Cross-Border Insolvencies
| Author | Stephanie Ben-Ishai; Thomas G. W. Telfer |
| Pages | 766-793 |
CHAPTER 18
Cross-Border Insolvencies
I. INTRODUC TION
This chapter deals with a branch of the conict of laws commonly referred to as “cross-
border insolvency law” or “international insolvency or bankruptcy law.” In a globalized world,
it is common for businesses to operate in many dierent countries, and this creates an
additional layer of complexity when those businesses become insolvent. A business may
have assets and creditors spread across multiple countries, and those countries may have
insolvency laws that vary — both with respect to procedures and substantive outcomes. The
following example illustrates some of the issues that may arise.
American Oil Co is a corporation incorporated under Delaware law. Its head oce is in
Los Angeles, United States, and it has branch oces across Canada. American Oil Co also
has a subsidiary operating in Canada that was incorporated under provincial law, Canadian
Oil Co. American Oil Co has become nancially distressed as a result of depressed world
energy prices.
) Can either or both American Oil Co and Canadian Oil Co start insolvency proceedings
in Canada? The question of when Canadian courts will take jurisdiction over a debtor is
addressed below in Part II.
) If American Oil Co and Canadian Oil Co start insolvency proceedings in the United
States, will Canadian courts enforce orders granted by the American bankruptcy court
(for example, a stay of proceedings)? The question of when Canadian courts will cooper-
ate with foreign courts and enforce their insolvency orders is addressed below in Part III.
) If Canadian Oil Co discharges its debts through American insolvency proceedings, will
that discharge be enforceable in Canada? The question of when a foreign discharge of
debt will be enforceable is addressed below in Part IV.
) When exercising its powers in cross-border insolvency proceedings, will a Canadian court
ensure that Canadian secured creditors are accorded privileged treatment, comparable
to the privileged treatment they receive under Canadian insolvency law? Will a Canadian
court provide comparable protection to foreign secured creditors? The position of Can-
adian courts towards secured creditors is addressed below in Part V.
) Will American Oil Co and Canadian Oil Co be treated as separate entities, requiring sep-
arate insolvency proceedings? Can the two companies’ insolvency proceedings be con-
solidated for the purpose of administrative eciency? Can the two companies’ assets and
liabilities be treated as the assets and liabilities of one company, if doing so results in a
fairer distribution to the companies’ creditors? The issues applicable to the cross-border
insolvencies of corporate groups are addressed below in Part VI.
Chap ter 18: Cross-Border Insolvencies
) If Canadian Oil Co made a number of preferential payments to a non-arm’s length creditor
prior to commencing insolvency proceedings, should those payments be impeached
using American or Canadian law? The question of which jurisdiction’s avoidance power
should be used is addressed below in Part VII.
II. JURISDICTION OF CANADIAN COURTS
Creditors may have various reasons for wanting to initiate insolvency proceedings in Canada,
such as to prevent Canadian assets from being removed to the foreign jurisdiction with-
out the creditors’ consent, or to ensure that the Canadian-based assets are distributed in
accordance with the Bankruptcy and Insolvency Act, RSC c B- (BIA) distributional rules.
The jurisdiction of Canadian courts over insolvent individuals and companies has long been
determined by Canadian bankruptcy legislation.
An assignment can be made by an “insolvent person,” which is dened in section()
as “a person who is not bankrupt and who resides, carries on business or has property in
Canada, whose liabilities to creditors provable as claims under this Act amount to one thou-
sand dollars” and who meets one of the three insolvency tests, discussed above in Chapter
. The “property” jurisdictional base was added to the BIA in and greatly increases the
jurisdiction of Canadian courts, particularly because there is no requirement that the bulk of
the debtor’s property must be located in Canada.
In the case of involuntary proceedings, the BIA provides that the bankruptcy application
may be brought in Canada against a “debtor,” which is dened in section() to include “an
insolvent person and any person who, at the time an act of bankruptcy was committed by
him, resided or carried on business in Canada and, where the context requires, includes a
bankrupt.”
Despite the broad denition of debtor, it is not clear whether the location of property
is alone sucient to give a court jurisdiction in involuntary proceedings. The point can be
argued both ways, for example see Re Dalsto (), CBR (th) (OntSup Ct J), and Re
Chauvco Resources International, ABQB .
Note that the denition of “insolvent person” uses the present tense, that is, resides, car-
ries on business, or has property, whereas the denition of debtor uses the past tense. This
dierence in verb tenses proved important in the case of Pocklington (Re), ABQB .
In Pocklington, the court was asked whether an individual could le a Division I proposal in
Canada. To do so, the individual had to t within the denition of “insolvent person.”
Pocklington (Re), 2017 ABQB 621, 417 DLR (4th) 566 (footnotes omitted)
[Peter Pocklington may be best known as the former owner of the Edmonton Oilers, who
made the decision to trade Wayne Gretzky to the Los Angeles Kings. He was also an
energetic entrepreneur, who operated many businesses in Alberta. In the s, his busi-
nesses received a -million bailout from the Alberta government. Pocklington defaulted
on the contract governing the bailout, and the Alberta government acquired a judgment
against Pocklington as a result of the default. By , the Alberta government’s judgment
was valued at . million. Pocklington relocated to California in the s and became
subject to additional claims there because of his American business ventures. He led
for Chapter bankruptcy in the United States in , plead guilty to bankruptcy fraud in
, and a court permanently denied his application for an American discharge in .
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