Canadian Cross-Border Cases


Overview of Insolvency Process in Canada and Cross Border Insolvencies


1. Overview

There are two significant federal insolvency statutes in Canada: the Bankruptcy and Insolvency Act ("BIA") and the Companies' Creditors Arrangement Act ("CCAA"). The BIA is Canada's general equivalent of Chapter 7 of the United States Bankruptcy Code (the "US Code") and the CCAA is Canada's general equivalent of Chapter 11 of the US Code ("Chapter 11"). The BIA also contains provisions relating to restructuring, but these are typically used for smaller enterprises or for individuals.

Both the BIA and the CCAA provide a mechanism for the coordination of cross-border insolvencies similar to Chapter 15 of the US Code ("Chapter 15"). Under these provisions, Canadian courts may, among other things, recognize insolvency proceedings commenced in foreign jurisdictions.

In order to be eligible to commence a proceeding under the BIA a debtor must be insolvent.

Under the BIA, an "insolvent person" is defined as a person who is not bankrupt and who resides, carries on business or has property in Canada, whose liabilities to creditors amount to at least one thousand dollars. In addition, an insolvent person (a) must be unable to meet its obligations as they generally become due, or (b) must have ceased paying its current obligations in the ordinary course of business as they generally become due, or (c) the fair value of the insolvent person's property, if disposed of at a fairly conducted legal process, would be insufficient to enable payment of all of its obligations, due and accruing due.

In order to be eligible to commence a proceeding under the CCAA, a debtor must, among other things, demonstrate that it has at least $5 million of claims against it. It must also be a "debtor company". A debtor company is one that is (1) either bankrupt or insolvent, (2) has committed an "act of bankruptcy" (these are defined in the BIA), or is deemed insolvent under the Winding Up and Restructuring Act (Canada) ("WURA") regardless of whether proceedings have been commenced under those statutes, or (3) is being wound up as an insolvent company under the WURA.

The CCAA does not provide a definition of insolvency. Under relevant case law, generally a debtor will be found insolvent under the CCAA if it meets the definition of "insolvent person" under the BIA or if it is a financially troubled corporation that "is reasonably expected to run out of liquidity within reasonable proximity of time as compared with the time reasonably required to implement a restructuring." The rationale behind this expanded definition of insolvency is to permit a company to commence a proceeding under the CCAA with sufficient liquidity and flexibility to successfully restructure rather than wait until the debtor's resources may be too depleted to permit the implementation of a restructuring. It also supports one of the objectives of the CCAA of allowing an insolvent business to attempt to restructure its affairs as a going concern and preserve enterprise value and employment.

Companies which utilise the BIA or CCAA must formally admit their insolvency. However, under either regime, an initial broad stay of proceedings is imposed which prevents parties from commencing or continuing actions or proceedings against the debtor. 2. CCAA

An insolvency filing under the CCAA is a "debtor-in-possession" proceeding where the assets and control of the debtor company remain with management and the board of directors, under the supervision of the court and a court-appointed officer called a Monitor (defined below). The purpose of a CCAA proceeding is to provide a debtor company with a stay of proceedings and the necessary "breathing space" as it attempts to formulate a plan of compromise or arrangement (a "Plan") to propose to its creditors and the court for approval.

It is also possible for all or a portion of a debtor's business to be sold during a CCAA proceeding prior to the development of the Plan or as part of the Plan itself. The court would have to approve any such sale and may require a marketing plan and process. There are no restrictions on the type of sale process, or whether the sale must be by way of private, public, piecemeal, en bloc, bid, tender, auction or other process. However, it must be fair and commercially reasonable in the circumstances to obtain the court's approval. The sale will usually result in a vesting order transferring the assets to the purchaser free and clear of liens, with the sale proceeds standing in the place of the assets, similar to s. 363 of the US Bankruptcy Code.

(a) Application for an Initial Order

A CCAA proceeding is commenced by an application to the court, typically in the province where the head office of the corporation is located, for an initial order.

For CCAA filings in Ontario, the Commercial List Users' Committee in Toronto has developed a "standard form" initial order that can be modified as circumstances warrant. The initial order provides for a number of items of relief, many of which are similar to the relief granted in "first day" orders in a Chapter 11 proceeding, and typically include terms such as:
  • (i) declaring that the debtor is authorized to file a formal Plan to present to its affected creditors;
  • (ii) staying all proceedings against the debtor, including any proceedings which have already been commenced;
  • (iii) permitting the debtor to restructure its operations and take such other steps as are necessary to effect the restructuring;
  • (iv) appointing a "monitor" (typically an accounting/financial advisory firm) to monitor the debtor's affairs and to report thereon to the court and the creditors (the "Monitor"). The Monitor must be a licensed trustee in bankruptcy. The Monitor must balance its duties to the court, the creditors, the debtor and other stakeholders. The Monitor has a broad mandate. Among other things, it assists the debtor in communicating with creditors, negotiating a Plan, reports to the court from time to time as required and makes recommendations to the court on various matters, assists the creditors and other stakeholders in obtaining information and dealing with the debtor;
  • (v) authorizing the debtor to enter into debtor-in-possession ("DIP") financing, if necessary; and
  • (vi) granting super-priority charges (i.e. liens) over the debtor's property, including an administrative charge securing the fees of the debtor's counsel, the Monitor and the Monitor's counsel; a DIP financing charge securing amounts advanced pursuant to DIP financing, if any; and a charge securing an indemnity for certain liabilities incurred by directors and officers of the debtor during the proceeding (discussed in greater detail below).

Unlike Chapter 11 where a proceeding is commenced by the filing of a Chapter 11 petition, the Canadian court has discretion as to whether the relief should be granted and the burden of proof in satisfying the court to exercise its discretion to grant the initial order is on the debtor. The initial stay order cannot exceed 30 days. Before it expires the debtor must return to court to establish to the court's satisfaction the need for an extended stay, the length of which is in the court's discretion. In order to obtain this and subsequent extensions of the stay, the debtor will have to satisfy the court it has been acting in good faith and with due diligence in pursuing a restructuring.

(b) Claims Process

In order to restructure, the debtor will formulate a Plan to present to its creditors while under CCAA protection. As the CCAA does not set out the mechanism to establish claims, the debtor will seek and obtain an order which provides for a mechanism to call for claims of creditors against the debtor, (the "Claims Procedure Order"). Under the Claims Procedure Order, creditors are required to file their claims before a fixed date (the "Claims Bar Date"). The debtor is typically required to send notice of the Claims Procedure Order to all creditors and to publish the same in a newspaper. Typically, any claims not filed by the Claims Bar Date are deemed to be forever barred and extinguished.

Claims submitted by creditors are reviewed by the debtor and/or the Monitor. Most disputed claims are resolved consensually between the debtor, the Monitor and the relevant creditor. However, the Claims Procedure Order can appoint a claims officer who will be given the power to adjudicate disputed claims where a consensual agreement cannot be reached.

(c) Approval and Sanction of the Plan

Once the proposed Plan is filed with the court, the court will issue a "Meeting Order" that (i) confirms the designated classes of affected creditors for the purposes of the Plan and (ii) calls for a meeting of creditors of each affected class to consider and vote on the Plan. A Plan must be approved by those creditors in each class of creditors comprising a majority in number and holding 2/3 in value of creditor claims (the "Requisite Majorities") that are present and vote, whether in person or by proxy, at a meeting of creditors to consider the Plan.

If any class of affected creditors does not vote in favour of the Plan, the Plan will be deemed to have failed. Unlike in a Chapter 11 proceeding, there is no "cramdown" between classes such that the Plan cannot be imposed on a junior class that does not provide the requisite support for the Plan.

If the Requisite Majorities of creditors approve the Plan, a further application is made to the court to sanction the Plan. Creditors who wish to object to the Plan can appear at the sanction hearing and argue that the Plan is unfair. While the CCAA contains very few restrictions on the contents of a Plan, it does contain certain minimum requirements that must be included in the Plan. Once sanctioned by the court, the Plan is binding on all creditors affected by the Plan.

If the Plan is not approved by creditors or the court, there is no automatic bankruptcy (liquidation). The stay may be lifted and creditors may become free to exercise their legal rights and remedies or the court may allow the debtor to file another Plan. Another possibility could be a receivership order being sought by a creditor.

3. Bankruptcy under the BIA

A bankruptcy (liquidation) proceeding under the BIA involves the vesting of the assets of the debtor in a trustee in bankruptcy (the "Trustee") who, subject to the claims of secured creditors, takes possession and control of the property of the bankrupt, and administers all aspects of the bankruptcy process (including the settlement of claims). The Trustee distributes the proceeds of the liquidation to the bankrupt's creditors according to a statutorily prescribed distribution scheme. An insolvent person can become bankrupt in the following ways:
  • (i) filing an assignment;
  • (ii) a bankruptcy order being issued by the court as a result of an application brought by a creditor;
  • (iii) making a Proposal (defined below) to creditors which is rejected by the creditors or the court; or
  • (iv) the expiry of the time period following a filing of a notice of intention (discussed further below) to present a Proposal to creditors.

An assignment is a voluntary proceeding initiated by the insolvent person. An application for a bankruptcy order is an adversarial proceeding pursuant to which a creditor applies to the court for an order which, upon being obtained, has the effect of causing an insolvent person to become bankrupt.

4. Proposals under the BIA

There is also a restructuring proceeding under the BIA where a company remains a "debtor-in-possession" and can file a Notice of Intention to Make a Proposal (a "Proposal") to its creditors and seek to restructure as a going concern under the BIA without a formal declaration of bankruptcy. This proceeding is not as flexible as a proceeding commenced under the CCAA. Unlike the CCAA, the BIA has detailed provisions on the process and timing of a restructuring under the BIA.

Under the BIA, the maximum length of any stay of proceedings is limited, the total length of the proceeding is limited and the result of a failed Proposal is an automatic deemed assignment in bankruptcy (i.e. liquidation) by the debtor.

(a) Commencement of a Proposal

Access to the BIA is less difficult and less costly than access to the CCAA, as no initial court order is required to commence the proceeding and obtain the protection of a stay.

A BIA Proposal proceeding may be commenced in one of two ways. First, the debtor may file a notice of intention (a "NOI") with the a Federal government office (the "official receiver"), stating, among other things, its intention to make a Proposal to its creditors and naming a Proposal trustee (the "Proposal Trustee"). The Proposal trustee must be a licensed trustee in bankruptcy. Once the NOI is filed, a stay of proceedings against the debtor is automatically in effect and a Proposal must be filed with the official receiver within 30 days. If a Proposal is not filed by the expiry of this period or an extension of the initial stay period is not granted by the court, the debtor is automatically deemed to be bankrupt. Second, the debtor may commence a BIA Proposal proceeding by immediately filing a Proposal with the Proposal Trustee without filing a NOI.

The 30 day stay of proceedings is automatic upon commencement of the proceeding and is not subject to the discretion of the court. However, the time limits within which a Proposal must be filed are not as flexible as under the CCAA. As stated above, a Proposal must be filed with the official receiver within 30 days of the filing of an NOI. The debtor may apply to the court for an extension of this time period but each extension granted by the court may not exceed 45 days and cannot exceed, in the aggregate, 5 months calculated from the expiry of the initial 30-day period.

(b) Creditor Acceptance and Court Approval

Once the Proposal has been filed, a meeting of creditors must be held within 21 days for the creditors with proven claims against the debtor to consider and vote on the Proposal. A creditor must prove its claim by filing a proof of claim with the Proposal Trustee in order to be permitted to vote on and receive distributions under the Proposal. All unsecured creditors form one class of creditors, unless the Proposal provides otherwise, and any classes of secured creditors are determined in accordance with the BIA. If the required majorities (which is the same 2/3 in dollar, 50% in number as the CCAA) of creditors in each class vote in favour of the Proposal, it is deemed to be accepted by the creditors.

If the Proposal is accepted by the creditors, an application must be made for court approval of the Proposal. The court must be satisfied that the Proposal is fair and reasonable and for the benefit of the general body of creditors before it may approve the Proposal. As with the CCAA, there are certain minimum requirements that must be contained in the Proposal dealing with payment of certain priority claims.

Unlike in a CCAA proceeding, if the Proposal is not accepted by the creditors or not approved by the court, the debtor is automatically deemed to have made an assignment in bankruptcy.

5. Cross-Border Insolvencies

Both the BIA and the CCAA provide a means for recognition of foreign insolvency proceedings in Canada. The cross-border provisions are found in Part IV of the CCAA and Part XIII of the BIA. Both are modeled on the UNCITRAL Model Law on Cross Border Insolvency and are accordingly similar to the provisions in Chapter 15 of the US Code.

The purpose of the provisions is to provide mechanisms for cooperation between the Canadian courts and the foreign courts, greater legal certainty for trade and investment, fair and efficient administration of cross border insolvencies protecting the interests of the stakeholders, and maximizing value and rescuing financially troubled businesses.

The cross-border provisions in the CCAA and the BIA are substantially the same, with certain minor modifications that are necessary to accommodate the differences between the two insolvency regimes.

The cross-border provisions under the BIA and the CCAA permit the "foreign representative" of a proceeding in a foreign jurisdiction to apply to the Canadian courts to recognize such a foreign proceeding and the orders made pursuant thereto. To be eligible, the foreign proceeding must deal with "creditor's 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".

An application for recognition must be brought before the court by the "foreign representative". A "foreign representative" is defined as a person or body who is authorized in the foreign proceeding to monitor or administer the debtor's property and affairs or to act as the representative in respect of the foreign proceeding. The foreign representative may bring an application for recognition under the CCAA or the BIA. The process is similar under either statute.

The court must first determine the foreign representative's authority to act and the existence of the foreign proceeding in accordance with the provisions of the CCAA or BIA, as applicable. Once the court has made these determinations, the court must then consider whether the foreign proceeding is a foreign main proceeding or a foreign non-main proceeding. This determination depends on where the debtor has its centre of its main interests ("COMI"). COMI is not defined in the CCAA or the BIA, but under both statutes it is presumed that a debtor's COMI is the location of the debtor's registered office, unless there is evidence to the contrary. In determining whether the presumption is rebutted, the court will assess the debtor's COMI based on a number of factors under the relevant case law, which continues to develop. These factors include the location of the debtor's corporate head offices, the location of management or nerve center, and the location perceived by the debtor's major creditors as its COMI.

If the debtor's COMI is in the foreign jurisdiction, the Canadian court must find that the foreign proceeding is a foreign main proceeding. If the debtor's COMI is in Canada or a foreign jurisdiction other than the jurisdiction of the foreign proceeding, the foreign proceeding is a foreign non-main proceeding.

If the foreign proceeding is recognized as a foreign main proceeding, the court is required to order a stay of proceedings against the debtor in Canada and a suspension of the debtor's rights to transfer or encumber its assets outside the ordinary course of business. The court can also grant any other relief it deems necessary in the circumstances. Such relief must be consistent with the CCAA or BIA, as applicable, and Canadian public policy.

By contrast, there is no automatic relief that follows from the recognition of a foreign non-main proceeding. The recognition of a proceeding as a foreign non-main proceeding gives the court discretion to make any order that it considers appropriate, including a stay of proceedings against the debtor and a suspension of the debtor's rights to sell or transfer its assets outside the ordinary course of business.

Once the court recognizes a foreign proceeding, the Canadian court will cooperate with the foreign representative and the foreign court to the maximum extent possible. Such cooperation includes communicating with the foreign court in order to issue orders that will help coordinate the Canadian and foreign aspects of the proceedings.

In some cross border cases, the parties negotiate and present to both courts for approval a form of protocol. There are no statutory restrictions or requirements as to the terms of a protocol, and accordingly it is highly flexible. The protocol usually sets out the framework for diverse procedural matters such as service, where materials must be filed, court to court communications, supervision of professionals retained by the debtor and court officers, and other matters that will improve the coordination and harmonization of the cross-border insolvency proceedings. In addition, it can deal with substantive matters.

1 Re Stelco Inc. (2004), 48 C.B.R. (4th) 299 (Ont. Sup. Ct.) at para. 26.

Part IV CCAA

Proceeding Commencement Datesort icon Country, State of Foreign Proceeding Canadian Court Summary
Digital Domain Media Group, Inc. et al. 09/18/2012 United States, District of Delaware Supreme Court of British Columbia Digital Domain Media Group, Inc. and 13 of its affiliates (the “DDM Group”) commenced voluntary reorganization proceedings in the U.S. under Chapter 11. The DDM Group specialized in digital visual effects and computer generated animation for major motion picture studios, advertisers and videogame... full summary
Durabla Canada Ltd. 06/28/2012 United States, District of Delaware Ontario Superior Court of Justice (Commercial List) Durabla Manufacturing Company (a U.S. corporation) and its affiliate, Durabla Canada Ltd. (a Canadian corporation), commenced voluntary petitions for relief in the U.S. pursuant to Chapter 11. Subsequently, the two companies obtained an order for a procedural consolidation. On the application of... full summary
Allied Systems Holdings Inc et al. 06/12/2012 United States, District of Delaware Ontario Superior Court of Justice (Commercial List) Allied Systems Holdings Inc. (“ASHI”) and its affiliates were primarily engaged in transporting automobiles from manufacturing plants, ports and railway distribution points to automotive dealers in the U.S. and Canada. Involuntary petitions were filed against ASHI and one of its subsidiaries in... full summary

Part XIII BIA

Proceeding Commencement Datesort icon Country, State of Foreign Proceeding Canadian Court Summary
Zayed v. Cook, 62 CBR (5th) 114. 12/21/2009 United States, District of Minnesota Ontario Superior Court of Justice The U.S. District Court on an ex parte motion froze the assets of the respondents, who had allegedly engaged in a massive ponzi scheme, and through a receivership order appointed the applicant as the receiver over all the respondents’ assets in the U.S. (the “Receivership”). The Canadian Court... full summary

Link to the full statute

PART IV

CROSS-BORDER INSOLVENCIES

Purpose

 The purpose of this Part is to provide mechanisms for dealing with cases of cross-border insolvencies and to promote

(a) cooperation between the courts and other competent authorities in Canada with those of foreign jurisdictions in cases of cross-border insolvencies;

(b) greater legal certainty for trade and investment;

(c) the fair and efficient administration of cross-border insolvencies that protects the interests of creditors and other interested persons, and those of debtor companies;

(d) the protection and the maximization of the value of debtor company’s property; and

(e) the rescue of financially troubled businesses to protect investment and preserve employment.

  • 2005, c. 47, s. 131.
Interpretation

Definitions

 (1) The following definitions apply in this Part.

  • “foreign court”

    « tribunal étranger »

    “foreign court” means a judicial or other authority competent to control or supervise a foreign proceeding.

  • “foreign main proceeding”

    « principale »

    “foreign main proceeding” means a foreign proceeding in a jurisdiction where the debtor company has the centre of its main interests.

  • “foreign non-main proceeding”

    « secondaire »

    “foreign non-main proceeding” means a foreign proceeding, other than a foreign main proceeding.

  • “foreign proceeding”

    « instance étrangère »

    “foreign proceeding” means 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.

  • “foreign representative”

    « représentant étranger »

    “foreign representative” means a person or body, including one appointed on an interim basis, who is authorized, in a foreign proceeding respect of a debtor company, to

    (a) monitor the debtor company’s business and financial affairs for the purpose of reorganization; or

    (b) act as a representative in respect of the foreign proceeding.

Centre of debtor company’s main interests

(2) For the purposes of this Part, in the absence of proof to the contrary, a debtor company’s registered office is deemed to be the centre of its main interests.

  • 2005, c. 47, s. 131.
Recognition of Foreign Proceeding

Application for recognition of a foreign proceeding

 (1) A foreign representative may apply to the court for recognition of the foreign proceeding in respect of which he or she is a foreign representative.

Documents that must accompany application

(2) Subject to subsection (3), the application must be accompanied by

(a) a certified copy of the instrument, however designated, that commenced the foreign proceeding or a certificate from the foreign court affirming the existence of the foreign proceeding;

(b) a certified copy of the instrument, however designated, authorizing the foreign representative to act in that capacity or a certificate from the foreign court affirming the foreign representative’s authority to act in that capacity; and

(c) a statement identifying all foreign proceedings in respect of the debtor company that are known to the foreign representative.

Documents may be considered as proof

(3) The court may, without further proof, accept the documents referred to in paragraphs (2)(a) and (b) 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.

Other evidence

(4) In the absence of the documents referred to in paragraphs (2)(a) and (b), 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.

Translation

(5) The court may require a translation of any document accompanying the application.

  • 2005, c. 47, s. 131.

Order recognizing foreign proceeding

 (1) 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 foreign proceeding, the court shall make an order recognizing the foreign proceeding.

Nature of foreign proceeding to be specified

(2) The court shall specify in the order whether the foreign proceeding is a foreign main proceeding or a foreign non-main proceeding.

  • 2005, c. 47, s. 131.

Order relating to recognition of a foreign main proceeding

 (1) Subject to subsections (2) to (4), on the making of an order recognizing a foreign proceeding that is specified to be a foreign main proceeding, the court shall make an order, subject to any terms and conditions it considers appropriate,

(a) staying, until otherwise ordered by the court, for any period that the court considers necessary, all proceedings taken or that might be taken against the debtor company under the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act;

(b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the debtor company;

(c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or proceeding against the debtor company; and

(d) prohibiting the debtor company from selling or otherwise disposing of, outside the ordinary course of its business, any of the debtor company’s property in Canada that relates to the business and prohibiting the debtor company from selling or otherwise disposing of any of its other property in Canada.

Scope of order

(2) The order made under subsection (1) must be consistent with any order that may be made under this Act.

When subsection (1) does not apply

(3) Subsection (1) does not apply if any proceedings under this Act have been commenced in respect of the debtor company at the time the order recognizing the foreign proceeding is made.

Application of this and other Acts

(4) Nothing in subsection (1) precludes the debtor company from commencing or continuing proceedings under this Act, the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act in respect of the debtor company.

  • 2005, c. 47, s. 131.

Other orders

 (1) If an order recognizing a foreign proceeding is made, the court may, on application by the foreign representative who applied for the order, if the court is satisfied that it is necessary for the protection of the debtor company’s property or the interests of a creditor or creditors, make any order that it considers appropriate, including an order

(a) if the foreign proceeding is a foreign non-main proceeding, referred to in subsection 48(1);

(b) respecting 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

(c) authorizing the foreign representative to monitor the debtor company’s business and financial affairs in Canada for the purpose of reorganization.

Restriction

(2) If any proceedings under this 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 subsection (1) must be consistent with any order that may be made in any proceedings under this Act.

Application of this and other Acts

(3) The making of an order under paragraph (1)(a) does not preclude the commencement or the continuation of proceedings under this Act, the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act in respect of the debtor company.

  • 2005, c. 47, s. 131.

Terms and conditions of orders

 An order under this Part may be made on any terms and conditions that the court considers appropriate in the circumstances.

  • 2005, c. 47, s. 131.

Commencement or continuation of proceedings

 If an order is made recognizing a foreign proceeding, the foreign representative may commence and continue proceedings under this Act in respect of a debtor company as if the foreign representative were a creditor of the debtor company, or the debtor company, as the case may be.

  • 2005, c. 47, s. 131.
Obligations

Cooperation — court

 (1) 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.

Cooperation — other authorities in Canada

(2) If any proceedings under this Act have been commenced in respect of a debtor company and an order recognizing a foreign proceeding is made in respect of the debtor company, every person who exercises powers or performs duties and functions under the proceedings under this Act shall cooperate, to the maximum extent possible, with the foreign representative and the foreign court involved in the foreign proceeding.

Forms of cooperation

(3) For the purpose of this section, cooperation may be provided by any appropriate means, including

(a) the appointment of a person to act at the direction of the court;

(b) the communication of information by any means considered appropriate by the court;

(c) the coordination of the administration and supervision of the debtor company’s assets and affairs;

(d) the approval or implementation by courts of agreements concerning the coordination of proceedings; and

(e) the coordination of concurrent proceedings regarding the same debtor company.

  • 2005, c. 47, s. 131;
  • 2007, c. 36, s. 80.

Obligations of foreign representative

 If an order recognizing a foreign proceeding is made, the foreign representative who applied for the order shall

(a) without delay, inform the court of

(i) any substantial change in the status of the recognized foreign proceeding,

(ii) any substantial change in the status of the foreign representative’s authority to act in that capacity, and

(iii) any other foreign proceeding in respect of the same debtor company that becomes known to the foreign representa­tive; and

(b) 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.

  • 2005, c. 47, s. 131.
Multiple Proceedings

Concurrent proceedings

 If any proceedings under this Act 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 made under section 49 and, if it determines that the order is inconsistent with any orders made in the proceedings under this Act, the court shall amend or revoke the order.

  • 2005, c. 47, s. 131.

Multiple foreign proceedings

 (1) If, at any time after an order is made in respect of a foreign non-main proceeding in respect of a debtor company, an order recognizing a foreign main proceeding is made in respect of the debtor company, the court shall review any order made under section 49 in respect of the foreign non-main proceeding and, if it determines that the order is inconsistent with any orders made under that section in respect of the foreign main proceedings, the court shall amend or revoke the order.

Multiple foreign proceedings

(2) If, at any time after an order is made in respect of a foreign non-main proceeding in respect of the debtor company, an order recognizing another foreign non-main proceeding is made in respect of the debtor company, the court shall, for the purpose of facilitating the coordination of the foreign non-main proceedings, review any order made under section 49 in respect of the first recognized proceeding and amend or revoke the order if it considers it appropriate.

  • 2005, c. 47, s. 131.
Miscellaneous Provisions

Authorization to act as representative of proceeding under this Act

 The court may authorize any person or body to act as a representative in respect of any proceeding under this Act for the purpose of having them recognized in a jurisdiction outside Canada.

  • 2005, c. 47, s. 131.

Foreign representative status

 An application by a foreign representa­tive for any order under this Part 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 under this Part conditional on the compliance by the foreign representative with any other order of the court.

  • 2005, c. 47, s. 131.

Foreign proceeding appeal

 A foreign representative is not prevented from making an application to the court under this Part by reason only that proceedings by way of appeal or review have been taken in a foreign proceeding, and the court may, on an application if such proceedings have been taken, grant relief as if the proceedings had not been taken.

  • 2005, c. 47, s. 131.

Presumption of insolvency

 For the purposes of this Part, if an insolvency or a reorganization or a 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.

  • 2005, c. 47, s. 131.

Credit for recovery in other jurisdictions

 (1) In making a compromise or an arrangement of a debtor company, the following shall be taken into account in the distribution of dividends to the company’s creditors in Canada as if they were a part of that distribution:

(a) the amount that a creditor receives or is entitled to receive outside Canada by way of a dividend in a foreign proceeding in respect of the company; and

(b) the value of any property of the company that the creditor acquires outside Canada on account of a provable claim of the creditor or that the creditor acquires outside Canada by way of a transfer that, if it were subject to this Act, would be a preference over other creditors or a transfer at undervalue.

Restriction

(2) Despite subsection (1), the creditor is not entitled to receive a dividend from the distribution in Canada until every other creditor who has a claim of equal rank in the order of priority established under this Act has received a dividend whose amount is the same percentage of that other creditor’s claim as the aggregate of the amount referred to in paragraph (1)(a) and the value referred to in paragraph (1)(b) is of that creditor’s claim.

  • 2005, c. 47, s. 131.

Court not prevented from applying certain rules

 (1) Nothing in this Part prevents the court, on the application of a foreign represent­ative or any other interested person, from applying any legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives that are not inconsistent with the provisions of this Act.

Public policy exception

(2) Nothing in this Part prevents the court from refusing to do something that would be contrary to public policy.

  • 2005, c. 47, s. 131;
  • 2007, c. 36, s. 81.

Link to the full statute

PART XIII

CROSS-BORDER INSOLVENCIES

Purpose

Purpose

 The purpose of this Part is to provide mechanisms for dealing with cases of cross-border insolvencies and to promote

(a) cooperation between the courts and other competent authorities in Canada with those of foreign jurisdictions in cases of cross-border insolvencies;

(b) greater legal certainty for trade and investment;

(c) the fair and efficient administration of cross-border insolvencies that protects the interests of creditors and other interested persons, and those of debtors;

(d) the protection and the maximization of the value of debtors’ property; and

(e) the rescue of financially troubled businesses to protect investment and preserve employment.

  • 1997, c. 12, s. 118;
  • 2005, c. 47, s. 122.
Interpretation

Definitions

 (1) The following definitions apply in this Part.

  • “foreign court”

    « tribunal étranger »

    “foreign court” means a judicial or other authority competent to control or supervise a foreign proceeding.

  • “foreign main proceeding”

    « principale »

    “foreign main proceeding” means a foreign proceeding in a jurisdiction where the debtor has the centre of the debtor’s main interests.

  • “foreign non-main proceeding”

    « secondaire »

    “foreign non-main proceeding” means a foreign proceeding, other than a foreign main proceeding.

  • “foreign proceeding”

    « instances étrangères »

    “foreign proceeding” means a judicial or an administrative proceeding, including an interim proceeding, in a jurisdiction outside Canada dealing with creditor’s collective interests generally under any law relating to bankruptcy or insolvency in which a debtor’s property and affairs are subject to control or supervision by a foreign court for the purpose of reorganization or liquidation.

  • “foreign representative”

    « représentant étranger »

    “foreign representative” means a person or body, including one appointed on an interim basis, who is authorized, in a foreign proceeding in respect of a debtor, to

    (a) administer the debtor’s property or affairs for the purpose of reorganization or liquidation; or

    (b) act as a representative in respect of the foreign proceeding.

Centre of debtor’s main interests

(2) For the purposes of this Part, in the absence of proof to the contrary, a debtor’s registered office and, in the case of a debtor who is an individual, the debtor’s ordinary place of residence are deemed to be the centre of the debtor’s main interests.

  • 1997, c. 12, s. 118;
  • 2004, c. 25, s. 102;
  • 2005, c. 47, s. 122.
Recognition of Foreign Proceeding

Application for recognition of a foreign proceeding

 (1) A foreign representative may apply to the court for recognition of the foreign proceeding in respect of which he or she is a foreign representative.

Documents that must accompany application

(2) Subject to subsection (3), the application must be accompanied by

(a) a certified copy of the instrument, however designated, that commenced the foreign proceeding or a certificate from the foreign court affirming the existence of the foreign proceeding;

(b) a certified copy of the instrument, however designated, authorizing the foreign representative to act in that capacity or a certificate from the foreign court affirming the foreign representative’s authority to act in that capacity; and

(c) a statement identifying all foreign proceedings in respect of the debtor that are known to the foreign representative.

Documents may be considered as proof

(3) The court may, without further proof, accept the documents referred to in paragraphs (2)(a) and (b) 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.

Other evidence

(4) In the absence of the documents referred to in paragraphs (2)(a) and (b), 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.

Translation

(5) The court may require a translation of any document accompanying the application.

  • 1997, c. 12, s. 118;
  • 2005, c. 47, s. 122.

Order recognizing foreign proceeding

 (1) 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 foreign proceeding, the court shall make an order recognizing the foreign proceeding.

Nature of foreign proceeding to be specified

(2) The court shall specify in the order whether the foreign proceeding is a foreign main proceeding or a foreign non-main proceeding.

  • 1997, c. 12, s. 118;
  • 2005, c. 47, s. 122.

Effects of recognition of a foreign main proceeding

 (1) Subject to subsections (2) to (4), on the making of an order recognizing a foreign proceeding that is specified to be a foreign main proceeding,

(a) no person shall commence or continue any action, execution or other proceedings concerning the debtor’s property, debts, liabilities or obligations;

(b) if the debtor carries on a business, the debtor shall not, outside the ordinary course of the business, sell or otherwise dispose of any of the debtor’s property in Canada that relates to the business and shall not sell or otherwise dispose of any other property of the debtor in Canada; and

(c) if the debtor is an individual, the debtor shall not sell or otherwise dispose of any property of the debtor in Canada.

When subsection (1) does not apply

(2) Subsection (1) does not apply if any proceedings under this Act have been commenced in respect of the debtor at the time the order recognizing the foreign proceeding is made.

Exceptions

(3) The prohibitions in paragraphs (1)(a) and (b) are subject to the exceptions specified by the court in the order recognizing the foreign proceeding that would apply in Canada had the foreign proceeding taken place in Canada under this Act.

Application of this and other Acts

(4) Nothing in subsection (1) precludes the commencement or the continuation of proceedings under this Act, the Companies’ Creditors Arrangement Act or the Winding-up and Restructuring Act in respect of the debtor.

  • 1997, c. 12, s. 118;
  • 2005, c. 47, s. 122.

Orders

 (1) If an order recognizing a foreign proceeding is made, the court may, on application by the foreign representative who applied for the order, if the court is satisfied that it is necessary for the protection of the debtor’s property or the interests of a creditor or creditors, make any order that it considers appropriate, including an order

(a) if the foreign proceeding is a foreign non-main proceeding, imposing the prohibitions referred to in paragraphs 271(1)(a) to (c) and specifying the exceptions to those prohibitions, taking subsection 271(3) into account;

(b) respecting the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor’s property, affairs, debts, liabilities and obligations;

(c) entrusting the administration or realization of all or part of the debtor’s property located in Canada to the foreign representative or to any other person designated by the court; and

(d) appointing a trustee as receiver of all or any part of the debtor’s property in Canada, for any term that the court considers appropriate and directing the receiver to do all or any of the following, namely,

(i) to take possession of all or part of the debtor’s property specified in the appointment and to exercise the control over the property and over the debtor’s business that the court considers appropriate, and

(ii) to take any other action that the court considers appropriate.

Restriction

(2) If any proceedings under this Act have been commenced in respect of the debtor at the time an order recognizing the foreign proceeding is made, an order made under subsection (1) must be consistent with any order that may be made in any proceedings under this Act.

Application of this and other Acts

(3) The making of an order under paragraph (1)(a) does not preclude the commencement or the continuation of proceedings under this Act, the Companies’ Creditors Arrangement Act or the Winding-up and Restructuring Act in respect of the debtor.

  • 1997, c. 12, s. 118;
  • 2005, c. 47, s. 122.

Terms and conditions of orders

 An order under this Part may be made on any terms and conditions that the court considers appropriate in the circumstances.

  • 1997, c. 12, s. 118;
  • 2005, c. 47, s. 122.

Commencement or continuation of proceedings

 If an order recognizing a foreign proceeding is made, the foreign representative may commence or continue any proceedings under sections 43, 46 to 47.1 and 49 and subsections 50(1) and 50.4(1) in respect of a debtor as if the foreign representative were a creditor of the debtor, or the debtor, as the case may be.

  • 1997, c. 12, s. 118;
  • 2004, c. 25, s. 103;
  • 2005, c. 47, s. 122.
Obligations

Cooperation — court

 (1) 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.

Cooperation — other authorities in Canada

(2) If any proceedings under this Act have been commenced in respect of a debtor and an order recognizing a foreign proceeding is made in respect of the debtor, every person who exercises any powers or performs duties and functions in any proceedings under this Act shall cooperate, to the maximum extent possible, with the foreign representative and the foreign court involved in the foreign proceeding.

Forms of cooperation

(3) For the purpose of this section, cooperation may be provided by any appropriate means, including

(a) the appointment of a person to act at the direction of the court;

(b) the communication of information by any means considered appropriate by the court;

(c) the coordination of the administration and supervision of the debtor’s assets and affairs;

(d) the approval or implementation by courts of agreements concerning the coordination of proceedings; and

(e) the coordination of concurrent proceedings regarding the same debtor.

  • 1997, c. 12, s. 118;
  • 2005, c. 47, s. 122;
  • 2007, c. 36, s. 59.

Obligations of foreign representative

 If an order recognizing a foreign proceeding is made, the foreign representative who applied for the order shall

(a) without delay, inform the court of

(i) any substantial change in the status of the recognized foreign proceeding,

(ii) any substantial change in the status of the foreign representative’s authority to act in that capacity, and

(iii) any other foreign proceeding in respect of the same debtor that becomes known to the foreign representative; and

(b) 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.

  • 2005, c. 47, s. 122.
Multiple Proceedings

Concurrent proceedings

 If any proceedings under this Act in respect of a debtor are commenced at any time after an order recognizing the foreign proceeding is made,

(a) the court shall review any order made under section 272 and, if it determines that the order is inconsistent with any orders made in the proceedings under this Act, the court shall amend or revoke the order; and

(b) if the foreign proceeding is a foreign main proceeding, the court shall make an order terminating the application of the prohibitions in paragraphs 271(1)(a) to (c) if the court determines that those prohibitions are inconsistent with any similar prohibitions imposed in the proceedings under this Act.

  • 2005, c. 47, s. 122.

Multiple foreign proceedings

 (1) If, at any time after an order is made in respect of a foreign non-main proceeding in respect of a debtor, an order recognizing a foreign main proceeding is made in respect of the debtor, the court shall review any order made under section 272 in respect of the foreign non-main proceeding and, if it determines that the order is inconsistent with any orders made under that section in respect of the foreign main proceedings, the court shall amend or revoke the order.

Multiple foreign proceedings

(2) If, at any time after an order is made in respect of a foreign non-main proceeding in respect of the debtor, an order recognizing another foreign non-main proceeding is made in respect of the debtor, the court shall, for the purpose of facilitating the coordination of the foreign non-main proceedings, review any order made under section 272 in respect of the first recognized proceeding and amend or revoke that order if it considers it appropriate.

  • 2005, c. 47, s. 122.
Miscellaneous Provisions

Authorization to act as representative of proceeding under this Act

 The court may authorize any person or body to act as a representative in respect of any proceeding under this Act for the purpose of having them recognized in a jurisdiction outside Canada.

  • 2005, c. 47, s. 122.

Foreign representative status

 An application by a foreign representative for any order under this Part 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 under this Part conditional on the compliance by the foreign representative with any other court order.

  • 2005, c. 47, s. 122.

Foreign proceeding appeal

 A foreign representative is not prevented from making an application to the court under this Part by reason only that proceedings by way of appeal or review have been taken in a foreign proceeding, and the court may, on an application if such proceedings have been taken, grant relief as if the proceedings had not been taken.

  • 2005, c. 47, s. 122.

Presumption of insolvency

 For the purposes of this Part, if a bankruptcy, an insolvency or a reorganization or a similar order has been made in respect of a debtor in a foreign proceeding, a certified copy of the order is, in the absence of evidence to the contrary, proof that the debtor is insolvent and proof of the appointment of the foreign representative made by the order.

  • 2005, c. 47, s. 122.

Credit for recovery in other jurisdictions

 (1) If a bankruptcy order, a proposal or an assignment is made in respect of a debtor under this Act, the following shall be taken into account in the distribution of dividends to the debtor’s creditors in Canada as if they were a part of that distribution:

(a) the amount that a creditor receives or is entitled to receive outside Canada by way of a dividend in a foreign proceeding in respect of the debtor; and

(b) the value of any property of the debtor that the creditor acquires outside Canada on account of a provable claim of the creditor or that the creditor acquires outside Canada by way of a transfer that, if the transfer were subject to this Act, would be a preference over other creditors or a transfer at undervalue.

Restriction

(2) Despite subsection (1), the creditor is not entitled to receive a dividend from the distribution in Canada until every other creditor who has a claim of equal rank in the order of priority established under this Act has received a dividend whose amount is the same percentage of that other creditor’s claim as the aggregate of the amount referred to in paragraph (1)(a) and the value referred to in paragraph (1)(b) is of that creditor’s claim.

  • 2005, c. 47, s. 122.

Court not prevented from applying certain rules

 (1) Nothing in this Part prevents the court, on the application of a foreign represent­ative or any other interested person, from applying any legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives that are not inconsistent with the provisions of this Act.

Public policy exception

(2) Nothing in this Part prevents the court from refusing to do something that would be contrary to public policy.

  • 2005, c. 47, s. 122;
  • 2007, c. 36, s. 60.