENSE applied to enforce the settlement. On November 18, 2025, the Superior Court granted the application in part, finding the parties had reached a binding transaction. Dematic appealed.
The Court of Appeal rejected every ground. It held that signing a formal agreement was not essential to the deal. The email exchange showed a meeting of the minds on the core term, SSENSE's release of Dematic from the underlying contract dispute, and Dematic's offer never made a signed document a condition.
On disclosure, the court found SSENSE had no duty to reveal its insolvency during talks to settle a past dispute. The relationship was an ordinary supply arrangement rather than a long-term joint venture, and SSENSE was receiving payment, not making it, so its solvency had no bearing on carrying out the settlement. The court also found no evidence SSENSE meant to mislead.
For advisers working with distressed clients and the firms across the table from them, the ruling draws a line. A party in financial trouble is not automatically bound to open its books to settle an existing dispute, and staying silent on solvency will not, by itself, undo a deal that is otherwise complete.
