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Cross-border insolvency

Recognition of foreign proceedings

Under what circumstances will the courts in your jurisdiction recognise the validity of foreign insolvency proceedings?

Both the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act allow for the recognition of foreign proceedings based on the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvencies. Under both statutes, proceedings are commenced by way of a foreign representative’s application. The foreign representative must demonstrate that they have been appointed as a ‘foreign representative’ and that the application relates to a ‘foreign proceeding’, as defined in the Bankruptcy and Insolvency Act and Companies’ Creditors Arrangement Act.

The availability of a stay depends on whether the foreign proceeding is a foreign main proceeding or a foreign non-main proceeding. If it is the former, there is an automatic stay of proceedings in Canada over the debtor’s property. If it is the latter, the court will exercise its discretion as to whether a stay of proceedings is warranted in Canada.

A foreign main proceeding will be recognised where it is located in a jurisdiction in which the debtor has its centre of main interests (COMI). The location of the debtor’s registered office will be deemed to be its COMI in the absence of evidence to the contrary.

Winding up foreign companies

What is the extent of the courts’ powers to order the winding up of foreign companies doing business in your jurisdiction?

The Canadian courts are cognisant of the effects that their determinations have on cross-border proceedings. Consequently, while the courts can exercise their powers in instances where a foreign incorporated company has assets, is doing business or has its COMI in Canada, they are cautious in adjudicating these matters in a unilateral fashion.

The Canadian courts have generally advocated in favour of flexible and adaptive regimes that allow them to implement solutions consistent with the underlying jurisdictions’ legal processes and principles. For instance, the Ontario Court of Appeal ordered a Canadian company over which it had authority to attorn to a foreign court because it was practical in the circumstances, while holding that such attornment did not prevent the company from exercising future rights in Canada. However, in their drive to ensure comity, the Canadian courts do not make orders that are contrary to domestic laws. 

Centre of main interests

How is the centre of main interests determined in your jurisdiction?

To determine a company’s COMI, the Canadian courts will consider the location of its headquarters or main office and management and the location which a significant number of creditors recognise as its COMI.

The court may also consider:

  • the location where corporate decisions are made;
  • the location of the debtor’s corporate, banking, strategic and management functions;
  • the existence of shared management between the entities; and
  • the location of the debtor’s treasury management functions, including the management of accounts receivable and payables.

Cross-border cooperation

What is the general approach of the courts in your jurisdiction to cooperating with foreign courts in managing cross-border insolvencies?

The Canadian courts appreciate the importance of cooperating with foreign courts in cross-border insolvencies. As such, cross-border insolvency protocols have been established in order to:

  • achieve efficiency;
  • protect the various stakeholders; and
  • balance the principle of comity with the protection of domestic debtors and creditors.

The Supreme Court has advocated in favour of a pluralist approach, recognising that different jurisdictions have valid concurrent interests in cross-border insolvency proceedings.

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