In the context of bankruptcy and insolvency, even the most straightforward cases may be complicated due to a debtor’s stakeholders being located across multiple provinces. However, when a Canadian-based client facing financial distress has business interests in multiple countries, the already complicated process for resolving jurisdictional issues in the context of insolvency proceedings takes on greater significance. This latter scenario is also one that Canada’s primary insolvency statutes, the Bankruptcy and Insolvency Act (“BIA”) and the Companies’ Creditors Arrangement Act (“CCAA”), did not provide formal guidance for until 2009, when Canada incorporated a version of the UNCITRAL Model Law on Cross-Border Insolvency into these acts.

Canada’s modified version of the Model Law is codified in Part IV of the CCAA and Part XIII of the BIA. These parts are structured to allow for cooperation between Canadian and foreign courts. In each case a “foreign representative” may apply under the applicable statute for an order recognizing an insolvency proceeding commenced outside of Canada as being either a “foreign main proceeding” or “foreign non-main proceeding”. A “foreign main proceeding” is one commenced in a jurisdiction where the debtor has its centre of main interest (“COMI”), a “foreign non-main proceeding” is commenced elsewhere. The primary distinction between a “foreign main proceeding” and “foreign non-main proceeding” is the level of deference that Canadian courts will give to the foreign court. Courts administering foreign main proceedings will, as a rule, grant a higher level of deference to foreign proceedings, including granting an initial order containing a mandatory stay of proceedings in Canada. In the case of a foreign non-main proceeding, the level of deference granted to a foreign court is decided on a case-by-case basis.

The concept of COMI, while central to determining the level of protection granted to a Canadian debtor subject to foreign insolvency proceedings, is not defined in the legislation. Canadian courts have developed a test to determine a debtor’s COMI that focuses on the location of the debtor’s headquarters, management, primary assets and operations, and major creditors. However, applying these factors to multinational corporate groups is complicated by the fact that the Model Law suggests that a debtor’s COMI should be determined on an “entity-by-entity” basis (see Lightsquared LP (Re), 2012 ONSC 2994). This approach appears to conflict with
judicial interpretations of the legislation as it existed before the 2009 amendments, which recognized the need for corporate groups to “reorganize as a global unit, especially where there is an established interdependence on a transnational basis …” (Babcock & Wilcox Canada Ltd. (Re) (2000), 5 B.L.R. (3d) 75).

Canadian courts have responded to the absence of the concept of the “corporate group” in the Model Law by considering the extent to which a corporate group is integrated across borders when applying the COMI test (see Digital Domain Media Group Inc. (Re), 2012 BCSC 1565 and Colt Holdings Co. LLC (Re), 2015 ONSC 3928). In all cases, Canadian courts faced with a COMI analysis have considered not only the Canadian debtor’s business activities and interests in Canada, but also the international context in which the debtor’s Canadian business operates. 

To obtain the automatic protection associated with a foreign main proceeding under the BIA or the CCAA, a Canadian debtor seeking recognition of foreign proceedings in Canada should be prepared to provide the court with evidence of significant integration between its cross-border operations, including evidence of centralized decision-making, cash management, debt, or similar factors demonstrating group-wide integration.