Page 13 - Corporate Restructuring & Bankruptcy

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Corporate Restructuring & Bankruptcy | MONDAY, JUNE 13, 2016 | S13
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A CCAA filing is the Canadian equivalent of a Chapter 11 filing—but it’s not the only option. Securities (debt and equity) can be reorganized under the Canada Business Corporations Act (CBCA) or certain similar provincial statutes. CBCA plans of arrangement, although in many ways like
a streamlined CCAA process, are limited to a securities reorganization and do not provide an opportunity for
an operational restructuring or sale of assets. It is also possible to reorganize or liquidate under the Bankruptcy and Insolvency Act (Canada) (BIA), but the BIA is a more rules-based and less flexible statute than the CCAA. As a result, BIA restructurings are more often used by smaller corporations that do not qualify for CCAA proceedings. Moreover, a failed restructuring under the BIA will result in a “bankruptcy” (the equivalent of a Chapter 7 filing), a risk many companies do not want to take. Given the CCAA’s flexibility and breadth, it is the restructuring statute of choice for medium to large corporations.
Even though a corporation may qualify for a full CCAA filing, it may also qualify to be a Chapter 11 debtor. If that is the case, you should also consider a Chapter 11 filing and recognition of that U.S. proceeding in Canada under Part IV of the CCAA, which is a modified form of the UNCITRAL Model Law, very similar to a Chapter 15 filing.
Canadian courts routinely have recognized Chapter 11 filings as foreign proceedings under Part IV of the CCAA. Whether any particular Chapter 11 filing will be recognized as a foreign main versus foreign non-main proceeding, however, depends on where the Canadian court determines the center of main interest (COMI) of a company is located.
If recognized as a foreign main proceeding, the Canadian court is required under the statute to issue a limited stay of proceedings, but the vast majority of relief sought (and typically granted) in Part IV proceedings under the CCAA is discretionary in nature.
Although a corporation’s COMI is presumed to be its registered office, that presumption can be rebutted. In doing so, courts in Canada have also considered the location that is readily ascertainable by creditors, where the debtor’s principal assets or operations are found and where management of the debtor takes place.
Given the facts of any particular case, the three factors may point in different directions. To date, Canadian courts have
New York Law Journal, June 2016
engaged in a practical analysis to ensure coordinated (and not overlapping) proceedings. That said, in exercising the Canadian court’s discretion in determining whether or not to recognize orders made in the Chapter 11 proceeding, Canadian courts are particularly sensitive to any issues that may impact on Canadian creditors.
In circumstances where an enterprise has full operations and separate legal entities on both sides of the border, a parallel Chapter 11 and CCAA filing may be the most appropriate procedure. In order to promote coordination and efficiencies, cross-border protocols are critical in such cases. These protocols often permit communication between the U.S. and Canadian courts on common issues. In some cases, such coordination has been extended so far as to facilitate
a simultaneous trial by videoconference in both jurisdictions.
2. UNIQUELY CANADIAN ISSUES
Many Canadian stakeholders also have businesses or operations in the U.S. and therefore will often respect a U.S. court order or Chapter 11 filing without requiring any formal recognition in Canada. However, when exclusively Canadian stakeholders are involved (most notably, employees, unions or government bodies), a U.S. court order typically does
not have the same impact. Furthermore, having business operations in Canada may give rise to legal issues unique to Canadian jurisdictions: employee entitlements (see sidebar), union collective agreements, regulated pension plans, environmental matters, governmental licenses, taxes and First Nation agreements.
Directors and officers of a business incorporated in, or operating in, Canada may also have significant liabilities under federal or provincial statues. Personal liability for unpaid wages, vacation pay, termination/severance pay (in certain jurisdictions), certain taxes, construction-related liabilities, environmental matters or missed pension payments may be imposed on directors and/or officers.
Directors and officers also can be found liable for breaching fiduciary obligations and duty of care to the corporation and its shareholders. In addition, most corporate statutes
in Canada provide for broad “oppression remedies”
under which corporations and their directors and officers can be subject to liability for conduct that is oppressive to or unfairly disregards the legitimate expectations of
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