Canada has introduced major new changes to its bankruptcy legislation that deal with multi-national and cross-border insolvencies and reorganizations. The new changes are expected to be in effect for cases commenced after September 30, 1997.

The new international insolvency amendments ^[1] were part of a major package of amendments to Canada's Bankruptcy and Insolvency Act and are the first provisions of their kind ever enacted in Canadian insolvency legislation. The new amendments are intended to permit much higher levels of cooperation and coordination in cross-border and multi-national insolvency and reorganization cases.

The Canadian amendments were developed by Canada's Bankruptcy and Insolvency Advisory Committee, which comprised representatives of the federal government (which has legislative responsibility for bankruptcy) and insolvency professionals from the private sector. The committee created eight working groups to deal with changes and improvements in major areas of Canadian insolvency law and practice. The author was privileged to co-chair the Working Group on International Insolvencies, whose work led to the enactment of the new international insolvency provisions.

Cross-border insolvencies and reorganizations, which are becoming more common as businesses become more international, present some of the most complex issues that insolvency practitioners are likely to see. When businesses encounter financial difficulties, however, they do not do so in neat geographical components. Businesses operating in more than one jurisdiction will have different assets in each jurisdiction, have different sets of creditors in each jurisdiction and will be subject to differing sets of priorities and claims in each jurisdiction. The legal issues involved in achieving harmonized case administrations in these circumstances can be daunting.

The two major legislative options that are available to coordinate cross-border insolvencies involve either an "ancillary proceedings" approach or a "concurrent administrations" approach. The Bankruptcy Code in 1978 adopted the "ancillary proceedings" approach under which bankruptcy courts are authorized to act in aid of foreign insolvency representatives seeking to recover property of the debtor in the United States. The new Canadian legislation follows the "concurrent administrations" approach, although with the same objective of cooperating with other jurisdictions in harmonizing administrations.

The Canadian analysis implicitly recognizes that one of the most difficult issues in harmonizing cross-border insolvencies using the "ancillary proceedings" approach is resolving in advance which jurisdiction is the "primary" jurisdiction and which jurisdiction is the "secondary" jurisdiction. Needless to say, most courts prefer not to consider themselves as being the "secondary" court. Moreover, if the "primary" jurisdiction is considered to be where the first case is filed, experience has shown that there are venue-related opportunities for mischief by improperly-motivated debtors and that some "primary" jurisdictions are, consequently, really "secondary" jurisdictions in terms of the center of operations for the reorganizing business.

To assist in developing international cooperation in cross-border cases, the new Canadian legislation emphasizes access to Canadian insolvency proceedings for foreign insolvency administrators and recognition in Canadian insolvency cases of foreign insolvency proceedings. Canadian courts have been given comprehensive new powers to cooperate and coordinate their administrations with insolvency administrations in other countries. Courts have been given broad powers to facilitate cooperative arrangements such as cross-border insolvency protocols with other jurisdictions. Legislatively, they also have been given the authority to communicate with courts in other jurisdictions whether by formal means such as orders or informally by correspondence or otherwise. Because Canadian courts in multi-national cases have been sympathetic to finding solutions for the complex issues in cross-border insolvencies, the legislation also specifically provides that Canadian courts can continue to use their own inherent jurisdiction to apply established principles of Canadian law in addition to the specific new legislative provisions.

The new Canadian legislation also gives considerable recognition and powers to foreign insolvency representatives. A foreign insolvency representative may commence proceedings under Canadian insolvency legislation in the same way as if it were a creditor or trustee of the debtor or even as if it were the debtor itself. It may apply to Canadian courts for stays of proceedings and similar relief in the same fashion as a Canadian creditor. Moreover, an appearance by a foreign insolvency representative in Canadian courts for these purposes does not constitute an attornment by the foreign representative to the jurisdiction of the Canadian court except with regard to the costs of the proceedings. Because the Canadian model is based on court-to-court cooperation, foreign insolvency representatives must be court-appointed in their home jurisdictions, but their authority may be recognized by Canadian courts notwithstanding that appeal or review proceedings may be taking place in their home jurisdiction.

The approach taken by the new Canadian legislation is consistent with the approach taken by the UNCITRAL Model Law on Cross-Border Insolvencies,^[2] which it preceded. It also borrows from the practical experience gained by insolvency professionals and the courts in Canada and the United States in cross-border insolvency protocol arrangements (such as those in Olympia & York and Everfresh Beverages). The new provisions will contribute to the steady improvement in harmonization of insolvency cases that have aspects in more than one country.

Footnotes

^[1] ABI plans to provide access to Canada's new international insolvency provisions in the International Committee area in ABI World on the Internet at http://www.abiworld.org/committees/committees.html. Or contact the author by fax at (416) 360-8877 or by E-mail at [email protected].[RETURN TO TEXT]

^[2] See "A New Milestone in Cross-border Insolvencies," ABI Journal Vol. XVI, No. 6, July/August 1997, at 20-21.[RETURN TO TEXT]