C. Recognition of Foreign Proceedings
| Author | Roderick J. Wood |
| Profession | Faculty of Law. University of Alberta |
| Pages | 554-566 |
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The traditional common law approach gave recognition to foreign insolvency proceedings that were made in the jurisdiction of the debtor’s domicile. For individuals, this was the place where they had their most permanent connection. For corporations, this was the place of their
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incorporation. There was one qualification to this recognition. A foreign order for the discharge of a bankrupt did not have the effect of releasing debts governed by the proper law of some other country.33
More recently, Canadian courts have departed from this approach in favour of a broader basis for recognition. They have given recognition to foreign insolvency proceedings if the debtor has a substantial connection with the foreign jurisdiction.34In doing so, they have applied the decision of the Supreme Court of Canada in Morguard Investments Ltd. v. De Savoye.35
In 1997 the BIA and the CCAA were amended by the addition of provisions dealing with international insolvencies. These provisions were modest in their scope. The BIA amendments allowed a court to limit a Canadian bankruptcy to the property located in Canada if foreign bankruptcy proceedings were instituted,36and permitted a foreign representative to commence concurrent Canadian proceedings.37A foreign representative could also apply for the appointment of an interim receiver for the protection of the debtor’s estate or the interests of creditors.38
The hotchpot rule was also codified.39The amendments empowered a court to make such orders and grant such relief as it considered appropriate to facilitate, approve, or implement arrangements to coordinate the Canadian and the foreign insolvency proceedings.40The provisions made it clear that they did not compel a court to make any order that was not in compliance with the laws of Canada,41and that they did not prevent a court from applying any legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives that were not inconsistent with the statutory provisions.42
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The 1997 amendments were based on the view that the best approach to international insolvencies is through the use of concurrent insolvency proceedings in both Canada and the foreign jurisdiction, and the promotion of cooperation between the courts and administrators of the respective jurisdictions. They did not contemplate the recognition of a foreign insolvency as the main proceeding in respect of which the role of the Canadian court was to assist and grant relief in respect of the foreign main proceeding. Courts have nevertheless taken the view that the 1997 amendments did not prevent them from doing so in appropriate cases. In Re Babcock & Wilcox Canada Ltd.,43Justice Farley held that the amendments expressly permitted a court to apply legal or equitable rules governing the recognition of foreign bankruptcy proceedings and assistance to foreign representatives, and that this empowered the court to stay proceedings in Canada.
The controversial aspect of the Babcock decision was that the stay of proceedings was made in respect of a Canadian subsidiary that was not insolvent and that was not a party to the U.S. insolvency proceedings.44A similar request for recognition of a U.S. order that covered a Canadian subsidiary was refused in Re Singer Sewing Machine Co. of Canada Ltd.45on the basis that recognition should not be afforded to a foreign insolvency order in respect of a Canadian company carrying on business only in Canada and owning property only in Canada.
The 2007 amendments to the BIA and the CCAA introduce a shift in favour of a modified universalist approach to cross-border insolvencies. The amendments are based on the UNCITRAL Model Law on Cross-Border Insolvency, but the provisions of the Model Law are not fully replicated. Some of the provisions of the Model Law are omitted and others contain substantive variations.46The BIA and the CCAA are amended by the addition of a Part concerning cross-border insolvencies.47These replace the 1997 provisions on international insolvencies.
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The cross-border insolvency provisions come into play when a foreign representative applies to a Canadian court for an order recognizing a foreign proceeding.48The terms "foreign proceeding" and "foreign representative" are defined by the legislation, and these definitions control the scope of application of the cross-border insolvency provisions.
A "foreign proceeding" is defined as "a judicial or an administrative proceeding, including interim proceedings, in a jurisdiction outside of Canada dealing with the creditors’ 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."49The definition requires that the foreign proceedings deal with the creditors’ collective interests. This will likely exclude privately appointed receivers, since these are not proceedings that deal with the collective interests of creditors.
A foreign representative is defined differently in the BIA and CCAA provisions. The former defines a foreign representative as a person or body who is authorized in a foreign proceeding to administer the debt-or’s property or affairs for the purpose of reorganization or liquidation or to act as a representative in respect of the foreign proceeding.50The latter limits the definition to a person or body authorized to monitor the debtor company’s business and financial affairs for the purpose of reorganization or to act as a representative in respect of the foreign proceeding.51The United States uses a debtor-in-possession concept in respect of its restructuring law. A debtor company that has this status should qualify as a foreign representative because it is viewed as a separate legal entity that is authorized to administer the assets in the reorganization and to act as a representative in the insolvency proceedings.
There are two types of foreign proceedings: a foreign main proceeding and foreign non-main proceeding. A foreign main proceeding is defined as a foreign proceeding in a jurisdiction that is the centre of the main interest of the debtor (COMI).52Any other kind of foreign proceeding
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falls within the definition of a foreign non-main proceeding.53This difference is important because the effects of recognition differ depending upon which of the two types of foreign proceeding is involved.
The ascertainment of the debtor’s centre of main interest is of great importance, since it will determine whether the foreign proceedings will qualify as foreign main proceedings. The centre of main interest is not defined, but a rebuttable presumption is provided.54In the case of an individual, the centre of main interest is, in the absence of proof to the contrary, the debtor’s ordinary place of residence. In the case of non-individuals, it is the debtor’s registered office.
The legislation does not enumerate the relevant factors or considerations that might cause a court to conclude that the COMI is in a location other than the registered office. In the absence of Canadian case law on this point, it is likely that Canadian courts will turn to decisions from the United States and from the European Union, since these jurisdictions also use the concept of COMI. In Eurofood IFSC Ltd.,55the European Court of Justice held that, where a parent corporation and a subsidiary corporation have registered offices in different jurisdictions, the presumption that the subsidiary’s COMI is in the jurisdiction of its registered office can be rebutted only by factors that are objective and ascertainable by third parties. Evidence that no business was carried on in the jurisdiction of its registered office would be sufficient. However, the mere fact that the "economic choices" of the subsidiaries are or could be controlled by a parent corporation in a different jurisdiction was not enough to rebut the presumption.
Neither the UNCITRAL Model Law nor the Canadian cross-border insolvency provisions sets out any special rules for the determination of the centre of main interest in respect of members of a corporate group.
A foreign representative may apply to a Canadian court for the recognition of the foreign proceeding.56In the case of an application under the BIA, it is to the superior court exercising bankruptcy jurisdiction; in
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respect of the CCAA, it is to the superior court of the province or territory. The application must be accompanied by a certified copy of the instrument that commenced the foreign proceedings, a certified copy of the instrument that conferred authority on the foreign representative to act in that capacity or an order of the foreign court affirming the foreign representative’s authority to act, and a statement identifying all foreign proceedings in respect of the debtor that are known to the foreign representative.57The documents may be accepted without further proof of the foreign proceedings and the foreign representative’s authority to act.58The court may require the documents to be translated.59If the court is satisfied that the application for the recognition of a foreign proceeding relates to a foreign...
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