Reproduced with permission from BNA's Bankruptcy Law Reporter, Vol. 18, No. 37, pp. 866-871 (Sept. 28, 2006).

Copyright 2006 by The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com

With the elimination of trade barriers and the marked increases in trade between jurisdictions, businesses in Canada and the United States have found themselves more closely connected than ever. Statistics provide a snapshot of the increasing cross-border interdependence between the United States and Canada. In 2004, foreign direct investment into Canada totalled $365.7 billion, of which $238 billion came from the United States alone. Likewise, the single largest recipient of Canadian investment is the United States.1

The increased trade and corporate interaction between the United States and Canada has also led to challenges in the insolvency context as creditors increasingly find themselves dealing with a debtor that is outside the home state of the creditor. This has resulted in a need to harmonize bankruptcy proceedings in various jurisdictions and to allow for recognition of foreign insolvency proceedings when the companies are involved in a filing across one or more borders. Until the 1990s, cross-border insolvencies were dealt with under the rules of comity. More recently, section 18.6 of the Companies’ Creditors Arrangement Act2 and the corresponding provisions of the Bankruptcy and Insolvency Act3 provided a statutory framework for Canadian courts to harmonize proceedings that have cross-border elements.

Canada and the United States are about to embark on a new stage in the history of cross-border insolvency proceedings. The United States has recently adopted elements of the UNCITRAL Model Law on Cross-Border Insolvency (Model Law) in Chapter 15 of the U.S. Bankruptcy Code.4 Canada, through Bill C-55,5 has done the same. Bill C-55 represents a dramatic change from the flexible (and brief) provisions governing cross-border insolvencies currently found in the BIA and CCAA. The detailed nature of the new provisions, as discussed in this paper, may provide clarity for proceedings, but also may restrict the creativity and discretion currently afforded to Canadian courts in dealing with cross-border proceedings.

We outline below the development of the various frameworks for recognition of international insolvency orders in Canada, starting with the common law and rules of comity and going through the existing statutory frameworks and new provisions in Bill C-55, which has been enacted but is still not in force.

International Recognition of Foreign Judgments

Until recently, cross-border harmonization and recognition of foreign judgments in Canada has been based largely on the principle of comity, both inside and outside the insolvency context. The concept of comity and the test for recognition of foreign judgments in Canada were outlined in Morguard Investments Ltd. v. De Savoye,6 a case outside the insolvency context that dealt with the recognition of a decision from another province. Here, the Supreme Court of Canada referred to previous decisions in providing a definition of comity that has been used widely by Canadian judges:

‘‘Comity’’ in the legal sense, is neither a matter of absolute obligation, on the one hand, nor one of mere courtesy and good will, upon the other. But it is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.7

The court held that comity should be applied in circumstances where there is a ‘‘real and substantial connection’’ between the jurisdiction where the judgment was given and the action before the court.

This seminal decision was applied by the Supreme Court of Canada in Beals v. Saldhana,8 which dealt with the enforcement in Canada of a judgment from Florida. Here, Justice Major, for the majority, held that the ‘‘real and substantial connection’’ test articulated in Morguard in the context of judgments from other provinces also applies to the recognition and enforcement of foreign judgments from courts outside Canada. The court also stated that enforcement of foreign judgments is not absolute. In some circumstances a foreign decision will not be enforced, including where enforcement of a foreign judgment is antithetical to the Canadian view of natural justice, public policy, or fraud.9 However, the court cautioned that natural justice, public policy and fraud should not be used lightly as defenses, and that the defense of public policy should have a narrow application.10

Comity in Recognition of Insolvency Proceedings

In the context of insolvency, courts in Canada have consistently adopted the notion of comity and have tended to enforce foreign bankruptcy orders, with some notable exceptions. Two companion decisions from the Supreme Court of Canada, Re Antwerp Bulkcarriers N.V.11 and Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of)12 (collectively, the Holt Cases) articulate a detailed analysis of the Canadian approach to the recognition of foreign insolvency orders under the doctrine of international comity. Here, the court articulated an approach that considers, inter alia, the interests of the litigants before it and other affected parties in Canada as well as the desirability of international cooperation and other relevant circumstances. This approach recognizes that Canadian courts do not simply rubber-stamp commands issuing from the foreign court of the primary bankruptcy. The court will consider the juridical advantage that those disadvantaged by deferral to the foreign court would enjoy in a Canadian court. It will also consider public policy expressed in Canada’s bankruptcy laws and will not issue an order to aid a foreign court where such order would not be in accord with the internal laws of Canada.13

In Holt Cargo, the Supreme Court of Canada opined on the Canadian approach to recognition of a foreign insolvency proceeding:

[C]ourts and commentators have identified two general approaches to distributing assets in such proceedings. Under the ‘‘territoriality’’ approach, or the ‘‘Grab Rule,’’ the court in each jurisdiction where the debtor has assets distributes the assets located in that jurisdiction pursuant to local rules. Under the ‘‘universality’’ approach, a primary insolvency is instituted in the debtor’s domiciliary country, and ancillary courts in other jurisdictions—typically in jurisdictions where the debtor has assets—defer to the foreign proceeding and in effect collaborate to facilitate the centralized liquidation of the debtor’s estate according to the rules of the debtor’s home country.14

The court rejected both the ‘‘universalist’’ and the ‘‘territorialist’’ approaches and held that the Canadian approach was somewhere in the middle of the two models:

Canada has adhered to a middle position (dignified by the name ‘‘plurality approach’’) which recognizes that different jurisdictions may have a legitimate and concurrent interest in the conduct of an international bankruptcy, and that the interests asserted in Canadian courts may, but not necessarily must, be subordinated in a particular case to a foreign bankruptcy regime. The general approach reflects a desire for coordination rather than subordination, with deference being accorded only after due consideration of all of the relevant circumstances rather than automatically accorded because of an abstract ‘‘universalist’’ principle.15

In endorsing the ‘‘pluralist’’ model, the Supreme Court of Canada has mandated a discretionary approach for judges in Canada with respect to the recognition of foreign insolvency orders. It remains to be seen whether Parliament’s adoption of a form of the Model Law will result in a swing away from the plurality approach embraced in the Holt Cases.

In the context of U.S. bankruptcy proceedings, courts in Canada have typically shown a willingness to enforce U.S. bankruptcy orders on the basis of international comity. One of the leading cases on the recognition of a Chapter 11 proceeding in Canada under the doctrine of international comity is Roberts v. Picture Butte Municipal Hospital.16 Roberts dealt with an application to stay Canadian claims related to product liability litigation in the United States where the applicant had filed for Chapter 11 protection under the U.S. Bankruptcy Code. In deciding that a stay of claims should be imposed in Canada, Justice Forsyth commented on the similarity between the U.S. Bankruptcy Code and the BIA in regard to the respective stay provisions.17 As the Court had found that the U.S. Bankruptcy Code and Canadian bankruptcy legislation had similar procedures and procedural safeguards, he determined that it was appropriate to recognize the U.S. Chapter 11 proceedings under the doctrine of comity and granted a stay in Canada.

The role of comity in recognizing U.S. insolvency orders was also apparent in Microbiz Corp. v. Classic Software Systems Inc.18 This case dealt with a U.S. company that carried on business through a distributor in Canada. It declared bankruptcy in the United States and the distributor brought actions against the bankrupt in Ontario after filing a proof of claim in the U.S. proceeding. The distributor’s actions were stayed by the Ontario Court of Justice on the grounds that (i) there was a real and substantial connection between the U.S. court and the subject matter of the proceeding, and (ii) the distributor had attorned to the U.S. court by filing a proof of claim. The court held that multiple proceedings in two different jurisdictions should be avoided.

As is apparent from the decisions cited above, the prevailing approach to cross-border insolvencies in Canada has been a respect for comity (within reasonable limits) and a willingness to both assist and respect foreign courts and judgments.

Section 18.6 of the CCAA Since 1997, courts have also been legislatively enabled to respect comity and foreign decision making through section 18.6 of the CCAA.19 These provisions allow orders to be made by Canadian courts with respect to foreign insolvency proceedings. A court is empowered to approve or implement arrangements that will result in the coordination of CCAA proceedings with foreign proceedings.20

Perhaps the most significant element of section 18.6 is the wide discretion that it gives to the court to make orders to facilitate the coordination of proceedings. Under section 18.6(2), ‘‘[t]he court may, in respect of a debtor company, make such orders and grant such relief as it considers appropriate to facilitate, approve or implement arrangements that will result in a coordination of proceedings under this Act with any foreign proceeding.’’ This broad discretion is also evident in section 18.6(3), which states that a court can make an order on such terms and conditions as it considers appropriate, and in section 18.6(4), which states that nothing prevents a court, on application of a foreign representative or other interested person, from applying such legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives as are not inconsistent with the CCAA.

Notwithstanding the broad discretion found in section 18.6, the section includes safeguards to ensure that Canadian law and public policy will be respected. Under section 18.6(5), a court is not required to make any order that does not comply with the laws of Canada or to enforce any order made by a foreign court. This section, although not mandatory, preserves a court’s jurisdiction to refuse to enforce any foreign order that is not in line with the laws or public policy of Canada.

Courts have relied upon section 18.6 on a number of occasions to enforce foreign insolvency proceedings in Canada. In particular, this provision has been used in conjunction with Chapter 11 proceedings commenced in the United States. Properly constituted Chapter 11 proceedings are commonly recognized as a ‘‘foreign proceeding’’ under the CCAA. The seminal case on the application of section 18.6 is Re Babcock & Wilcox Canada Ltd.21 In this case, a solvent corporation, Babcock & Wilcox Canada Ltd. (BW Canada), sought an interim order under section 18.6 declaring that the proceedings commenced by its U.S. parent for protection under Chapter 11 be recognized as a foreign proceeding for the purposes of section 18.6 and that BW Canada be allowed to avail itself of that section. Mr. Justice Farley of the Ontario Superior Court of Justice held that the Chapter 11 proceedings were a foreign proceeding and that BW Canada was entitled to a stay of proceedings and other ancillary relief under section 18.6. He also took the opportunity to articulate some of the factors to provide guidance on how section 18.6 should be applied:22

  1. The recognition of comity and cooperation between the courts of various jurisdictions are to be encouraged.
  2. Respect should be accorded to the overall thrust of foreign bankruptcy and insolvency legislation in any analysis, unless in substance generally it is so different from the bankruptcy and insolvency law of Canada or perhaps because the legal process that generates the foreign order diverges radically from the process here in Canada.
  3. All stakeholders are to be treated equitably, and to the extent reasonably possible, common or like stakeholders are to be treated equally, regardless of the jurisdiction in which they reside.
  4. The enterprise is to be permitted to implement a plan to reorganize as a global unit, especially where there is an established interdependence on a transnational basis of the enterprise and to the extent reasonably practicable, one jurisdiction should take charge of the principal administration of the enterprise’s reorganization, where such principal type approach will facilitate a potential reorganization and which respects the claims of the stakeholders and does not inappropriately detract from the net benefits which may be available from alternative approaches.
  5. The role of the court and the extent of the jurisdiction it exercises will vary on a case by case basis and depend to a significant degree upon the court’s nexus to that enterprise; in considering the appropriate level of its involvement, the court would consider: the location of the debtor’s principal operations, undertaking and assets; the location of the debtor’s stakeholders; the development of the law in each jurisdiction to address the specific problems of the debtor and the enterprise; the substantive and procedural law which may be applied so that the aspect of undue prejudice may be analyzed.
  6. Where one jurisdiction has an ancillary role,
    i. the court in the ancillary jurisdiction should be provided with information on an ongoing basis and be kept apprised of developments in respect of that debtor’s reorganizational efforts in the foreign jurisdiction;
    ii. stakeholders in the ancillary jurisdiction should be afforded appropriate access to the proceedings in the principal jurisdiction.
  7. As effective notice as is reasonably practicable in the circumstances should be given to all affected stakeholders, with an opportunity for such stakeholders to come back into the court to review the granted order with a view, if thought desirable, to rescind or vary the granted order or to obtain any other appropriate relief in the circumstances.23

In Re Matlack Inc.,24 the U.S. debtor operated a facility in Ontario and had obtained relief under Chapter 11 in the United States. A Canadian creditor seized the Canadian assets of the debtor and the debtor brought an application in Canada for recognition of the foreign proceedings under section 18.6. Citing the principle of comity, Justice Farley held that it was appropriate that the court exercise jurisdiction to stay proceedings commenced by a party that has filed for bankruptcy protection in the United States. In reaching this conclusion, he held, ‘‘Harmonization of proceedings in the U.S. and in Canada will create the most stable conditions under which a successful reorganization can be achieved and will allow for judicial supervision of all of Matlack’s assets and enterprise throughout the two jurisdictions.’’25

In re United Air Lines Inc.,26the Ontario Superior Court of Justice made use of section 18.6 in a situation in which Chapter 11 proceedings were underway for the U.S.-based airline, which has operations throughout the world, including Canada. A group of creditors who had filed proofs of claim in the Chapter 11 proceedings opposed the application of section 18.6 to United. The Court found it appropriate to coordinate proceedings with the United States, and imposed a stay of proceedings and other ancillary relief in Canada under section 18.6. However, Justice Farley imposed the stay in a later motion in the same proceeding wherein United sought authority to suspend its pension contributions in Canada, as had been done in the United States. He held that the corporation must continue to make pension contributions to its Canadian-funded pension plans on the basis that it appeared to have sufficient funds available to make these pension contributions in Canada. Justice Farley also noted the extensive differences between the United States and Canada in the treatment of pensions and the existence of a U.S. government supported pension guarantee fund that applied to United’s U.S. pensions whereas there was no Canadian equivalent.27 The decisions show the court’s willingness to coordinate proceedings to ensure equitable treatment of creditors while maintaining jurisdiction to protect the unique interests of Canadian stakeholders.

The coordination of proceedings is not limited to procedural matters such as the imposition of a stay of proceedings. In In re Laidlaw,28 the applicant debtors had commenced proceedings under Chapter 11 of the U.S. Bankruptcy Code and brought an application under section 18.6(2) of the CCAA for an order recognizing and implementing the U.S. order confirming the Chapter 11 plan of reorganization and implementing the plan in Canada. The application was granted, with Justice Farley stating that section 18.6(2) provides a court with the authority to coordinate proceedings under the Act with any foreign proceeding.29

Although courts will often invoke section 18.6 as a means of giving effect and assistance to foreign debtors, there are limits on what they will allow. In Re Teleglobe,30 a creditor of the foreign debtor requested an order from Justice Farley that Teleglobe Inc. (TCan) repay to Teleglobe Colombia SA (TCol), a related party, amounts that TCan had received from TCol after TCan had obtained CCAA relief. The bank had brought a motion under section 18.6(4) as an ‘‘interested person,’’ but the court held that it was not appropriate to stretch the doctrine of comity so far that the claim of TCol is ‘‘leapfrogged over the queue of the other unsecured creditors of TCan.’’31 In coming to this decision, the Court held: ‘‘The Canadian insolvency court must protect the rights of all creditors, foreign or domestic; however, it would be contrary to the doctrine of equal treatment of creditors to prefer—or advance—the interest of foreign creditors over the interests of domestic creditors.’’ 32

As the above cases show, since its adoption in 1997, section 18.6 of the CCAA has been a very useful and flexible tool available to Canadian courts to facilitate cross-border proceedings. The provisions have allowed creative solutions to be implemented in the interests of comity and cooperation. However, section 18.6 also contains safeguards to ensure that Canadian law and policy, and the position of parties situated in Canada, are protected.

Cross-Border Protocols/Communications Guidelines

Both the common law and section 18.6 have provided significant assistance to Canadian courts in giving effect to foreign proceedings and recognizing and dealing with cross-border insolvencies. However, given the limited scope of issues covered by section 18.6 (and until recently Section 304 of the U.S. Bankruptcy Code), courts in the United States and Canada have gone even further to streamline and facilitate cross-border proceedings through the use of Guidelines Applicable to Court-to-Court Communications in Cross-Border Cases (Guidelines) and cross-border protocols.

Communication Guidelines

In Ontario, the Commercial List of the Superior Court of Justice has approved the adoption of the Guidelines. The genesis of the Guidelines is the American Law Institute, which adopted the Guidelines on May 16, 2000. They were adopted by the International Insolvency Institute on June 10, 2001. The Commercial List has explained that the purpose of the Guidelines is to

facilitate co-operative procedures for insolvency proceedings and other types of commercial disputes involving cross-border proceedings, where court-to-court communications might facilitate in harmonizing proceedings to help ensure consistent results and increase efficiency.33

The document contains 17 guidelines regarding communication between Canadian and U.S. courts. The Guidelines provide approaches to communications with other courts, including how these communications might take place and how to coordinate proceedings and appearances within both jurisdictions.

Cross-Border Protocols

The Guidelines are often introduced into crossborder proceedings in conjunction with cross-border protocols. Cross-border protocols are most commonly used in proceedings under Chapter 11 in the United States and the CCAA in Canada.34 Cross-border protocols provide direction and clarity to particular crossborder proceedings and can be tailored to the needs of the stakeholders involved in the proceedings.

Cross-border protocols are individually negotiated, and their content varies from protocol to protocol. However, they deal generally with procedural rather than substantive issues. A form of protocol typically provides that it is effective only when it is approved by all courts having jurisdiction over the debtor. Although provisions vary from protocol to protocol, they often deal with such matters as background on the debtor and the proceedings; purpose and goals of the protocol; comity and independence of the courts; cooperation; retention and compensation of estate representatives and professionals; rights to appear and be heard; giving of notice; recognition of stays of proceedings; effectiveness and modification of the protocol; procedure for resolving disputes under the protocol; preservation of rights; and adoption of the Guidelines.

A number of cases have referred to cross-border protocols and have articulated the court’s jurisdiction to approve them. In Olympia & York Developments Ltd. v. Royal Trust Co.,35 a protocol was established to harmonize matters arising in Canadian CCAA proceedings and U.S. Chapter 11 proceedings. The court held that it did have the authority to approve the protocol and noted that the purpose of the protocol was to facilitate the implementation of a reorganization plan by providing certainty regarding cross-jurisdictional issues.36 In discussing its authority to approve the protocol, the court found its jurisdiction in the principles of comity or, if necessary, in the court’s inherent jurisdiction.37

Although Canadian courts have been very generous in their endorsement of cross-border protocols, this does not mean that Canadian courts will cede jurisdiction to a foreign court in the face of a protocol. In Menegon v. Philip Services Corp.,38 a case dealing with a separate U.S. and CCAA plan, the Ontario Superior Court of Justice viewed the initial plan put forward for approval as flawed on the basis that various claims of Canadian creditors were being dealt with only under the U.S. plan, which resulted in some Canadian creditors being unable to vote on the plan. The court refused to approve the plan, stating that comity should not mean that one court necessarily cedes its authority and jurisdiction when differences arise between jurisdictions. 39

UNCITRAL/Bill C-55 Although significant progress has been made in developing a comprehensive scheme for the recognition of cross-border insolvency proceedings through the common law, the CCAA and the use of protocols, a new set of rules may come into force as a result of the adoption of Bill C-55 in Canada. The proclamation date for this legislation has yet to be determined and it continues to be unknown when, or if, this legislation will be proclaimed into force.

Nonetheless, Bill C-55 was passed by Canada’s Parliament and received royal assent on Nov. 25, 2005. Bill C-55 adopts elements of the UNCITRAL Model Law on Cross-Border Insolvency (Model Law) into both the BIA and the CCAA. The Model Law was the creation of the United Nations Commission on International Trade Law in tandem with the International Association of Insolvency Practitioners with assistance from the International Bar Association.40

Canadian law makers have been considering the adoption of the Model Law for some time. In its 2003 report, Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act,41 the Senate Committee recommended introducing the Model Law, with some amendments, into the BIA and CCAA. A number of elements of the Model Law were incorporated into Bill C-55 and, as discussed briefly herein, have also recently been incorporated into U.S. bankruptcy legislation.

Bill C-55: New Regime for Cross-Border Insolvency Although the provisions of Bill C-55 are significantly more comprehensive than section 18.6, some elements of section 18.6 are similar to provisions in Bill C-55.

Despite the carryover of a number of provisions of section 18.6, some provisions in Bill C-55 have no parallel in section 18.6 or Part XIII of the BIA. Bill C-55 creates a distinction between a ‘‘foreign main proceeding’’ and a ‘‘foreign non-main proceeding,’’ stating that a foreign main proceeding ‘‘means a foreign proceeding in a jurisdiction where the debtor company has the centre of its main interests.’’ In contrast, a foreign non-main proceeding is defined as ‘‘a foreign proceeding, other than a foreign main proceeding.’’42 The court is mandated to provide different relief to the debtor companies depending on whether a proceeding is a ‘‘foreign main proceeding’’ or not. This is a major change in direction for Canada’s insolvency system, and it remains to be seen how courts in Canada will apply the test for ‘‘centre of main interest’’ and whether law developed in jurisdictions such as the European Union43—where this concept has been in use for a few years—will be applied in Canada.

Bill C-55 also sets out in some detail how a foreign representative is to apply to the court for recognition of a foreign proceeding. The legislation also provides direction on orders that the court shall make in connection with foreign proceedings.44 Moreover, it sets out the obligations of foreign representatives once an order recognizing a foreign proceeding is made.45 There are also a number of new provisions dealing with multiple proceedings.46

U.S. Chapter 15 Canada is not the only country to introduce elements of the Model Law into its legislation. The United States has recently added Chapter 15, which also incorporates elements of the Model Law, to the U.S. Bankruptcy Code. Chapter 15 replaces Section 304 of the U.S. Bankruptcy Code.47 The stated goals of Chapter 15 are similar to the goals articulated for the international insolvency provisions set out in Bill C-55.48

Although Section 304 of the U.S. Bankruptcy Code and section 18.6 of the CCAA have worked well in tandem, Chapter 15 will provide an even greater level of consistency with the Canadian processes because it also adopts many of the same elements of the Model Law as Bill C-55. These are among the similarities between Chapter 15 and Bill C-55:

  1. Both distinguish between foreign main proceedings and non-main proceedings;49
  2. Both detail how an application can be made for recognition of a foreign proceeding;50
  3. Both provide guidance regarding concurrent proceedings; 51 and
  4. Neither piece of legislation has a reciprocity requirement.

There are also a number of salient differences between the new Chapter 15 and Bill C-55. Among the important differences are the inclusion of certain key definitions in Chapter 15 that are not included in Bill C-55, including a definition for ‘‘recognition’’ and a definition for the phrase ‘‘within the territorial jurisdiction of the United States.’’52 Further, Chapter 15 creates a public policy exception,53 which is absent from the Canadian legislation (although Canadian courts will presumably be able to rely on the common law with respect to foreign orders that are contrary to public policy).54 Chapter 15 also provides significant detail about access to the court for foreign representatives and foreign creditors, 55 and has several provisions regarding cooperation and communication with foreign courts and foreign representatives. The Canadian legislation has only limited direct discussion of cooperation with foreign courts.56

As is often the case when comparing U.S. and Canadian insolvency legislation, Chapter 15 provides a much more extensive and comprehensive set of rules than the cross-border insolvency provisions contained in Bill C-55, although there are common themes and approaches.

The Road From Here

Proponents of predictability will take comfort from the more detailed scheme set out in Bill C-55 because it removes significant discretion from the court by codifying practice in cross-border insolvencies. In addition, since many common elements of the Model Law have been adopted by the United States, cross-border consistency and cooperation will be promoted. However, the enhanced predictability and guidance to courts and players in cross-border insolvencies go hand-in-hand with a loss of the flexibility and discretion that have been hallmarks of the CCAA. This may restrict the future ability of courts in Canada to be creative in their solutions to difficult cross-border insolvency issues.

The provisions found in Bill C-55 also fail to implement some of the recommendations regarding crossborder insolvencies proposed in the Senate Report. Although the Senate Report recommended the adoption of the Model Law, it suggested that the legislation should contain a reciprocity provision allowing foreign representatives to benefit from Canadian provisions only if their country has also adopted the Model Law. Moreover, the Report recommended that the provisions adopted authorize the creation of a creditors’ committee to protect the interests of Canadian creditors.57 These recommendations were carried forward in Bill C-55.58 Nonetheless, given the unusual manner in which Bill C-55 was passed, it is likely that Bill C-55 will be sent to a Senate committee for further consideration and amendment. The final version of the legislation therefore may not be identical to the provisions currently found in Bill C-55.

Only time will tell how the new amendments in Bill C-55 will shape the landscape of cross-border insolvency proceedings in Canada. What is clear, however, is that Canada continues to be a jurisdiction that is open to the concept of comity and the recognition of properly constituted foreign insolvency proceedings. Through the continued comity refrain, which pervades both common law reasoning and Canadian legislation, and through the ongoing integration of U.S. and Canadian business and trade, the trend toward ensuring harmony in insolvency proceedings between the two countries will continue. This is seen not only in the developments in common law and legislation, but through the adoption of less formal cooperative networks, such as the Guidelines and cross-border protocols.

Footnotes

1. Trade and Economic Analysis, online: International Trade Canada http://www.dfait-maeci.gc.ca/eet/cimt/2004/CIIP04-en.asp

2. R.S.C. 1985, c. C-36 [CCAA].

3. Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended [BIA], Part XIII.

4. Bankruptcy Code, 11 U.S.C. §§ 1501-1532.

5. Bill C-55, An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act and to make consequential amendments to other Acts, 1st Sess., 38th Parl., 2005 (assented to 25 November, 2005) [Bill C-55].

6. [1990] 3 S.C.R. 1077 [Morguard].

7. Ibid. at para. 31.

8. [2003] 3 S.C.R. 416 [Beals].

9. Ibid. at para. 35.

10. Ibid. at para. 75.

11. [2001] 3 S.C.R 951.

12. [2001] 3 S.C.R. 907 [Holt Cargo].

13. Ibid. at paras. 30-35. It should be noted that the Holt Cases were commenced before Part XIII of the BIA and section 18.6 of the CCAA were enacted but heard by the SCC after such provisions were in force. The SCC commented that although these provisions did not apply to the case before them, the legislation was consistent with the plurality approach being adopted by the Court.

14. Ibid. at para. 23.

15. Ibid. at para. 80; see also Re Smith (2005), 12 C.B.R. (5th) 39 (N.W.T.S.C.) where the Northwest Territories Supreme Court endorsed the ‘‘pluralist’’ position set out in the Holt Cases in the context of competing bankruptcy proceedings in the United States and the Northwest Territories.

16. [1998], 227 A.R. 308 [Roberts].

17. Ibid. at paras. 8 and 22.

18. [1996] 45 C.B.R. (3d) 40 (O.C.J.).

19. Similar provisions are found in Part XIII of BIA, but the focus of this paper is on the CCAA since most U.S. proceedings with cross-border elements involve companion CCAA proceedings.

20. CCAA, supra note 2 at s. 18.6(2). A ‘‘foreign proceeding’’ is defined under the CCAA as ‘‘a judicial or administrative proceeding commenced outside Canada in respect of a debtor under a law relating to bankruptcy or insolvency and dealing with the collective interests of creditors generally.’’

21. [2000] 18 C.B.R. (4th) 157 (Ont. SCJ) [Babcock & Wilcox].

22. As mentioned by Michael Rotsztain in ‘‘Cross-Border Issues: Managing the Canadian Side of an American Insolvency Application’’ (January 16 and 17, 2003: Insolvency Institute of Canada, The Canadian Institute Third Annual Insolvency Law and Practice Conference), the Court was able to make such an order despite the solvency of the Canadian applicant company, by relying upon section 18.6(4), which does not use the ‘‘debtor company’’ language found in section 18.6(2).

23. Babcock & Wilcox, supra note 21 at para. 21.

24. [2001] 26 C.B.R. (4th) 45 (Ont. S.C.J.).

25. Ibid. at para. 3.

26. [2003] 43 C.B.R. (4th) 284 (Ont. S.C.J.).

27. In re United Airlines Inc., (2005) 9 C.B.R. (5th) 159 (Ont. S.C.J.).

28. [2003] 39 C.B.R. (4th) 239 (Ont. S.C.J.).

29. Ibid. at para 3.

30. [2005] 10 C.B.R. (5th) 120 (Ont. S.C.J.).

31. Ibid. at para. 8.

32. Ibid. [emphasis in original].

33. ‘‘Protocol Concerning Court-to-Court Communications in Cross Border Cases,’’ Superior Court of Justice, Commercial List online: http://www.ontariocourts.on.ca/superior_court_justice/commercial/protocol.htm

34. Among recent proceedings where protocols were used, include Re 360networks Inc., Re Archibald Candy Corp. and Laura Secord Holdings Corp., Everfresh Beverages Inc., Re Laidlaw Inc. and Laidlaw Investments Ltd., Re Livent Inc., Re Matlack Inc., Re Mosaic Group Inc., Re PSINET Limited, and Systech Retail Systems Corp.

35. [1993] 20 C.B.R. (3d) 165 (O.C.J.) [Olympia].

36. Ibid. at para. 7.

37. Ibid. at para. 4.

38. [1999] 11 C.B.R. (4th) 262 (Ont. S.C.J.) [Philip Services].

39. Ibid. at para. 48.

40. UNCITRAL Model Law on Cross Border Insolvency, online: International Insolvency Institute http://www.iiiglobal.org/topics/uncitral_model.html

41. ‘‘Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act’’ online: Office of the Superintendent of Bankruptcy Canada http://strategis.ic.gc.ca/epic/internet/inbsf-osb.nsf/en/h_br01368e.html [Senate Report].

42. Bill C-55, supra note 5 at section 45.

43. See, for instance, Re Daisytek-ISA Ltd. and Others, [2004] BPIR 30 (Ch.D.).

44. Bill C-55, supra note 5 at sections 46, 47, 48 and 49.

45. Bill C-55, supra note 5 at section 53.

46. Bill C-55, supra note 5 at sections 54 and 55.

47. Bankruptcy Code, 11 U.S.C. §§ 1501-1532. The focus of this paper is on Canadian insolvency proceedings, so the discussion of Chapter 15 is brief and for comparative purposes only.

48. The stated goals of Chapter 15 are to promote cooperation between U.S. courts and courts and competent authorities of foreign countries involved in cross-border insolvency cases; to provide greater legal certainty for trade and investment; to provide for the fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested parties, including the debtor; to protect and maximize the value of the debtor’s assets; and to facilitate the rescue of financially troubled businesses, thereby protecting investment and preserving employment.

49. Bankruptcy Code, 11 U.S.C § 1502. See Bill C-55, supra note 5 at section 45.

50. Bankruptcy Code, ibid. at §§ 1515-1524. See Bill C-55, ibid. at sections 46-53.

51. Bankruptcy Code, ibid. at §§ 1528-1532. See Bill C-55, ibid. at sections 54-55.

52. Bankruptcy Code, ibid. at § 1502.

53. Ibid. at § 1506.

54 See Philip Services, supra note 38; see also Beals, supra note 8.

55. Bankruptcy Code, 11 U.S.C. §§ 1509-1514.

56. Ibid. at §§ 1525-1527. See also Bill C-55, supra note 5 at section 52(1). Some of these provisions may reduce the need to rely upon the Guidelines or a cross-border protocol.

57. Senate Report, supra note 41 at 113-118.

58. Similarly, the Insolvency Institute of Canada (IIC), in its Position Paper: Bill C-55 (October 12, 2005), recommends that as a condition of recognizing a foreign proceeding, courts should appoint a local creditors’ committee or a monitor to represent the interests of the local creditors of the foreign proceeding if there is not a full proceeding in Canada. The costs of this would be borne by the estate. In addition to this, the IIC recommends providing that the recognition of foreign proceedings as a foreign main proceeding does not in and of itself limit or prohibit the right to bring or continue a full CCAA or BIA proposal proceeding with respect to the same debtor (at 7).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.