Chapter 15, the New BIA / CCAA Provisions and the

Courts: An Overview

by: Carolyn McCarthy

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Presentation Outline

1. Introduction2. UNCITRAL Model Law, Chapter 15 and

BIA/CCAA Amendments3. Primary Axes of the Provisions4. Step-by-Step5. Discussion of Main Concepts6. Conclusion – Unresolved /Unanswered

Issues

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1. Introduction

– Increase in number of multinational restructurings

– Need for the courts to co-operate and work with foreign jurisdictions in these proceedings

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Introduction

– “ I can see that building from my window and you’re telling me some ruling in Oregon affects it?"

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LEGISLATIVE REFORM:The UNCITRAL Model Law, Chapter 15 and the BIA/CCAA Amendments

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–What is the UNCITRAL Model

Law?

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What is the UNCITRAL Model Law?

– Stated objectives:(a) Cooperation between the courts and other

competent authorities of the enacting state and foreign states involved in cases of cross-border insolvency;

(b) Greater legal certainty for trade and investment

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What is the UNCITRAL Model Law ?

– (c) Fair and efficient administration of cross-border insolvency proceedings that protects the interests of all creditors and other interested persons, including the debtor;

– (d)Protection and maximization of the value of the debtor’s assets;

– (e)Facilitation of the rescue of financially troubled businesses, thereby protecting investment and preserving employment.

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What is Chapter 15 of the US Bankruptcy Code?

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What is Chapter 15 of the US Bankruptcy Code?– Enacted in 2005– Modeled after the UNCITRAL Model Law– Replaced section 304 – Typically, a chapter 15 case is ancillary to a

primary proceeding brought in another country

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What are the BIA/CCAA Amendments?

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What are the BIA/CCAA Amendments?

– BIA and CCAA now incorporate the main provisions of the UNCITRAL Model Law

• Abrogation of the 1997 reform

• BIA and CCAA provisions are now virtually identical

• BIA - sections 267 to 284

• CCAA – sections 44 to 61

• New provisions came into effect in the fall of 2009

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Primary Axes of the Provisions

– Recognition of foreign proceedings• main (COMI) vs non-main

– Status of foreign representative– Obligation of cooperation– Discretionary powers of the court and public order

exceptions

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Step-by-Step

Step 2 Recognition

Step 1Application

Step 4Mandatory Stay

Step 3 Main vs Non-

Main

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Main Concepts

1. Who is a Debtor?2. Foreign Representative3. Foreign Main Proceedings and Foreign Non-Main

Proceedings4. Centre of Main Interests5. Effects of Recognition6. Discretionary Power of Court7. Public order exceptions8. Cooperation

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1. Who is a Debtor?

– sec. 2 BIA• Includes 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

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2. Foreign Representative– Distinction between

definitions under the BIA and CCAA

– Definition under the BIA is broader

268(1) “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 administer the debtor’s property or affairs for the purpose of reorganization or liquidation or act as a representative in respect of the foreign proceeding.

45(1) “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 monitor the debtor company’s business and financial affairs for the purpose of reorganizationor act as a representative in respect of the foreign proceeding.

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2. Foreign Representative

– Entitled to apply to court for recognition of foreign proceeding

– Is not submitted to jurisdiction of court– Court can make order conditional on

compliance

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– Zayed v. Cook– SEC brought proceedings against bankrupt – Froze assets of bankrupt– (" Ponzi Scheme ")– U.S. Receiver (Zayed) applied for – recognition as a foreign representative– U.S. receiver’s powers did not – include liquidation

2. Foreign Representative

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– Foreign Main Proceedings• proceeding in a jurisdiction where the debtor has the centre

of the debtor’s main interests

– Foreign Non-Main Proceeding– BIA

• a foreign proceeding other than a foreign main proceeding Chapter 15• a foreign proceeding, other than a foreign main proceeding,

pending in a country where the debtor has an establishment

3. Foreign Main Proceedings and Foreign Non-Main Proceedings

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3. Foreign Proceedings and Foreign Non-Main Proceedings

– Establishment• any place of business where the debtor carries out a

nontransitory economic activity

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4. Centre of Main Interests (COMI)

– In their order recognizing a foreign proceeding, courts must specify if it is a foreign main proceeding or a foreign non-main proceeding

– Presumption that debtor’s registered office is debtor’s COMI

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4. Centre of Main Interests (COMI)

Tucker v. Aero Inventory (UK) Limited

- Request for recognition of foreign proceeding as foreign main proceeding

- Request for order to stay set-off- COMI presumption rebutted

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Tucker v. Aero Inventory (UK) Limited

Aero Inventory plc

Aero Inventory (UK)

Aero Inventory (Canada)

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5. Effects of Recognition

– Mandatory stay for foreign main proceedings

– Automatic under the BIA – Must be ordered under the CCAA

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5. Effects of Recognition

– 3 Rules Regarding Stay Relief:1. Automatic stay must be consistent with

any order granted2. Not applicable to proceedings already

commenced under CCAA or BIA3. Order does not preclude from

commencement or continuation of proceedings

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6. Discretionary Power of the Court

– Courts have power to make several orders including:

• Any order considered appropriate on application by foreign representative

• Impose same prohibitions to foreign non-main proceedings

• Follow Canadian debtor’s business affairs

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7. Public Order Exceptions

– Muscletech

– Le processus de réclamation édicté en vertu de la LACC ne fut pas jugé contraire à la constitution américaine (procès par jury)

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8. Co-operation

– Canadian and foreign authorities must cooperate

– Forms of co-operation include:1.Appointment of a person to act at the

direction of the court2.Communication of information by any

means considered appropriate by the court3.Co-ordination of proceedings

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8. Co-operation

Stanford International Bank Ltd. (Syndic de)

- Antiguan Receiver did not respect or co-operate with Canadian authorities

- Court exercised discretionary power –under section 18(6) CCAA, which is now abrogated

- Different outcome under the new legislative provisions?

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Quebecor World Inc.

– New era of co-operation between Canadian and U.S. Courts

– Joint hearings– New

issues/problems?

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Conclusion / Discussion / Questions

– Unresolved issues/Questions:– Does the recognition of a foreign main

proceeding automatically give the foreign representative the power to, for example, sell the debtor’s assets which are located in Canada?

– Is the rule the same in the United States?

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