The insolvency of the CHC Group and over 40 directly or indirectly owned subsidiaries (collectively, CHC) will have a large impact on Canada given the size of CHC’s operations in the country. In general, the CHC insolvency could raise a range of core Cape Town Convention/Aircraft Protocol “CTC) issues should the applicable aircraft objects be subject to CTC international interests. In Canada, however, it is our understanding that the CTC is not applicable as the relevant aircraft in Canada were financed before the CTC came into force in Canada. As such, the CTC has not been referenced in the Canadian pleadings to date.
On September 30, 2016, CHC filed a petition to the Supreme Court of British Columbia ( Canadian Court) under Part IV of the Companies’ Creditors Arrangement Act (Canada) (CCAA) for an Initial Recognition Order (Foreign Main Proceeding) and a Supplemental Order (Foreign Main Proceeding). These orders were granted on October 13, 2016, and, among other things, they:
- Recognize the U.S. Chapter 11 proceedings (commenced on May 5, 2016) as a “foreign main proceeding”
- Recognize CHC Group Ltd. as the foreign representative of the debtors
- Recognize certain orders granted by the U.S. court in the Chapter 11 proceedings
- Stay all proceedings against the Canadian debtors and their directors and officers
Prior to these orders being granted, the Canadian court had to determine whether, under the CCAA, the centre of main interest (COMI) was Texas, as a local Canadian creditor (a landlord) has opposed such a finding because of the potential advantages to such creditor under Canadian law. Under Part IV of the CCAA, which is modelled on the UNCITRAL Model Law on Cross-Border Insolvency, in the absence of proof to the contrary, a debtor company’s registered office is deemed to be the COMI. In order to make such a determination, the Canadian court considered the following principal factors:
- The location is readily ascertainable by creditors
- The location is one in which the debtor’s principal assets or operations are found
- The location is where the management of the debtor takes place
In addition to such principal factors, the Canadian court also referenced the following factors in conducting its COMI analysis:
- The location where corporate decisions are made
- The location of employee administration, including human resource functions
- The location of the company’s marketing and communication functions
- Whether the enterprise is managed on a consolidated basis
- The extent of integration of an enterprise’s international operations
- The centre of an enterprise’s corporate, banking, strategic and management functions
- The existence of shared management within entities and in an organization
- The location where cash management and accounting functions are overseen
- The location where pricing decisions and new business development initiatives are created
- The seat of an enterprise’s treasury management functions, including management of accounts receivable and accounts payable
In granting the orders, the Canadian court found that the COMI was in Texas, though no reasons were given in the order.
In general, the analysis under COMI should produce a similar result to an analysis conducted to determine the primary insolvency jurisdiction (PIJ) under the CTC. Under the CTC, the PIJ is the location “in which the centre of the debtor’s main interests is situated, which for this purpose shall be deemed to be the place of the debtor’s statutory seat, or, if there is none, the place where the debtor is incorporated or formed, unless proved otherwise.” As such, a conflict between the COMI test and the PIJ test could arise where the corporate seat is located in a different jurisdiction to where administrative decisions are made which, at least to a limited extent, as has been the case with CHC.