On May 8, 2009, the Honourable Madam Justice Hoy of the Ontario Superior Court of Justice (Commercial List) granted an Initial Order under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C36, as amended (the “CCAA”) in respect of Gandi Innovations Limited (“Gandi Canada”), Gandi Innovations Holdings LLC (“Gandi Holdings”) and Gandi Innovations LLC (“Gandi Texas”) (collectively, the “Gandi Group”). The Initial Order provided for a broad stay of proceedings in favour of the Gandi Group and for the appointment of BDO Dunwoody Limited as court appointed monitor in respect of the CCAA proceedings. The Gandi Group CCAA proceedings is an interesting case for a number of reasons, but two particular issues stand out in this case.
Creditor Driven CCAA Filing
In most CCAA cases, the debtor company(s) typically file for protection from their creditors under the CCAA, such that the debtor company(s) are the applicants in the proceedings. However, the wording of the relevant provision of the CCAA providing for an application to be made for relief under the CCAA is broad enough such that a creditor can seek the CCAA filing on behalf of the debtor company(s). Section 11(1) of the CCAA provides as follows:
11(1) Powers of court – notwithstanding anything in the Bankruptcy and Insolvency Act or the Windingup and Restructuring Act, where an application is made under this Act in respect of a company, the Court, on application of any person interested in the matter, may, subject to this Act, on notice to any other person or without notice as it may see fit, make an order under this section.
Relying on Section 11(1) of the CCAA, Return on Innovation Capital Ltd., as agent for ROI Fund Inc., ROI Sceptre Canadian Retirement Fund, ROI Global Retirement Fund and ROI High Yield Private Placement Fund and any other fund managed by ROI from time to time (collectively, “ROI”) applied on behalf of the Gandi Group for protection for members of the Gandi Group from their creditors under the CCAA. ROI is the second secured creditor of the Gandi Group, who made the application for relief under the CCAA. While this is not the first time that a creditor driven CCAA has occurred in Canada, such occurrences are more infrequent than the traditional CCAA filing by a debtor company.
Chapter 15 Proceedings
The restructuring of the Gandi Group also presents an interesting example of the cooperation between the Canadian and US courts in facilitating cross border restructurings. While Gandi Canada is a Nova Scotia company, Gandi Holdings was incorporated in the State of Delaware and Gandi Texas was incorporated in the State of Texas.
The provisions of the Initial Order specifically addressed this issue by empowering the monitor to apply for or assist the Gandi Group in applying for orders outside of Canada recognizing the CCAA proceedings. Paragraph 5(f) of the Initial Order provides as follows:
5. THIS COURT ORDERS that the Monitor, in addition to its prescribed rights and obligations under the CCAA, is hereby empowered and authorized, but not obligated, to do any of the following where the monitor considers it necessary or desirable:
(f) apply to or assist the respondents in their application to any court in any other jurisdiction as the Respondents or the Monitor deems necessary or desirable for an Order recognizing these CCAA proceedings and giving full force and effect in any such jurisdiction to this Order or any Order of this Court made in these CCAA proceedings, and to act as a “foreign representative” of the Respondents or any one of them in any proceedings outside of Canada, including without limitation, Chapter 15 proceedings under the U.S. Bankruptcy Code, as the monitor deems necessary or desirable; …
Further, paragraph 48 of the Initial Order stipulated:
48. THE COURT HEREBY REQUESTS the aid and recognition of any court, tribunal, regulatory or administrative body having jurisdiction in Canada or in the United States, including, without limitation, the United States Bankruptcy Court for the Western District of Texas, San Antonio Division, to give effect to this Order and to assist the Respondents, the Monitor and their respective agents in carrying out the terms of this Order. All courts, tribunals, regulatory and administrative bodies are hereby respectfully requested to make such orders and to provide such assistance to the Respondents and to the Monitor, as an officer of this Court, as may be necessary or desirable to give effect to this Order, to grant representative status to the Monitor in any foreign proceeding, or to assist the Respondents and the Monitor and their respective agents in carrying out the terms of this Order.
On May 15, 2009, the United States Bankruptcy Court for the Western District of Texas (San Antonio Division) granted an Order on Provisional Relief under Chapter 15 of the United States Bankruptcy Code (the “Bankruptcy Code”). In granting the Order on Provisional Relief, Judge Clark of the United States Bankruptcy Court specifically made an Order incorporating all of the provisions of the Initial Order made by Madam Justice Hoy, including the granting of a broad stay of proceedings in the United States, subject to a carve out to deal with a specific issue. In light of the fact that there are certain notification provisions under the US Bankruptcy Code, a full Chapter 15 hearing could not be dealt with by the United States Bankruptcy Court on May 15, 2009, hence the Order on Provisional Relief was granted by Judge Clark. A full hearing was scheduled for the Chapter 15 application for June 5, 2009.
BDO Dunwoody Limited as the monitor and authorized foreign representative appointed in the CCAA proceedings made the application for the Chapter 15 relief under the Bankruptcy Code. After hearing submissions from all the relevant parties, Judge Clark granted the relief sought in the Chapter 15 proceedings. Judge Clark had little difficulty in finding that Gandi Canada and Gandi Holdings should be “foreign main proceedings” and in that regard, Judge Clark’s Order of June 5, 2009 provided as follows with regard to Gandi Canada and Gandi Holdings:
G. Gandi Innovations Limited is a foreign main proceeding within the meaning of Section 1502(4), with virtually all of its operations, employees, assets, managers, bank accounts, and major creditors in Canada. Its center of main interest is Canada. Gandi Innovations Holdings, LLC is a holding company incorporated in the United States, but whose principal assets (primarily stock certificates and a banking account) and managers are located in the Province of Ontario, Canada. Its centre of main interests is Canada. Gandi Innovations Holdings, LLC is a foreign main proceeding.
With regard to Gandi Texas, this presented a greater challenge for Judge Clark. However, after reviewing a number of factors, Judge Clark concluded that the centre of main interest (“COMI”) for Gandi Texas should be Canada. Judge Clark’s Order of June 5, 2009 with regard to Gandi Texas provides:
H. Gandi Innovations LLC is an operating company with assets, employees, and operations in both the State of Texas, United States, and in the Province of Ontario, Canada. It is a freestanding corporation with both employees and local managers in Texas, and collects accounts receivable from its customers at its San Antonio location. However, it does not manufacture what it distributes. Indeed, marketing and accounting, as well as distribution, take place in the Province of Ontario. Senior management for Gandi Innovations LLC is (or has within six months prior to these petitions has been) located in the Province of Ontario, Canada. There are significant intercompany accounts between Gandi Innovations LLC and Gandi Innovations Limited. In addition, Gandi Innovations LLC is a guarantor of the indebtedness that has been the source of working capital for the entire Gandi Group. While the evidence regarding center of main interest is mixed, the court finds that the “nerve center” for the Gandi Group is within the Province of Ontario, Canada. As a matter of comity, and in the interests of fulfilling the stated purpose of chapter 15 as set out in section 1501, the court concludes that, in these circumstances, the court should find that the center of main interests of Gandi Innovations LLC should be Canada. The court so finds Gandi Innovations LLC is a foreign main proceeding.
The Gandi Group cross border restructuring proceedings under the CCAA in Canada and proceedings under Chapter 15 of the US Bankruptcy Code provide an example of the ingenuity of bankruptcy courts in dealing with the challenges faced by a debtor company with assets located in multiple jurisdictions.