A number of commentators have written articles about Part IV of
the Companies' Creditors Arrangement Act (CCAA), which
deals with recognizing and enforcing foreign insolvency
proceedings, however little has been written about the treatment of
corporate groups in this context. Part IV of the CCAA deals with
entities on an individual basis, and how to deal with corporate
groups is not well addressed in international insolvency
legislation. In the recent case involving the Part IV filing of the
Elephant & Castle group of companies (collectively,
"E&C"), the Ontario Superior Court of Justice (the
"Ontario Court") had a chance to address the concept of a
corporate group filing.
On June 28, 2011, E&C commenced proceedings (the
"Chapter 11 Proceedings") in the United States Bankruptcy
Court for the District of Massachusetts Eastern Division, under
Chapter 11 of Title 11 of the United States Code. The purpose of
the Chapter 11 Proceedings was to allow E&C to continue to
operate in the ordinary course while it pursued the sale of its
business. E&C operates and franchises authentic, full-service
British style restaurant pubs in both the United States and Canada.
Concurrently with the Chapter 11 filing, E&C also sought
recognition of the Chapter 11 Proceedings in the Ontario Court as a
"foreign main proceeding" under the CCAA.
The E&C group, a total of 14 companies, includes three
Canadian entities, including the parent company, all of whose
registered offices are in Canada (the "Canadian
Debtors"). In addition, nearly one-half of E&C's
operating locations are in Canada, approximately 43% of the
employees work in Canada and GE Canada Equipment Financing G.P. (a
Canadian company) is the primary secured creditor of E&C. As
such, E&C sought to rebut the centre of main interest
("COMI") presumption prescribed by the CCAA for the
Canadian Debtors. Absent proof to the contrary, the debtor's
registered office is deemed by the CCAA to be the COMI. The
remaining companies in the E&C group were all incorporated in
various American jurisdictions.
The issue before the Ontario Court was whether the Chapter 11
Proceedings should be recognized as a foreign proceeding and, if
so, whether they were a "foreign main proceeding" or a
"foreign non-main proceeding" under section 47 of the
CCAA. If the court recognizes the Chapter 11 Proceedings as a
"foreign main proceeding" the relief under section 48 of
the CCAA, including the stay of proceedings, is automatic instead
of discretionary. A "foreign main proceeding" is defined
in the CCAA as a foreign proceeding in a jurisdiction where the
debtor has its COMI.
On July 4, 2011, the Ontario Court granted the relief E&C
requested and recognized the Chapter 11 Proceedings as
"foreign main proceeding." The endorsement of the
Honourable Justice Morawetz, released July 11, 2011, provided that
the court was satisfied that E&C had met the requirements of s.
47(1) of the CCAA and it was appropriate for the court to recognize
the foreign proceeding. Justice Morawetz further found that the
presumption contained in s. 45(2), that each debtors' COMI is
their registered office, was rebutted in the circumstances and the
debtors' COMI was found to be the United States. In arriving at
this finding, Justice Morawetz cited the jurisprudence on the issue
of a debtor's COMI and noted that, in interpreting COMI, the
following factors are usually significant:
the location of the debtor's headquarters or head office
functions or nerve centre;
the location of the debtor's management; and
the location which significant creditors recognize as being the
centre of the company's operations.
Morawetz J. further noted that E&C's headquarters or
head office functions or nerve centre is in Boston, Massachusetts
and the location of the debtors' management is in Boston.
Further, GE, the primary secured creditor, did not oppose the
relief sought. In these circumstances, Justice Morawetz concluded
that, for the purposes of this application, each of the E&C
entities, including the Canadian Debtors, have their COMI in the
United States. Having reached this conclusion, certain mandatory
relief set out in s. 48(1) of the CCAA was granted, along with the
remainder of the relief sought.
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