Crossing the Finish Line: the Potential Impact on Business Rescue of Adoption of new Cross-Border Insolvency Provisions — Part 2

II. Chapter 47 Provisions as Compared with the Model Law and Chapter 15 of the U.S. Bankruptcy Code

The express purpose of the cross-border insolvency amendments under Chapter 47 is to provide mechanisms for dealing with cases of cross-border insolvencies and to promote cooperation between the courts and other competent authorities in Canada with those of foreign jurisdictions in cases of cross-border insolvencies; greater legal certainty for trade and investment; the fair and efficient administration of cross-border insolvencies that protects the interests of creditors, debtors and other interested persons; the protection and the maximization of the value of debtors’ property; and the rescue of financially troubled businesses to protect investment and preserve employment.⁶ These purposes mirror those of the Model Law and Chapter 15, aimed at promoting certainty and predictability in insolvency proceedings.⁷

For purposes of the cross-border provisions, if an insolvency, reorganization or similar order has been made in respect of a debtor company in a foreign proceeding, a certified copy of the order is, in the absence of evidence to the contrary, proof that the debtor company is insolvent and proof of the appointment of the foreign representative made by the order.⁸ This presumption exists currently in the BIA, but Chapter 47 will bring the CCAA in line with both the BIA and the Model Law and Chapter 15 provisions.⁹ Given that access to Canadian insolvency legislation, including restructuring mechanisms, is based on a requirement of insolvency, this presumption of insolvency assists in providing recognition where the foreign jurisdiction does not require insolvency to access the statutes, most notably for Canada, access to Chapter 11 of the U.S. Bankruptcy Code. The recognition of a foreign proceeding does not prevent Canadian creditors from initiating or maintaining collection proceedings, although it does stay the proceedings in certain circumstances. Chapter 47 seeks to align relief resulting from recognition of a foreign proceeding with relief available under the BIA or the CCAA.¹⁰

1. Foreign Representative

A key objective of the Canadian provisions is to provide timely and direct access for foreign representatives to Canadian courts, to facilitate both communication and co-operation. Chapter 47, if proclaimed, will permit a foreign representative to apply to the court for recognition of a foreign proceeding.¹¹ The Chapter 47 amendment to the BIA provisions defines foreign representative as a person or body authorized in a foreign proceeding to administer the debtor’s property or affairs for the purpose of reorganization or liquidation.¹² Foreign court is defined in Chapter 47, the Model Law and Chapter 15 as a judicial or other authority competent to control or supervise a foreign proceeding.¹³

The provisions under the CCAA include authorizing the representative to monitor the debtor company’s business and financial affairs for the purpose of reorganization, a provision not expressly included in the Model Law. The difference may be due to the existence of the monitor as a court-appointed officer under the CCAA, with a range of monitoring and facilitating roles. The Model Law provision specifies that the foreign representative is authorized to administer the reorganization or liquidation of the debtor’s assets or affairs.¹⁴ Since the CCAA is not a liquidation statute (although there have been a number of recent liquidating CCAA proceedings), it does not contain this language. One interesting question is whether foreign representatives will move for recognition more often under the BIA in order to avail themselves of powers that are broader than the CCAA.¹⁵ Aside from the liquidation issue, it appears as if the foreign representative could not administer under the CCAA for purposes of reorganization.

Both the Model Law and the Canadian provisions limit the jurisdiction of the court over the foreign representative to the purposes of the application.¹⁶ An application by a foreign representative for an order does not submit the foreign representative to the jurisdiction of the court for any other purpose except with regard to the costs of the proceedings, but the court may make any order conditional on the compliance by the foreign representative with any other order of the court.¹⁷ As with the Model Law, it constitutes a "safe conduct" rule aimed at ensuring that the court will not assume jurisdiction over all the assets of the debtor corporation solely of the basis of a foreign recognition order, and ensuring that the court does not assume jurisdiction over the foreign representative for matters unrelated to the insolvency.¹⁸

One notable difference between the U.S. and Canadian versions of the Model Law is that Chapter 15 specifies that on granting of recognition, the foreign representative may sue or be sued in U.S. courts, subject to any limitations that the court may impose consistent with the policy of Chapter 15.¹⁹ The Canadian provisions do not contain such a provision, and under the BIA, insolvency officers are well protected from such suits in most circumstances. Hence there is likely to be litigation regarding the scope of potential liability when filing and receiving a recognition order in the U.S., a matter that may give rise to forum shopping away from the United States, depending on the circumstances of the debtor’s financial distress.

2. Centre of Main Interests (COMI)

As with the Model Law and Chapter 15, Chapter 47 adopts the concept of centre of main interests (COMI) as the mechanism for determining main and non-main proceedings. However, COMI is not defined in Chapter 47, Chapter 15, the Model law or the EC regulation.²⁰ In many proceedings, the issue of COMI does not arise, because the debtor corporation operates in the jurisdiction in which it is registered. However, the issue of COMI does arise where there is a question of the debtor’s connection with a jurisdiction. In such cases, insolvency laws adopt different tests for taking jurisdiction, including a COMI test, or consideration of whether the debtor has an establishment or assets in the jurisdiction in which insolvency proceedings are being sought.

The Canadian provisions specify that in the absence of proof to the contrary, a debtor company’s registered office is deemed to be the centre of its main interests, mirroring the Model Law and Chapter 15.²¹ A "foreign proceeding" under the Canadian provisions is defined as a judicial or an administrative proceeding, including an interim proceeding, in a jurisdiction outside Canada dealing with creditors’ collective interests generally under any law relating to bankruptcy or insolvency in which a debtor company’s business and financial affairs are subject to control or supervision by a foreign court for the purpose of reorganization.²² Hence the definition tracks the Model Law and Chapter 15.²³ Foreign main proceeding means a foreign proceeding in a jurisdiction where the debtor company has the centre of its main interests, mirroring the Model Law.²⁴ The amended BIA and CCAA will create a presumption that the debtor’s place of residence or registered office is deemed to be the centre of main interests.²⁵

However, foreign non-main proceeding is defined differently than the Model Law and Chapter 15. The Canadian provisions define foreign non-main proceeding as a foreign proceeding, other than a foreign main proceeding.²⁶ In contrast, the Model Law requires that the debtor have an establishment within the jurisdiction of a foreign non-main proceeding, defined as any place of operations where the debtor carries out a non-transitory economic activity with human means and goods or services.²⁷ Chapter 15 of the U.S. Bankruptcy Code also requires an establishment in order to come within the definition of foreign non-main proceedings.²⁸ In Canada, there will be no requirement to have an establishment in the foreign jurisdiction as a condition of recognition of a foreign non-main proceeding.²⁹ Hence, arguably, one could have different kinds of foreign non-main proceedings than anticipated by the Model Law or U.S. Chapter 15.

Where the COMI is challenged under the Model Law, Chapter 15 or Chapter 47, the court will determine the matter based on the evidence; however, there is no legislative guidance on what proof to contrary might be in terms of rebutting the statutory presumption that the COMI is the jurisdiction where the debtor’s registered office is located. The UNCITRAL Legislative Guide on Insolvency Law, which is aimed at establishing an effective insolvency framework, defines centre of main interest as "the place where the debtor conducts the administration of its interests on a regular basis and that is therefore ascertainable by third parties".³⁰ The UNCITRAL Legislative Guide observes that a debtor must have a sufficient connection to a State to be subject to its insolvency laws.³¹ The Model Law uses the concept of COMI to discern those proceedings that could be recognized as constituting foreign "main" proceedings for the purposes of recognition in another state and ultimately assistance in the administration of the insolvency. The UNCITRAL Working Group has observed that the Model Law recognizes that the status of those proceedings as main proceedings may change and accordingly that the order for recognition may need to be modified or terminated.³² The Guide to Enactment of the Model Law notes that it was not advisable to include more than one criterion, COMI, for qualifying a proceeding as a foreign main proceeding because multiple criteria would increase the risk of competing claims from foreign jurisdictions for recognition as the main proceeding.³³ Yet, there will inevitably be contests for control through litigation regarding centre of main interest.

The distinction between the requirement for an establishment makes it unclear whether the concept of foreign non-main proceeding is exhaustive of all types of foreign proceedings, and a proceeding commenced in a state in which the debtor has assets, but not an establishment, might arguably constitute a foreign proceeding that is neither a foreign main proceeding nor a foreign non-main proceeding.³⁴ While the Model Law does not accord recognition to proceedings commenced on the basis of presence of assets, Article 28 acknowledges that there might be a need in some cases to commence local proceedings to deal with such assets, provided the debtor is already involved in main proceedings elsewhere.³⁵ While the focus of the Model Law is on who has authority to deal with assets, Kent et al suggest that it remains unclear who has the authority to restructure the liabilities and that it is uncertain as to what extent courts will consider factors such as where business is conducted, where administration or control of the debtor’s interests takes place, third-party perceptions and expectations, and other factors that may identify a debtor’s centre of main interests.³⁶

A critical question once Chapter 47 is proclaimed in force will be what evidence is required to rebut the presumption. Another key issue is the extent to which the court has an obligation to inquire into the COMI where an application is uncontested.

Where the debtor is a single corporate entity with assets and operations cross-borders, the filing strategy depends on the location and type of assets, the nature of creditors’ claims, the jurisdiction in which assets are situated, and where the head office or centre of main interest is located.³⁷ The specific objectives of the workout may influence filing choices. For example, if a sale of all or substantially all of the business is anticipated, Canadian CCAA proceedings may be more expeditious and less rigid than filing in the U.S. and conducting the sale process there. Similarly, treatment of executory contracts can differ considerably in different jurisdictions and this may affect choice of laws. In the Canadian / U.S. cross-border context, DIP financing is more rule driven in the U.S. and may influence choice of regime.³⁸ Directors and officers tend to have broader indemnification in Canada than in U.S. restructuring proceedings, and depending on the nature of claims against the debtor and its officers, this may influence where the debtor files. The two countries differ in the nature and extent of priorities and provisions on avoidable transactions, fraudulent conveyance and preferences. Moreover, Chapter 47 will strengthen the priority given to employee claims and provide a different approach than the U.S. for treatment of collective agreements. If a debtor does not file as a single entity and meet the specified tests, the debtor will be dependent on the discretion of the court to address recognition in the context of a corporate group. There is likely to be considerable uncertainty regarding recognition of proceedings for corporate groups in the early years of both U.S. and Canadian versions of the Model Law as the result of failure to seriously address this issue. Moreover, the main/non-main distinction does not address potential access problems for smaller or less well-resourced creditors.³⁹

Treatment of COMI may also impact the ability to raise interim financing during workout proceedings. The UNCITRAL Legislative Guide notes that many jurisdictions restrict the provision of new money in insolvency or do not specifically address the issue of new financing or the priority for its repayment in insolvency. Structural impediments to providing new money include lack of statutory authority; different priority accorded to interim financing during the workout; personal liability of directors and officers of the debtor or an insolvency representative for incurring the debts that such financing entails; application of avoidance provisions to financing transactions; problems associated with providing priority to DIP facilities; and a preference for liquidation over reorganization that makes the issue of such finance difficult to address.⁴⁰ To date, issues that have arisen in DIP financing have been addressed in cross-border protocols in a number of cases.⁴¹

3. The COMI of Corporate Groups

Increasingly, Canadian capital structures are organized in corporate groups, frequently in a pyramidal structure, with separate corporate entities both within Canada and across borders. These multinational corporate groups may operate as separate entities, but also frequently operate as highly integrated corporate structures, even though the legal entities are separate and registered in multiple states, subject to multiple insolvency law regimes.

Cross-border insolvency protocols have been approved by courts as a mechanism to facilitate cross-border proceedings involving multiple related corporate entities, creating a legal framework for the conduct of insolvency proceedings and coordination of administration of an insolvent estate in one state with administration in another.⁴² The courts in Canada and the U.S. have approved protocols on cross-border co-operation. These orders have dealt with coordination and co-operation in the administration of proceedings, coordination in ongoing operations, asset sales and distribution, claims filing procedures and choice of law issues, and coordination of development of plans in both countries.⁴³ This has reduced the cost of litigation and placed the focus on restructuring issues instead of conflict of laws disputes. These cases involved Canadian debtor corporations with significant operations and asset holdings in the United States, or vice versa, and thus the debtor corporations required recourse to protection of insolvency laws in both jurisdictions. A protocol sets out the ground rules by which concurrent insolvency proceedings can be coordinated; honours the sovereignty of the respective courts; harmonizes activities in multi-jurisdictional insolvency proceedings; promotes the orderly and efficient administration of proceedings; promotes international co-operation and respect for comity among the courts; facilitates fair and open processes for insolvency proceedings for the benefit of all parties; and implements a framework of general principles to address basic administration issues arising out of cross-border insolvencies.⁴⁴

The greatest unresolved question is whether there should be a definition of COMI that recognizes COMI for corporate groups. The question of jurisdiction of filing is complicated when there are multiple related corporate entities that are registered in different jurisdictions. In addition to the factors that a single entity considers, there are multiple additional considerations regarding the most appropriate forum. The parent and/or some affiliated companies may be insolvent and others are not. The capital structures may be highly integrated across borders. Where management or financing control is centralized, the corporate group may need to file concurrently in multiple jurisdictions in order to continue operating, because a stay in one jurisdiction is not sufficient to allow such a centralized structure to continue during the workout negotiation process.⁴⁵ Operations may be quite distinct or highly integrated, particularly where various companies in the corporate group are the critical suppliers for other entities in the group, whatever jurisdiction the corporate group members are located in. This issue arises in many sectors. In such a case, there may be inter-company flow of assets, which could give rise to claims on a solvent member of the corporate group or reviewable transaction claims where payments have been made in the period leading up to filing.⁴⁶ The debt structure may be highly integrated, with inter-company loans that cross borders. There may be guarantees by one entity for another or by the officers of the company for debts of a member of the corporate group. There are many cases in which the corporate group should be reorganized as one proceeding, but definitions of COMI may not easily facilitate such a proceeding. There are also cases where the COMI of the Canadian subsidiary may be in Canada, even if the parent’s COMI is elsewhere.

The notion of COMI appears grounded for the most part in a single legal entity, and the language reflects the policy intent not to have competing applications for a main proceeding. Yet the reality is that many cross-border insolvencies involve corporate groups, including divisions, subsidiaries, affiliates, and co-venture arrangements. One or more of the parent or subsidiaries may be insolvent. The failure of the Model Law, Chapter 47 and Chapter 15 to deal with the issue of corporate groups and the resultant challenge for determining COMI is significant in Canada, as there are many insolvency proceedings that involve groups of companies carrying on business in more than one jurisdiction.

A key question is whether COMI can be defined in particular circumstances to allow members of a corporate group to all have their COMI in one state, even where their registered offices are in different states. This would require a corporate group definition of COMI that may assist in global workouts but may prove problematic for the rights of creditors in various jurisdictions where they were dealing with corporations registered in those jurisdiction and may want a remedy in respect of the particular corporate entity in that jurisdiction. Alternatively, there could be a recognition that the COMI may lie in multiple states, but then protocols used to facilitate cases where it is more efficient to administer the proceeding on a consolidated basis in the home state of the parent corporation. Both strategies would recognize corporate groups. However, conceptualizing a definition of corporate group COMI that can be appropriately applied to multiple jurisdictions will be a challenge. The objective is enhanced coordination, expedition of the process, efficiency in the time and use of insolvency professionals, and fairness to local creditors.

In recognition of a corporate group COMI, it is important that there not be an inappropriate extension of domestic law. At the same time, there is a need to recognize that operationally, the entities in the corporate group may be highly integrated and highly regulated in each of the jurisdictions in which the entities are registered. For example, if a parent corporation is located in Canada, but is operating subsidiaries in five other jurisdictions, would Canadian insolvency and bankruptcy law extend to other jurisdictions? Absent agreement by parties to have Canadian law apply to an integrated corporate organization, this could be an inappropriate extension of Canadian law and could prejudice creditors located in those jurisdictions where priorities or preferences differ, or where there are statutory protections such as "adequate protection" under the insolvency laws of the jurisdictions in which the subsidiaries are located. Equally, however, it is important that the domestic law in the jurisdiction in which the subsidiaries are located does not inappropriately extend the reach of its law to the parent corporation located outside of the jurisdiction. The centre of main interest test does not really account for corporate groups, unless they are so highly integrated that a court can pull aside the corporate veil. Yet jurisprudence under corporate law in Canada and many other jurisdictions indicates that the occasions in which the corporate veil is lifted are rare.⁴⁷ Where there is a multinational enterprise (MNE), with a controlling parent corporation, one issue is whether the parent corporation would ever attract liability for the debts of its insolvent subsidiaries located in other jurisdictions.

Concurrent proceedings in respect of related companies frequently are commenced in multiple jurisdictions, although such proceedings may or may not advance a global resolution of the debtor companies’ insolvency, particularly where regimes differ as to their liquidation or rehabilitation goals or where procedures for resolving the firm’s financial distress vary considerably. Most of Canada’s cross-border experience is with the United States, where there is a degree of compatibility in procedural protections and a fair degree (although far from complete) alignment of insolvency laws. However, where systems do not converge, the issue of centre of main interests and how that might align with corporate groups that cross borders is yet to be determined.

In a cross-border proceeding where there is a corporate group operating in a number of jurisdictions, the facility with which the debtor will be able to restructure will depend to a large measure on the court’s willingness to grant relief that facilitates the restructuring but is not inconsistent with domestic legislation.⁴⁸ Given that different regimes internationally have different normative conceptions of insolvency, with particular focus on rehabilitation or liquidation or a mix of both, the ability to restructure as a corporate group may be hampered if the courts narrowly interpret the COMI entity-based test for recognition or are unwilling to grant specific orders because they are not consistent with domestic law.⁴⁹ Until there is some interpretation of the meaning of the words "evidence to the contrary" in the test for COMI, there will be considerable transaction costs in litigating such recognition and/or in multiple filings across jurisdictions to prevent prejudice due to unwillingness of courts to recognize corporate group proceedings. One issue is whether a parent’s extensive control over the subsidiary will be sufficient to rebut the presumption that the location of the subsidiary’s registered office constitutes its COMI.⁵⁰

The use of cross-border protocols or other mechanisms to address procedural and administrative issues between the different jurisdictions may avoid requiring courts to determine a single corporate group COMI, however, a workout proceeding that is advanced through multiple proceedings internationally can raise the transaction costs of a global workout considerably and may create some pressure for premature liquidation in some of the jurisdictions.

One current debate is whether there should be a concept of centre of main interests of a corporate group developed, or whether international rules of comity and cooperation will be sufficient to address highly integrated multinational enterprises. The UNCITRAL Working group on Corporate Groups is in the early stages of considering whether to establish a concept of "centre of main interests of a corporate group" where there is a high degree of integration between members of a corporate group and the group was run essentially as a single entity.⁵¹ The concept could be defined by reference to how and where policy, management and financial decisions of the group were made or carried out and creditor perceptions of that location.⁵² The COMI would determine the jurisdiction in which main insolvency proceedings against a corporate group or one or more of its members should be commenced and the law that would apply to commencement and administration of the proceedings.

The Working Group has observed that where the adoption of such an approach depended on close integration of the group, the requisite level of integration would need to be defined.⁵³ This would place some onus on creditors to investigate or ascertain whether or not the corporation that they were dealing with was part of a corporate group. While this may not pose a challenge for senior lenders who can require such disclosures as part of the due diligence in making credit decisions, such an approach would be very difficult for trade suppliers, employees and other creditors that face bargaining and information asymmetries.

The Working Group observes that recognition of a corporate group COMI may lead to main insolvency proceedings at the location of the group COMI, irrespective of whether the parent or other subsidiaries registered at that location were also subject to insolvency; and local proceedings might still be required at the place of incorporation of the insolvent subsidiary to deal with its business and assets. Alternatively, it suggests that a different approach could be to deem the COMI of the group to be that of the parent corporation, so that all subsidiaries would also have that COMI; and jurisdiction for commencement of proceedings would not be related to place of incorporation or registered office.⁵⁴ A concept of corporate group centre of main interests could facilitate group commencement and administration of insolvency proceedings.⁵⁵

In Canada, consolidation has been one strategy to deal with corporate groups, and its experience is being assessed by the UNCITRL Working Group, including how such a strategy can approach treatment of inter-company loans. Where there is a substantive consolidation of cross-border proceedings, it also raises the question of whether there should be creditors’ committees, which would have representation from creditors of both the parent debtor, as well as subsidiaries in the corporate group. Even such a structure may create barriers to the participation of unsecured creditors where they are located jurisdictions other than the main proceeding. It may also raise a question is respect of the ability of employees and pensioners to participate in workout proceedings, where the corporate group proceeding is not in their domestic jurisdiction. This may include both informational and cost barriers to participation, resulting in the court not having all the interests at stake before it in the courtroom when making substantive decisions in respect of the proceeding. This implicates notions of creditors’ reasonable expectations, as well as public interest and public policy in respect of the fairness and efficacy of the Canadian insolvency regime. In applying the provisions of Chapter 47, Canadian courts will have to pay careful attention to how substantive and procedural rights of stakeholders in Canada will be affected by the recognition of a foreign main proceeding of a corporate group.

4. Public Policy Exception and Deference to International Obligations

The Canadian Chapter 47 provisions do not contain the public policy exception set out in Article 6 of the Model Law and §1506 of Chapter 15, specifically, that nothing in the law prevents the court from refusing to take an action governed by the law if the action would be manifestly contrary to the public policy of the state.⁵⁶ The Guide to Enactment of the Model Law suggests that the use of the word "manifestly" was to emphasize that public policy exceptions should be interpreted restrictively and used only in exceptional circumstances concerning matters of fundamental importance to the domestic state or involving fundamental principles of law.⁵⁷

However, despite the omission of the public policy exception in Chapter 47, arguably, Canadian courts already possess broad discretion to consider public policy objectives. The case law has numerous references to the court’s concerns regarding the public policy goals of the legislation. There is also a provision that specifies that the Canadian court is not required to make any order that is not in compliance with the laws of Canada or to enforce any order made by a foreign court.⁵⁸ This wording has been carried over from the existing provisions. Arguably, this provision provides the Canadian court with jurisdiction to decline to make an order or enforce an order that is contrary to public policy. Equally, courts could apply the rule of interpretation that suggests that where legislators expressly adopt some provisions of the Model Law and not others, there was a legislative intent not to include those provisions and they should not be read into the legislation. However, given the long history of public policy consideration by Canadian courts, it is likely that they will continue with a purposive approach to interpreting insolvency legislation, even where the public policy exception of the Model Law and Chapter 15 is not expressly adopted.⁵⁹

The Canadian provisions enable a foreign representative to apply under the BIA or CCAA despite an appeal or review in the foreign jurisdiction, retaining this language from the current cross-border provisions.⁶⁰ There is no parallel article in the Model Law or Chapter 15. A foreign representative or other interested person is also free to invoke any legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives, provided no inconsistency arises between such rules and the amended BIA or CCAA.⁶¹

There may be a further issue that is a tension between domestic and international priorities. Canadian courts have recognized the public interest aspects of restructuring; in particular, the flexibility of the CCAA has allowed the court to engage in a balancing of interests and prejudice based on public interest.⁶²

The Canadian provisions also do not adopt the interpretation article of the Model Law, specifically, that "in the interpretation of this Law, regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith".⁶³ The provision was modeled on provisions under the UNCITRAL Model Law on Electronic Commerce, aimed at harmonizing interpretation.⁶⁴ The concept of good faith in commercial dealings has not been settled under Canadian caselaw.⁶⁵ Interestingly, while the U.S. Chapter 15 largely adopts the Model Law, it declined to adopt the good faith requirement, section 1508 of the U.S. Bankruptcy Code specifying only that the court shall consider the international origin of Chapter 15 and the need to promote an application of the chapter that is consistent with the application of similar statutes adopted by foreign jurisdictions. Hence, as between Canada and the U.S., good faith is unlikely to be an issue.

5. Application for Recognition

Under the proposed Chapter 47 amendments, a foreign representative may apply to the court for recognition of the foreign proceeding in respect of which it is a foreign representative.⁶⁶ This right of direct access mirrors the language and objectives of the Model Law and Chapter 15.⁶⁷ The provisions create a streamlined recognition procedure. The party seeking recognition must file a certified copy of the instrument that commenced the foreign proceeding or a certificate from the foreign court affirming the existence of the foreign proceeding; a certified copy of the instrument or court order authorizing the foreign representative to act in that capacity; and a statement identifying all foreign proceedings in respect of the debtor company that are known to the foreign representative.⁶⁸ The court may, without further proof, accept these documents as evidence that the proceeding to which they relate is a foreign proceeding and that the applicant is a foreign representative in respect of the foreign proceeding.⁶⁹ In the absence of these documents, the court may accept any other evidence of the existence of the foreign proceeding and of the foreign representative’s authority that it considers appropriate.⁷⁰ These provisions closely follow the Model law and Chapter 15 language.⁷¹

If the court is satisfied that the application for the recognition of a foreign proceeding relates to a foreign proceeding and that the applicant is a foreign representative in respect of that proceeding, the court shall make an order recognizing the foreign proceeding, specifying whether the foreign proceeding is a foreign main proceeding or a foreign non-main proceeding.⁷² Hence, once the requisite filings are made, the recognition order is automatic. Since the provisions mirror both the Model Law and Chapter 15 of the U.S. Bankruptcy Code, this will create consistency in respect of recognition of foreign proceedings.⁷³ In the context of Canada / U.S. cross border proceedings, this should considerably reduce the uncertainty associated with the U.S. court’s discretion under former §304 to decline to grant orders in a recognition proceeding. While there has been less uncertainty in Canada as to the exercise of discretion in granting foreign recognition, the mandatory nature of the provision will nevertheless provide greater certainty to debtors in terms of the scope of orders that will be granted on recognition of a foreign main proceeding.

While the Model Law specifies that an application for recognition of a foreign proceeding is to be decided at the earliest possible time, the Canadian provisions are silent.⁷⁴ However, applications under both the BIA and the CCAA are currently frequently made on a "real time" basis, particularly as Canada has established commercial divisions of their superior courts in Ontario, Québec and British Columbia, and specialized members of the judiciary hear and decide insolvency proceedings in other larger provinces such as Alberta. Since these four provinces account for approximately 85% of all Canadian CCAA proceedings and most BIA commercial proceedings, there is an expectation that cross-border relief will be dealt with on an expeditious basis, even absent language similar to the Model Law.⁷⁵

Under the Canadian provisions, the foreign representative must inform the court, without delay, of any substantial change in the status of the recognized foreign proceeding, any substantial change in the status of the foreign representative’s authority to act in that capacity, and any other foreign proceeding in respect of the same debtor company that becomes known to the foreign representative, again mirroring the Model Law and Chapter 15.⁷⁶ The foreign representative must also publish, without delay after the order is made, once a week for two consecutive weeks, or as otherwise directed by the court, in one or more newspapers in Canada specified by the court, a notice containing the prescribed information.⁷⁷ This provision provides more specificity in notice of change requirements than set out in either the Model Law or U.S. Chapter 15, although the court rules and other provisions of the U.S. Bankruptcy Code do impose notice and filing requirements.

6. Stay of Proceedings

Once the foreign representative and foreign proceeding are recognized, the stay is mandatory, subject to any conditions the court imposes. However, the mechanism for receiving the stay differs under the BIA and the CCAA. There is an automatic stay under the BIA, whereas under the CCAA, this stay must be ordered by the court with carriage of the proceeding.⁷⁸ This distinction reflects current treatment of stays under the two statutes with respect to commencing domestic proceedings.

Where the court recognizes a foreign main proceeding, the CCAA provisions of Chapter 47 specify that the court shall make an order, subject to any terms and conditions it considers appropriate, staying for any period that the court considers necessary, all proceedings taken or that might be taken against the debtor company under the BIA or the WURA; restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the debtor company; prohibiting, until otherwise ordered by the court, the commencement or further pursuit of any action, suit or proceeding against the debtor company; and prohibiting the debtor company from selling or otherwise disposing of, outside the ordinary course of its business, any of the debtor company’s property or business in Canada.⁷⁹

The BIA provisions of Chapter 47 are similar, but reflect both the automatic nature of BIA initial stays and the fact that the BIA provisions also cover individuals. Hence, section 271(1) specifies that if a debtor carries on a business, the effect of recognition of a foreign main proceeding is that the debtor is not to sell or otherwise dispose of assets outside of the ordinary course of business.

The stay relief under the Canadian provisions is subject to three conditions. First, the order must be consistent with any order that may be made under the legislation.⁸⁰ Second, these provisions do not apply if any proceedings under the CCAA or the BIA have been commenced in respect of the debtor company at the time the order recognizing the foreign proceeding is made.⁸¹ Third, nothing in the recognition order precludes the debtor company from commencing or continuing proceedings under the CCAA, the BIA or the WURA in respect of the debtor company.⁸²

The stay provisions are aimed at an orderly, fair and expeditious conduct of the cross-border proceedings. The mandatory nature of the stay once the court is satisfied that it is appropriate to make a recognition order, facilitates the debtor obtaining operating capital during the work out period by increasing the certainty and predictability of the proceeding. At the same time, the court retains discretion to impose terms and conditions on the order, hence protecting the ability of the court to supervise its own proceedings and advance the public policy objectives of Canadian insolvency law.⁸³

The scope of the stay under Chapter 47 is as broad as that under Chapter 15. Upon recognition of a foreign main proceeding, an automatic stay of individual creditor actions and proceedings concerning the assets, rights, obligations, or liabilities of the debtor takes effect, and the right to execute against, transfer, encumber, or otherwise dispose of assets of the debtor is stayed or suspended.⁸⁴ The stay provides the debtor corporation with "breathing space", in terms of preventing creditors from moving to realize on their claims to assets until proper procedures are put into place for reorganization or liquidation or some combination of these strategies. In turn, this is aimed at promoting an orderly and fair cross-border proceeding.

The Guide to Enactment of the Model Law observes that the automatic stay is justified even if the state where the debtor has its centre of main interests poses different conditions for the commencement of proceedings or if the automatic effects of the originating proceeding differ from the automatic relief afforded by the enacting state. ⁸⁵ The Model Law provides that the scope of this automatic relief may be limited by statutory exceptions under domestic laws and preserves the possibility of excluding or limiting actions in favour of the foreign proceeding.⁸⁶

Notably absent from the Canadian provisions is Article 22 of the Model Law and § 1522 of Chapter 15, which specify that in granting or denying relief, the court must be satisfied that the interests of creditors and other interested persons, including the debtor, are adequately protected, allowing the court to impose conditions, modify orders or terminate relief as it considers appropriate.⁸⁷ The omission is likely due to the fact that Canadian insolvency law does not currently enshrine a notion of adequate protection, as currently exists in the U.S. and some other jurisdictions. The court may also, at the request of the foreign representative or a person affected by relief granted, or at its own motion, modify or terminate such relief. Similarly, the Canadian provisions do not contain an express provision similar to Article 23 of the Model Law and § 1523 of Chapter 15, which is titled "actions to avoid acts detrimental to creditors", but which specifies that where the foreign representative has standing to initiate actions, the court must be satisfied that the action relates to assets that, under the law of the state, should be administered in the foreign non-main proceeding. Article 23 of the Model Law is not included in Chapter 47 amendments to the CCAA, as the CCAA does not expressly enable the monitor to institute avoidance actions.⁸⁸ However, under Chapter 47, once an order recognizing a foreign proceeding is made, the court may appoint a trustee as receiver to take any action the court considers appropriate, which would appear to allow the trustee to pursue preferences and other transactions at undervalue pursuant to the BIA.

The premise of the adequate protection provisions is that there is a balance between the relief granted to the foreign representative and the interests of creditors and other interested persons that may be affected by the relief granted.⁸⁹ However, notwithstanding that there are no such specific provisions in Chapter 47, Canadian courts, in granting relief, engage in a balancing of interests and prejudice in considering the interests of the debtor, creditors, employees and other stakeholders. While this has not been undertaken in the context of strict codification of "adequate protection", it has allowed the court to consider multiple interests in granting relief. Moreover, it merits note that the U.S. Bankruptcy Code has long had the concept of adequate protection and Canadian insolvency statutes have not; and this has not acted as a bar to successful cross-border proceedings.⁹⁰ Hence this distinction in language should not be a barrier to enhanced cross-border co-operation and coordination.

Article 20(4) of the Model Law and § 1520 of Chapter 15 specify that the stay provision does not affect the right to commerce individual actions or proceedings to the extent necessary to preserve a claim against the debtor. This provision is not in Chapter 47. Currently, on application, the Canadian court will lift the stay for a limited period or limited purpose to allow parties to file proceedings to preserve claims where there is a prejudice to the party seeking a lift of the stay. The proposed amendments to the BIA and the CCAA do not change that, essentially aligning what foreign parties need to do with how such requests are treated in domestic proceedings.

7. The Court’s Discretionary Power to Grant Relief

The Canadian provisions also grant the court discretion to make a number of other orders, similar to the provisions of Chapter 15 and the Model Law.⁹¹ If a recognition order is granted, the Canadian court may make any order that it considers appropriate, if it is satisfied that it is necessary for the protection of the debtor company’s property or the interests of creditors. If the proceeding is a foreign non-main proceeding, the court has discretion to make orders similar to those available for a main proceeding, such as staying domestic insolvency proceedings or the commencement or pursuit of actions against the debtor company, or disposing of property outside of the ordinary course of business. The court can also order the examination of witnesses; the taking of evidence or the delivery of information concerning the debtor company’s property, business and financial affairs, debts, liabilities and obligations; and can authorize the foreign representative to monitor the debtor company’s business and financial affairs in Canada for the purpose of reorganization.⁹²

This relief can include execution against the debtor’s assets, suspending transfers or disposal of the debtor’s assets, and, in the case of the amendments to the BIA, granting to the foreign representative the ability to administer the assets of the debtor located in Canada and appointing a trustee or receiver with authority to take possession of the debtor’s property in Canada and take any action that court considers appropriate in the circumstances. This mirrors the Model Law and Chapter 15 of the U.S. Bankruptcy Code.⁹³

Under the Model Law, the court can grant interim relief pending determination of a recognition application.⁹⁴ Article 19 of the Model Law is aimed at urgently needed relief that can be granted at the court’s discretion on making the application for recognition, where such relief is needed pending the decision on recognition in order to protect the assets of the debtor and the interests of creditors.⁹⁵ The U.S. Chapter 15 also provides for urgently needed relief.⁹⁶ While this power is not expressly set out in Chapter 47, Canadian courts already have a broad discretion to grant interim relief, including the authority to grant interim relief pending a recognition decision.

Under the Canadian provisions, the restriction on the court’s discretion is that if any proceedings under the Act have been commenced in respect of the debtor company at the time an order recognizing the foreign proceeding is made, an order made under these provisions must be consistent with any order that may be made in any proceedings under the domestic insolvency statute.⁹⁷ As with mandatory orders, the making of a discretionary order does not preclude the commencement or the continuation of proceedings under the CCAA, the BIA or the WURA in respect of the debtor company.⁹⁸ The foreign representative may commence and continue proceedings under the BIA and CCAA in respect of a debtor company as if the foreign representative were a creditor of the debtor company, or the debtor company, mirroring Chapter 15 and the Model Law.⁹⁹

8. Obligations

Chapter 47 sets out a series of obligations, including co-operation by the court, other Canadian authorities and the foreign representative. It specifies that if an order recognizing a foreign proceeding is made, the court shall cooperate, to the maximum extent possible, with the foreign representative and the foreign court involved in the foreign proceeding.¹⁰⁰ If any proceedings under the CCAA or BIA have been commenced in respect of a debtor company, every person who exercises powers or performs duties and functions under Canadian proceedings is required to cooperate, to the maximum extent possible, with the foreign representative and the foreign court.¹⁰¹ This language largely mirrors Articles 25 and 26 of the Model Law and the respective Chapter 15 provisions.¹⁰² The Guide to Enactment suggests that this provision makes it clear that an insolvency administrator is acting under the supervision of the court, and that the Model Law does not modify the rules already existing in the domestic insolvency law.¹⁰³

However, the Canadian provisions do not go on to provide, as the Model Law does, that the court and the person administering the liquidation or reorganization are entitled to communicate directly with, or to request information or assistance directly from, foreign courts or foreign representatives.¹⁰⁴ It is unclear what the significance of this might be, in that Canadian courts, through their orders, do directly request information and assistance, and in a number of cases, protocols have allowed direct communication. In the current proceeding of Muscletech Research and Development Inc., the CCAA judge and the Chapter 15 U.S. judge are in direct communication in respect of coordination and co-operation.¹⁰⁵

Article 13 of the Model Law and § 1513 of Chapter 15 specify that foreign creditors enjoy the same rights as domestic creditors to initiate and participate in a domestic insolvency proceeding, although this does not affect the ranking of claims in a proceeding, except that foreign creditors are not to be ranked lower than particular classes of claims.¹⁰⁶ The Model Law proposes alternative wording to this provision suggesting that it could be phrased as not affecting the ranking of claims or the exclusion of foreign tax and social security claims from such a proceeding.¹⁰⁷ Although the Model Law does not interfere with the enacting state’s determination of priority of claims, it prescribes a minimum standard of treatment. The enacting state must treat a foreign creditor "at least as well as a general unsecured creditor, provided that the equivalent local claim would receive at least that treatment."¹⁰⁸

9. Concurrent Main Proceedings

Chapter 47 expressly recognizes multiple proceedings, and facilitates coordination between a local proceeding and one or more foreign proceedings. The provisions are aimed at fostering coordination of decision-making, with the ultimate objective of a successful restructuring or maximizing the value of creditors’ claims.

Chapter 47 provides for concurrent proceedings, and specifies that if any proceedings under the CCAA in respect of a debtor company are commenced at any time after an order recognizing the foreign proceeding is made, the court shall review any order it has made and, if it determines that the order is inconsistent with any orders made in the Canadian proceeding, the court shall amend or revoke the order.¹⁰⁹

The Model Law specifies that after recognition of a foreign main proceeding, a proceeding under the law of the domestic state may be commenced only if the debtor has assets in the state; and the effects of that proceeding shall be restricted to the assets of the debtor that are located there and, to the extent necessary to implement co-operation and coordination, to other assets of the debtor that, under the domestic law, should be administered in that proceeding.¹¹⁰ The Guide to Enactment specifies that these provisions ensure that the recognition of foreign main proceeding will not prevent commencement of a local insolvency proceeding as long as there are assets in the domestic jurisdiction.¹¹¹ Under the Model Law, "the effects of an insolvency proceeding commenced on the basis of the presence of assets only are normally restricted to the assets located in that state".¹¹² Hence, the Model Law does not prohibit commencement of a local proceeding after recognition of a foreign main proceeding, but it limits the scope of the proceeding. The Guide to Enactment notes that the Model Law adopted the less restrictive asset test, rather than requiring the debtor to have an establishment to commence a proceeding, leaving "a broad ground for commencing a local proceeding after recognition of a foreign man proceeding".¹¹³

The Guide to Enactment also specifies that while ordinarily, the local proceeding would be limited to the assets located in the state, in some situations, a meaningful administration of the local insolvency proceeding may have to include certain assets abroad, especially where there is no foreign proceeding necessary or available in the state where the assets are located.¹¹⁴ It notes that in order to allow such limited cross-border reach, Article 28 of the Model Law includes the words "and…to other assets of the debtor that…should be administered in that proceeding", qualified by the words that this reach is permissible to the extent necessary to implement co-operation and coordination and the foreign assets must be subject to administration in the enacting state.¹¹⁵ The Guide to Enactment observes that this qualification should avoid creating an open-ended faculty to extend the effects of a local proceeding to assets located abroad, which could reduce certainty and lead to conflicts of jurisdiction disputes.¹¹⁶ The Chapter 15 provisions adopt the same approach as the Model Law.

In contrast, Chapter 47 does not have a provision similar to Article 28 of the Model Law, which appears to preclude commencement of concurrent main proceedings. The Canadian provisions appear to expressly contemplate concurrent main proceedings, as currently exist in Canadian cross-border proceedings. The language of the Model Law raises several questions. First, if a main proceeding has been recognized in another jurisdiction but not yet granted a recognition order in the domestic state, can the domestic state commence a main proceeding? There is nothing in the language that appears to preclude this. If so, there is likely to be a "race to recognition" and considerable forum shopping. There is no analogous provision that prevents commencement of a domestic proceeding if it precedes recognition of a foreign main proceeding.¹¹⁷ If a recognition order for a foreign main proceeding has been granted, can the domestic court nevertheless approve domestic main proceedings? The Model Law would appear to allow for domestic proceedings, but not main proceedings, as it for the most part restricts the court’s jurisdiction to the debtor’s assets in the jurisdiction. Yet even such a restriction may not resolve conflicts, given that the domestic jurisdiction may have considerable assets and few creditors’ claims. The Model Law is unclear as to how claims are to be realized in such an instance, and which court has jurisdiction over the claims realization process. The impact on a workout strategy is therefore to add an element of uncertainty about the results of liquidation that may impede negotiation for such a strategy.

The Model Law also specifies that when a proceeding in the State is taking place at the time the application for recognition of the foreign proceeding is filed, any relief granted must be consistent with the domestic proceeding; and if the foreign proceeding is recognized in the domestic state as a foreign main proceeding, the Article 20 automatic stay provisions do not apply.¹¹⁸ When the proceeding in the state commences after filing of an application or recognition of the foreign proceeding, any relief in effect shall be reviewed by the court and is to be modified or terminated if inconsistent with the domestic proceeding.¹¹⁹ If the foreign proceeding is a foreign main proceeding, the stay and suspension are to be modified or terminated if inconsistent with the domestic proceeding.¹²⁰ This language appears broad enough to contemplate a domestic proceeding that could be a main proceeding and a foreign main proceeding, although this would likely be highly contested. Even if it were to be interpreted this way, the language of the Model Law raises the question of whether a third jurisdiction implicated in the debtor’s insolvency could recognize two foreign main proceedings.

Under the Canadian provisions, a domestic proceeding may be commenced after recognition of a foreign main proceeding even if the debtor has no assets in Canada, something that does not appear to be possible under the Model Law. The Model Law requires that in granting relief to a representative of a foreign non-main proceeding, the court must be satisfied that the relief relates to assets that, under the law of the state, should be administered in the foreign non-main proceeding or concerns information required in that proceeding.¹²¹ Hence, domestic law tempers the scope of relief available under the recognition order, regardless of when the order is sought. The timing of the various recognition orders and commencement of proceedings is likely to place limits on the court’s decision to grant particular relief. If proceedings under the BIA or CCAA have already been commenced, the automatic relief prescribed upon recognition of a foreign main proceeding does not apply.

The Legislative briefing notes on Chapter 47 are illustrative of the Government’s view of the interplay between domestic and foreign proceedings:

Section 277 gives the court guidance to deal with cases where the same debtor is subject to a foreign proceeding followed by a local proceeding. The most important principle in this section is that the commencement of a local proceeding does not terminate the recognition of a foreign proceeding. This principle allows Canadian courts to provide relief in favour of the foreign proceeding in all circumstances. However, section 277 maintains a pre-eminence of the local proceeding over the foreign proceeding (i.e., any relief that has already been granted to the foreign proceeding must be reviewed to ensure consistency with the local proceeding and if the foreign proceeding is a main proceeding, the automatic effects pursuant to section 271 are to be terminated if inconsistent with the local proceeding).

Section 278 deals with cases where the debtor is subject to insolvency proceedings in more than one foreign state and foreign representatives of more than one foreign proceeding seek recognition or relief in Canada. The objective of section 278 is similar to that of section 277 in that the key issue when there are concurrent proceedings is to promote cooperation, coordination and consistency of relief granted to different proceedings. Such consistency is achieved by appropriately tailoring relief to be granted or by modifying or terminating relief already granted. The only priority in this section is given to the foreign main proceeding. That priority is reflected in the requirement that any relief in favour of a foreign non-main proceeding must be consistent with the foreign main proceeding (subsection 278(1)).¹²²

Where there are numerous corporate entities, with highly interwoven corporate operations, it appears that there is still the opportunity for concurrent main proceedings after enactment of Chapter 15 in the U.S. and Chapter 47 in Canada. Calpine Corporation is the first Canadian-U.S. company to file such proceedings after Chapter 15 came into force. Calpine Corporation owned, leased or managed 92 natural gas-fired and geothermal plants in the U.S. and Canada. It suffered financial distress due to the high price of natural gas, an oversupply of electricity during 2005, market competition from less costly but environmentally less friendly coal production, and a damages award from litigation in the amount of US$313 million when its bondholders successfully won a suit alleging that use of certain asset proceeds had violated terms of their debentures.¹²³ Calpine and almost 300 subsidiaries filed under Chapter 11 of the U.S. Bankruptcy Code and 12 Canadian Calpine entities applied for protection under the CCAA. At the time of filing, Calpine owed US$18 billion in debt. Concurrent main proceedings were approved through grouping of different corporate entities in different jurisdictions. The Canadian subsidiaries had few remaining assets and operations at the time of filing, holding numerous gas supply contracts, and having a large amount of highly complex inter-company debt through two special purpose financing vehicles, with billions of dollars of public bond debt held by New York-based distressed debt investors, and the bond debt guaranteed by Calpine Corporation, the U.S. parent.

Calpine had operated as a global company when it was viable; however, the Chapter 11 and CCAA proceedings have been conducted relatively independently of one another, in part because it became evident that the contemplated $2 billion DIP financing was not to be made available to the Canadian debtor companies. Yet this separation of the global operations into two proceedings is challenging, as there is an ongoing need to supply gas from the Canadian entities to the U.S. power plants. Moreover, the Canadian Calpine affiliates are one of the U.S. Calpine companies’ largest creditors. The proceedings have been proceeding in tandem, rather than through a protocol, and there have been memoranda of understanding on specific issues.¹²⁴ For example, there is a memorandum of understanding on the nature of claims by the Canadian Calpine companies against the U.S. parent and affiliates and as a result, the parties agreed to a master proof of claim by the Canadian entities as against the U.S. entities. This addressed the fact that one of the unlimited liability companies of Calpine located in Nova Scotia Canada had raised billions of dollars in public bond debt, most of which had gone to the U.S. entities, but had been lent further to other Calpine U.S. debtors, and hence the Canadian debtor might not have a direct claim against the entity that ended up with the assets.¹²⁵

Similarly, given that the assets raised through one of the Canadian Calpine debtors were lent on throughout the parent and affiliates in the U.S., the creditors of the U.S. entities were the Canadian debtors.¹²⁶ While the bondholders as creditors of the Canadian debtors would be the beneficiaries of any assets eventually realized, they had no direct claim against the U.S. debtors. Recovery of their claims depended on the Canadian debtors recovering their inter-company loans, most of which were to the U.S. Chapter 11 debtors. The debtors permitted the indenture trustees for the public bondholders to file certain claims they deemed necessary into the U.S. on behalf of the Canadian Calpine entities that were the issuers of the public bond debt, after making the underlying transaction documents available to their counsel under confidentiality agreements.¹²⁷ Hence, while the public bondholders were not granted any right to prosecute claims, they were, under an issue specific agreement, able to move to protect their claims by filing in a timely manner under the U.S. claims process against the U.S. Calpine debtors. The Alberta Court of Queen’s Bench, which has carriage of the Canadian CCAA proceedings, issued an order confirming this arrangement. Thus while the issue of corporate groups is not easily resolved, in Calpine, to date, the parties have found a workable process of concurrent main proceedings.¹²⁸

There continues to be debate in both Canada and the U.S. regarding the scope of concurrent proceedings that may be recognized under § 1528 of Chapter 15. A liberal interpretation suggests that the courts could recognize a domestic main proceeding and a foreign main proceeding. As with the Model Law, under § 1528 of Chapter 15, the domestic proceeding can extend to assets that are not within the state but are within the jurisdiction of the court and have not been brought under the jurisdiction and control of a foreign proceeding.¹²⁹ However, if one considers the Calpine case, discussed above, a globally operated corporation with more than 300 affiliated companies in Canada and the U.S. have concurrent main proceedings, splitting the corporate group into two sets of entities. It seems that as long as there are separate corporate entities that can locate their COMI in the jurisdiction, the courts can recognize concurrent main proceedings, even if the corporate group has operated as a global enterprise.

The Chapter 47 provisions are codification of many current practices of Canadian courts. Hence while some discretion is removed in the sense of mandatory stay orders once recognition is granted, the reality is that under the current provisions of the CCAA, once a court does grant recognition in Canada, these types of orders are more often than not granted. While codification will provide greater certainty and predictability for foreign representatives in considering recognition and other applications, in Canada, in practice, the difference may not be significant. This will be clearer after some initial Court decisions following proclamation of Chapter 47. Codification may bring cost efficiencies, but this is unlikely in the initial period after enactment, as parties litigate to set the parameters of requirements and deal with issues such as potential forum shopping.¹³⁰ There may be efficiencies once there is some certainty in how the legislation is interpreted.

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⁶ Sections 44, 267, as amended by Chapter 47.

⁷ Preamble, Model Law; section 1501 of Chapter 15, U.S. Bankruptcy Code.

⁸ Sections 59, 269, as amended by Chapter 47.

⁹ Article 31, Model Law.

¹⁰ Northern Lights, supra, note 5

¹¹ Section 269, BIA, Section 46(1), as amended by Chapter 47.

¹² Sections 45(1), 268(1)(b), as amended by Chapter 47.

¹³ Sections 45(1), 268, as amended by Chapter 47; Article 2, Model Law.

¹⁴ Article 2, Model Law. See also Section 1502, Chapter 15, U.S. Bankruptcy Code.

¹⁵ Northern Lights, supra, note 5.

¹⁶ Article 10 of the Model Law specifies that "the sole fact that an application pursuant to this Law is made to a court in this State by a foreign representative does not subject the foreign representative or the foreign assets and affairs of the debtor to the jurisdiction of the courts of this State for any purpose other than the application". See also Section 1510, Chapter 15, U.S. Bankruptcy Code.

¹⁷ Sections 57, 280, Chapter 47.

¹⁸ Guide to Enactment of UNCITRAL Model Law on Cross Border Insolvency, http://www.iiiglobal.org/organizations/uncitral/model_law.pdf [Note from the Webmaster: This web address is no longer available.] at para. 94.

¹⁹ 1509(b)(1) of Chapter 15, U.S. Bankruptcy Code.

²⁰ The EC Regulation is discussed in part IV of this paper.

²¹ Sections 45, 268, as amended by Chapter 47.

²² Sections 45(1), 268, as amended by Chapter 47.

²³ Article 2, Model Law.

²⁴ Sections 45(1), 268, as amended by Chapter 47. Article 17(2)(a) and Article 2(b), Model Law. See also Section 1502(4), Chapter 15, U.S. Bankruptcy Code.

²⁵ Sections 45, 268, as amended by Chapter 47.

²⁶ Sections 45(1), 268, as amended by Chapter 47.

²⁷ Article 2(c) and (f), and 17(2)(b), Model Law. Article 17(4) of the Model Law specifies that the recognition provisions do not prevent modification or termination of recognition if it is shown that the grounds for granting it were fully or partially lacking or have ceased to exist.

²⁸ Section 1502(5), Chapter 15, U.S. Bankruptcy Code. See, however, the discussion above in re SPinX Ltd., where the court found a foreign non-main proceeding without addressing the fact that there was no establishment.

²⁹ Sections 45(1), 268, as amended by Chapter 47.

³⁰ UNCITRAL Legislative Guide on Insolvency Law, United Nations, New York, 2005, at 4, 41, citing the European Council Regulation No. 1346/2000 of May 2000 on Insolvency Proceedings; http://www.iiiglobal.org/organizations/uncitral/2003_Vienna_Report.PDF [Note from the Webmaster: This web address is no longer available.]

³¹ UNCITRAL Working Group V, "0657458 Treatment of corporate groups in insolvency Note by the Secretariat", working discussion document, December 2006.

³² Ibid. at 3.

³³ Guide to Enactment, supra, note 18, at para, 127.

³⁴ Andrew J.F. Kent, Stephanie Donaher and Adam Maerov. "UNCITRAL, eh? The Model Law and its Implications for Canadian Stakeholders" in Janis Sarra, ed., Annual Review of Insolvency Law 2005 (Toronto: Carswell, 2006) at 187.

³⁵ UNCITRAL, supra, note 31 at 5.

³⁶ Ibid.

³⁷ Janis P. Sarra, Rescue! The Companies’ Creditors Arrangement Act, (Toronto: Carswell, 2007).

³⁸ The granting of DIP financing is not currently codified in Canada, but will be when Chapter 47 is proclaimed in force. Even after the implementation of Chapter 47, the granting of DIP financing will be more rule-driven in proceedings under the U.S. Bankruptcy Code than under the BIA or CCAA.

³⁹ Northern Lights, supra, note 5.

⁴⁰ Digest of Financing Provisions from Cross-Border Insolvency Protocols, International Insolvency Institute (http://www.iiiglobal.org); Financing in Insolvency Proceedings, INSOL 2006.

⁴¹ Digest of Financing Provisions, ibid.

⁴² For examples of cross-border protocols, see UNCITRAL document A/CN.9/580, paragraphs 18-48

⁴³ Northern Lights, supra, note 5.

⁴⁴ Ibid.

⁴⁵ Sarra, supra, note 37.

⁴⁶ Ibid.

⁴⁷ Even in such a case, there are likely to be conflicts of law issues.

⁴⁸ Ibid.

⁴⁹ Ibid.

⁵⁰ Kent et al, supra, note 34 at 187.

⁵¹ UNCITRAL, supra, note 31 at 6.

⁵² Ibid., citing Gabriel Moss and Christoph Paulus, "The Urgent Need for Reform—What and When? Current Trends in European Rescue and the Impact of the European Insolvency Regulation", (15 July 2005).

⁵³ Ibid. at 6.

⁵⁴ Ibid.

⁵⁵ Ibid.

⁵⁶ Section 1506 of Chapter 15, U.S. Bankruptcy Code mirrors the language, specifying that "Nothing in this chapter prevents the court from refusing to take an action governed by this chapter if the action would be manifestly contrary to the public policy of the United States."

⁵⁷ Guide to Enactment, supra, note 18, at paras. 20(e), 87 and 89.

⁵⁸ Sections 61(2), 284(2), as amended by Chapter 47.

⁵⁹ Northern Lights, supra, note 5.

⁶⁰ Sections 58, 281, as amended by Chapter 47.

⁶¹ Sections 61(1), 284(1), as amended by Chapter 47.

⁶² For a full discussion, see Sarra, supra, note 37.

⁶³ Article 8, Model Law.

⁶⁴ Guide to Enactment, supra, note 18, at para. 91.

⁶⁵ See, for example, Re Stelco Inc. supra, note 21.

⁶⁶ Sections 46(1), 269(1), as amended by Chapter 47.

⁶⁷ Article 9 of the Model Law specifies that "a foreign representative is entitled to apply directly to a court in this State".

⁶⁸ Sections 46(2), 269(2), as amended by Chapter 47.

⁶⁹ Sections 46(3), 269(3), as amended by Chapter 47.

⁷⁰ Sections 46(4), 269(4), as amended by Chapter 47. The court may require a translation of any document accompanying the application, s. 46(5).

⁷¹ Articles 15 and 16, Model Law. See also sections 1515 and 1516, Chapter 15, U.S. Bankruptcy Code.

⁷² Sections 47(1),(2), 270(1)(2), as amended by Chapter 47.

⁷³ Section 1517, Chapter 15, U.S. Bankruptcy Code.

⁷⁴ Article 17(3), Model Law. See also section 1515, Chapter 15, U.S. Bankruptcy Code.

⁷⁵ Sarra, supra, note 37.

⁷⁶ Sections 53, 276, as amended by Chapter 47. Article 18, Model Law. See also section 1518, Chapter 15, U.S. Bankruptcy Code.

⁷⁷ Sections 53, 276, as amended by Chapter 47.

⁷⁸ Sections 48, 271, as amended by Chapter 47.

⁷⁹ Section 48(1), as amended by Chapter 47. This mirrors Article 20 of the Model Law.

⁸⁰ Sections 48(2), 271(2), as amended by Chapter 47.

⁸¹ Sections 48(3), 271(3), as amended by Chapter 47.

⁸² Sections 48(4), 271(4), as amended by Chapter 47.

⁸³ Northern Lights, supra, note 5.

⁸⁴Article 20(1)(a), (b), and (c), Model Law.

⁸⁵ Guide to Enactment, supra, note 18 at para. 143.

⁸⁶ Article 6, Model Law. Article 7 of the Model Law specifies that nothing in the law limits the power of a court or a person or body administering a reorganization or liquidation under the law of the enacting state to provide additional assistance to a foreign representative under other laws of this state.

⁸⁷ Article 22, Model Law. See also section 1522, Chapter 15, U.S. Bankruptcy Code, which specifies that (a) the court may grant relief under section 1519 or 1521, or may modify or terminate relief under subsection (c), only if the interests of the creditors and other interested entities, including the debtor, are sufficiently protected; (b) the court may subject relief granted under section 1519 or 1521, or the operation of the debtor’s business under section 1520(a)(3), to conditions it considers appropriate, including the giving of security or the filing of a bond; (c) the court may, at the request of the foreign representative or an entity affected by relief granted under section 1519 or 1521, or at its own motion, modify or terminate such relief; (d) section 1104(d) shall apply to the appointment of an examiner under this chapter. Any examiner shall comply with the qualification requirements imposed on a trustee by section 322.

⁸⁸ Ibid.

⁸⁹ Guide to Enactment, supra, note 18, at para. 161.

⁹⁰ Northern Lights, supra, note 5.

⁹¹ Article 21, Model Law.

⁹² Sections 49(1), 272, as amended by Chapter 47.

⁹³ Section 1520(a)(3), U.S. Bankruptcy Code, empowers the foreign representative, unless the court orders otherwise, to operate the debtor’s business and to exercise the rights and powers of a trustee in respect of the sale or use of property and liens on after-acquired property. These powers are confined to the debtor’s property within the United States’ territorial jurisdiction.

⁹⁴ Article 19, Model Law; Guide to Enactment, supra, note 18, at para. 30.

⁹⁵ Guide to Enactment, supra, note 18, at paras. 135, 137.

⁹⁶ Section 1519, Chapter 15, U.S. Bankruptcy Code.

⁹⁷ Sections 49(2), 272(2), as amended by Chapter 47.

⁹⁸ Section 49(3), 273(3), as amended by Chapter 47.

⁹⁹ Section 51, as amended by Chapter 47, Articles 11, 12 and 24, Model Law.

¹⁰⁰ Sections 52(1), 275(1), as amended by Chapter 47.

¹⁰¹ Sections 52(2), 275(2), as amended by Chapter 47.

¹⁰² Article 26(1), Model Law.

¹⁰³ Guide to Enactment, supra, note 18, at para. 180.

¹⁰⁴ Articles 25(2) and 26(2), Model Law.

¹⁰⁵ Re Muscletech Research and Development Inc., [2006] O.J. No. 462 (Ont. S.C.J.) at para. 5.

¹⁰⁶ The Model Law specifies to "identify the class of general non-preference claims, while providing that a foreign claim is to be ranked lower that the general non-preference claims if an equivalent local claim (e.g. claim for a penalty or deferred payment claim) has a rank lower than the general non-preference claims", Article 13, Model Law.

¹⁰⁷ Footnote to Article 13, Model Law.

¹⁰⁸ J. Clift, "The UNCITRAL Model Law on Cross-Border Insolvency: A Legislative Framework to Facilitate Coordination and Co-operation in Cross-Border Insolvency", (2004) 12 Tulane J. Int’l & Comp. L. 307, at 322.

¹⁰⁹ Section 54, CCAA, as amended by Chapter 47.

¹¹⁰ Article 28, Model Law; see also Chapter 15.

¹¹¹ Ibid. at para. 184.

¹¹² Guide to Enactment, supra, note 18, at para. 73.

¹¹³ Ibid. The Guide to Enactment also specifies that states may wish to enact the more restrictive establishment test and that this would still align with the Model Law.

¹¹⁴ Ibid. at para. 186-7.

¹¹⁵ Ibid. at para. 187.

¹¹⁶ Ibid.

¹¹⁷ Marvin Baer, "The Impact of Part XIII of the BIA and the UNCITRAL Model Law on Cross-Border Insolvency" (February 1998), online: Government of Canada, http://www.strategis.ic.gc.ca/pics/cl/uncitr_1-2.pdf [Note from the Webmaster: This web address is no longer available.] at 9.

¹¹⁸ Article 29((a), Model Law.

¹¹⁹ Article 29(b)(i), Model Law.

¹²⁰ Article 29(b)(ii), Model Law.

¹²¹ Article 21(3) and Article 29(3), Model Law.

¹²² Legislative Briefing Note on Chapter 47, Library of Parliament.

¹²³ Northern Lights, supra, note 5.

¹²⁴ Ibid.

¹²⁵ Ibid.

¹²⁶ Ibid.

¹²⁷ Ibid.

¹²⁸ Ibid.

¹²⁹ Section 1529 specifies: If a foreign proceeding and a case under another chapter of this title are pending concurrently regarding the same debtor, the court shall seek co-operation and coordination under sections 1525, 1526, and 1527, and the following shall apply: (1) If the case in the United States pending at the time the petition for recognition of such foreign proceeding is filed-- (A) any relief granted under section 1519 or 1521 must be consistent with the relief granted in the case in the United States; and (B) section 1520 does not apply even if such foreign proceeding is recognized as a foreign main proceeding. (2) If a case in the United States under this title commences after recognition, or after the date of the filing of the petition for recognition, of such foreign proceeding-- (A) any relief in effect under section 1519 or 1521 shall be reviewed by the court and shall be modified or terminated if inconsistent with the case in the United States; and (B) if such foreign proceeding is a foreign main proceeding, the stay and suspension referred to in section 1520(a) shall be modified or terminated if inconsistent with the relief granted in the case in the United States. (3) In granting, extending, or modifying relief granted to a representative of a foreign non-main proceeding, the court must be satisfied that the relief relates to assets that, under the laws of the United States, should be administered in the foreign non-main proceeding or concerns information required in that proceeding. (4) In achieving co-operation and coordination under sections 1528 and 1529, the court may grant any of the relief authorized under section 305.

¹³⁰ Northern Lights, supra, note 5.