Canada: Insolvency Along the NAFTA Highways: What You Need To Know

Last Updated: July 17 2008
Article by Brett G. Harrison

The relationship between Canada and the United States is one of the closest and most extensive in the world. With the equivalent of $1.6 billion in bilateral trade every day1, it is no surprise that a large number of US companies have subsidiary operations and assets located in Canada. Despite numerous socio-economic similarities between both countries and legal regimes both anchored in the tradition of common law, there are a number of legal differences that have the potential to significantly impact US companies doing business in Canada. These differences are of particular importance in the area of cross-border insolvencies where time frames are often compressed and counsel have limited time to address international intricacies. US corporations who become insolvent and file for protection in the United States often overlook the impact on their Canadian assets and operations. This can lead to some nasty surprises.

The following paper aims to provide an overview of the Canadian insolvency process while highlighting important differences between the US and Canadian insolvency regimes and identifying current legislative initiatives which could significantly impact the insolvency proceedings of US corporations doing business in Canada.

Basic legislative structure of Canadian insolvency law

In Canada, two statutory regimes have been developed to deal with insolvency law: the Companies' Creditors Arrangement Act ("CCAA") and the Bankruptcy and Insolvency Act ("BIA"). The CCAA is generally considered as the Canadian equivalent to Chapter 11 of the Bankruptcy Code. This being said, it must be noted that despite some similarities between Chapter 11 and the CCAA, there remain a host of differences in legislative approach and practice. These include the fact that in Canada:

a) A new estate is not created upon a formal filing.

b) There is no concept of adequate protection. Instead, the court is guided by balancing the prejudice to the parties involved

c) There is no authority for the creation of creditors' committees and the use of unsecured or equity committees is extremely limited.

d) Pre-filing security is not restricted from encumbering after-acquired property.

e) There is no provision which provide for the subordination, or cramming down, of damage claims of equity holders.

f) There are no provisions (with some restricted exceptions) for the acceptance, rejection or assignment of executory contracts

The absence of a detailed statutory framework means that the CCAA gives both the supervising court and the debtor tremendous flexibility in conducting the restructuring proceedings. In contrast to the US Bankruptcy Code, the CCAA only has 22 sections and is driven largely by case law, allowing judges great discretion. Thus the CCAA is the legislation of choice used in larger cross-border restructurings.

The provisions of the BIA on the other hand, which are akin to Chapter 7 of the U.S. Bankruptcy Code, relate more specifically to liquidations. The BIA, being a much more structured piece of legislation, is typically used for less complicated liquidations/restructurings where it would not be economical to utilize the CCAA. Both the CCAA and the BIA contain provisions dealing with the recognition of foreign proceedings.

Depending on the circumstances, a US company which has filed for Chapter 11 protection has three options available to it in deciding how to deal with its Canadian operations and assets; ancillary CCAA proceedings, full CCAA proceedings, or a BIA proceeding.

Typically, the first choice of a debtor would be to commence ancillary proceedings under section 18.6 of the CCAA. This option is often favored as the process is usually less costly and more expeditious than a full CCAA proceeding. Orders are typically obtained in the US proceeding and then brought to Canada to be sanctioned by the Canadian court. Although the Canadian court will not rubber stamp US orders, it will typically grant significant deference in the name of international comity.

In certain circumstances, such as when a US company has significant operations and assets in Canada, the company needs to consider initiating a full CCAA proceeding. This is due to the fact that Canadian Courts have refused to grant recognition of the US proceeding under section 18.6 of the CCAA on the basis that Canada is not truly "ancillary" to the insolvency proceeding. If, as is the case in most filings, time is of the essence, it might be necessary to seek full CCAA protection to ensure that the matter is not bounced by the Canadian judge.

Lastly, the company can choose to file a notice of intention for a proposal under the BIA. Under the BIA, a negotiation process would take place between the company and its creditors in an attempt to reorganize the corporation's finances.

The following sections will focus on the option of ancillary proceedings by providing an overview of the CCAA, the process under section 18.6 of the CCAA and then analyze how this process is expected to change subject to legislative changes currently underway in Canada.

The CCAA

In a full CCAA proceeding the debtor is typically granted an expansive first day order (the "Initial Order") which provides it with significant protection and the ability to restructure its business.

The model Initial Order which has been developed by the insolvency bar in conjunction with the bench provides a broad stay against all creditors. This stay not only restricts creditors from enforcing their rights against the debtor for pre-filing debts, but compels suppliers to continue to provide goods and services in accordance with their ordinary terms.

In addition, although there is no statutory authority to do so, the Court typically sets up priming changes for professional fees and directors' liabilities. In many cases, again without statutory authority, the Court will grant debtor in possession ("DIP") financing. In Canada there is no concept of adequate protection so the test is only a balancing of prejudices. If the debtor can show that it will suffer more prejudice than the first secured creditor if DIP financing is allowed, the Court will grant this relief.

The Initial Order also appoints a monitor to oversee the restructuring of the debtor. This is typically an accounting firm whose responsibility is to monitor the debtor and report back to the Court and the creditors. The monitor is appointed as a Court officer and as a result has significant influence with the Court to recommend the direction in which the proceeding should go.

Under the CCAA the debtor makes a proposal to its creditors to compromise their indebtedness. Although there is no concept of cram down in Canada, this is typically overcome by forcing all creditors with an economic interest in the proceeding into one class. In order for a proposal to pass it must be approved by a majority of the creditors who represent at least 2/3 of the claims.

After the proposal has been approved by the creditors it must be sanctioned by the Court. In sanctioning the proposal, in addition to ensuring that the debtor has complied with all of its legal requirements under the CCAA, it will assess whether the proposal is "fair and reasonable". This is a very qualitative test, but the threshold is very low and it is extremely unusual for a Court to find that a proposal is not fair and reasonable.

Section 18.6 of the CCAA

When the primary restructuring proceeding has been commenced in the US and a corresponding stay order is required in Canada in order to protect the debtor's Canadian assets, the debtor may seek a stay order in Canada pursuant to section 18.6 of the CCAA. Rather than initiating concurrent proceedings in Canada and the US, section 18.6 allows the insolvent US company to file in its "home" jurisdiction and simply have those proceedings recognized and approved by the Canadian court. Canadian courts have the authority to formally recognize foreign orders and to provide assistance to a foreign representative2 in a foreign proceeding,3 provided that such recognition or assistance would not be inconsistent with the provisions of the CCAA and the laws of Canada.

It is important to establish an actual connection between the foreign proceedings and the Canadian operations or assets. Generally, a debtor who has filed a Chapter 11 proceeding in the US with operations and/or assets in Canada complies with the definition.

Canadian courts have for the most part, in the proper circumstances, recognized the principle of comity when a foreign proceeding has been initiated. This means that the Canadian courts have been willing to accede their position to the foreign courts. In Re Matlack Inc., the Court stated that, "the Court's recognition of a foreign proceeding should depend on whether there is a real and substantial connection between the matter and the jurisdiction"4 and that the connection should be based on "considerations of order, predictability and fairness rather than on a mechanical analysis of connections between the matter and the jurisdiction."5 In this case, granting the stay ensured creditors in Canada could not seize assets ahead of creditors in the US. This was done under the principle of comity because the Canadian court felt that this would ensure all the stakeholders were treated equitably.

One of the benefits of seeking protection under the CCAA is that it grants Canadian courts broad powers to make an order "on such terms and conditions as the court considers appropriate in the circumstances."6 Canadian courts have the power to adapt the foreign order and can apply foreign rules to the Canadian operations and assets in an extremely flexible manner. Section 18.6(4) of the CCAA explicitly provides that:

Nothing in this section prevents the court, on the application of a foreign representative or any other interested person, from applying such legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives as are not inconsistent with the provisions of this Act.7 1985, c. C-36, s. 18.6(1). Therefore, the only caveat to the recognition of foreign orders by the Canadian courts is that the order must be consistent with Canada's laws.

In Re Babcock & Wilcox Canada Ltd. ("Babcock"), a case where the Canadian court was asked to recognize a Chapter 11 proceeding initiated by a US parent company to stay related claims against the Canadian subsidiary, the Canadian Court pointed out that the definition of foreign proceedings contains no specific requirement that the Canadian entity also be insolvent. The Canadian court stated that s. 18.6(4) leaves open an option for a solvent Canadian company to seek assistance and protection in regards to foreign proceedings against its parent company. Section 18.6(4) provides for ancillary relief to the Canadian operations and assets upon the application of a "foreign representative" or an "interested party".8 This decision allows for a Canadian subsidiary to fall within the definition of an interested party, thereby allowing it to apply directly for the commencement of an ancillary proceeding.

In Babcock, the Canadian Court also set out some factors to provide guidance as to how s. 18.6 of the CCAA should be applied. It held that:

  • Comity and cooperation between courts should be encouraged;
  • The foreign legislation should be respected in any analysis unless there is a radical divergence from Canadian law;
  • Stakeholders should be treated equitably, and where reasonably possible, common stakeholders should be treated equally;
  • Reorganizations should be as one global unit and therefore one jurisdiction should be encouraged to assume principal authority over the reorganization;
  • The role of the courts will vary depending on the location of a company's principal operations and assets, the location of stakeholders, the ability of the laws in each jurisdiction to address the main issues, any undue prejudice and any other factors appropriate in the circumstances;
  • If one country has an ancillary role, then the court in that jurisdiction should be kept informed of any developments and the shareholders in that jurisdiction should be provided with equal access; and
  • All affected stakeholders, regardless of jurisdiction should receive notice of the order and have an opportunity to return to court to review and potentially change it.

The case of Re Core-Mark International Inc. ("Core-Mark") is an example of s. 18.6 successfully harmonizing US-Canada insolvency proceedings. Core-Mark, a Delaware company, filed for Chapter 11 protection in the United States, simultaneously with its parent company, Fleming Companies, Inc. The immediate concern for Core-Mark was the protection of its assets and a quick emergence from bankruptcy. At the time of its Chapter 11 filing, Core- Mark had significant operations in Canada.

Among Core-Mark's initial concerns were protecting its Canadian assets. The company had relationships with major suppliers who threatened to take Cash on Delivery payments for new products and apply those payments to old debt. There was also concern that US creditors would take action against Core-Mark's assets in Canada, which would frustrate the ability of the company to reorganize in the US. Therefore, shortly after its US filing, Core-Mark filed an application under section 18.6 of the CCAA in Canada and was granted ancillary relief, including a stay of proceedings. The Canadian court recognized that:

  • The majority of the business was conducted in the US so the Canadian proceedings should be ancillary;
  • The US claims process would treat Canadian residents equally;
  • The US reorganization included the Canadian operations and intended to reorganize as a global unit;
  • The Canadian court received adequate notice of the US proceedings; and
  • The Canadian creditors received notice of Core-Mark's intentions.
  • If one country has an ancillary role, then the court in that jurisdiction should be kept informed of any developments and the shareholders in that jurisdiction should be provided with equal access; and
  • All affected stakeholders, regardless of jurisdiction should receive notice of the order and have an opportunity to return to court to review and potentially change it.

The case of Re Core-Mark International Inc. ("Core-Mark") is an example of s. 18.6 successfully harmonizing US-Canada insolvency proceedings. Core-Mark, a Delaware company, filed for Chapter 11 protection in the United States, simultaneously with its parent company, Fleming Companies, Inc. The immediate concern for Core-Mark was the protection of its assets and a quick emergence from bankruptcy. At the time of its Chapter 11 filing, Core- Mark had significant operations in Canada.

Among Core-Mark's initial concerns were protecting its Canadian assets. The company had relationships with major suppliers who threatened to take Cash on Delivery payments for new products and apply those payments to old debt. There was also concern that US creditors would take action against Core-Mark's assets in Canada, which would frustrate the ability of the company to reorganize in the US. Therefore, shortly after its US filing, Core-Mark filed an application under section 18.6 of the CCAA in Canada and was granted ancillary relief, including a stay of proceedings. The Canadian court recognized that:

  • The majority of the business was conducted in the US so the Canadian proceedings should be ancillary;
  • The US claims process would treat Canadian residents equally;
  • The US reorganization included the Canadian operations and intended to reorganize as a global unit;
  • The Canadian court received adequate notice of the US proceedings; and
  • The Canadian creditors received notice of Core-Mark's intentions.

During the proceedings, all orders in the US bankruptcy that had a significant impact on the Canadian creditors were disclosed to the Canadian creditors, and the more significant orders were recognized by the Canadian Court. For example, the Canadian Court was asked to, and did, adopt the US claims process and bar date. This is a good example of how a Chapter 11 proceeding successfully utilized s.18.6 of the CCAA for the benefit of all stakeholders.

BIA Restructuring Provisions

The BIA contains provisions allowing a debtor to make a proposal to its creditors. A proposal may be made by an insolvent person (which includes a partnership or corporation), a receiver in respect of an insolvent person's property, a bankrupt or a trustee of the estate of a bankrupt. Most frequently, it is an insolvent person who makes the proposal, in an effort to reach a compromise with its creditors and avoid bankruptcy. A proposal made in respect of a corporation may, in addition to compromising that corporation's debts, include compromises of claims against directors of the corporation, which relate to the obligations of the corporation for which the directors are by law liable in their capacity as directors (as opposed to claims relating to contractual rights of creditors arising from contracts with a director, claims based on allegations of misrepresentations made by directors to creditors or claims of wrongful or oppressive conduct by directors).

A proposal must be made to all unsecured creditors and may also be made to secured creditors. To initiate the proposal process, the insolvent person either files a notice of intention to make a proposal ("NOI") or files the proposal itself. The filing of a NOI effects a thirty day stay of proceedings against all creditors (including secured creditors), without the necessity of a court order, during which time the debtor can continue to operate its business and negotiate with its creditors in order to prepare a proposal acceptable to all parties. In addition, during the stay period no person is permitted to terminate, amend or accelerate any payment under any contract with the debtor by reason only that the debtor is insolvent or has filed a notice of intention. Also, any provision of a security agreement that provides that the debtor ceases to have rights to use or deal with the collateral on the debtor's insolvency, default or filing of a NOI will not have any force or effect until the proposal has been fully performed or the debtor becomes bankrupt. Notwithstanding the stay, however, a secured lender is not thereby obligated to continue to extend additional credit or make fresh advances to the debtor.

In certain circumstances, the remedies of secured creditors will not be stayed. Secured creditors who have delivered to the debtor a NOI to enforce security more than ten days prior to the debtor's filing of the NOI or the proposal itself will not be stayed, nor will secured creditors who have taken possession of their collateral for the purpose of realization. Secured creditors to whom a proposal has not been made will also not be stayed.

Within ten days after filing the NOI, the debtor must file with the Official Receiver a cash flow statement, together with a statement with respect thereto signed by the trustee. If no notice of intention is filed, these statements are filed simultaneously with the proposal. Failure to comply with these requirements will cause the debtor to be deemed to have made an assignment in bankruptcy.

At the insolvent company's request, extensions to the stay period may be granted by the court in increments of up to 45 days, to a maximum of five months after the initial 30-day period. If a proposal is not filed prior to the expiration of the stay period, the debtor is deemed to have made an assignment in bankruptcy. Extensions are allowed only in circumstances where the debtor convinces the court that the extra time is necessary and that, within that time, the debtor will be able to produce a viable proposal. In addition, the debtor must demonstrate that it is acting in good faith and with due diligence and that no creditor would be significantly prejudiced by the extension.

Creditors have a right to apply for an order lifting the stay if, among other things, a debtor has not acted in good faith or with due diligence, if the debtor is not likely to be able to make a viable proposal or if the creditors as a whole would be significantly prejudiced by the continuation of the stay. A creditor is also entitled to apply for an order that the stay does not apply in respect of that creditor if it is likely to be materially prejudiced by the operation of the stay or there are other equitable grounds to lift the stay.

Filing a proposal extends the stay period, as against all unsecured creditors and those secured creditors to whom the proposal has been made, for at least an additional 21 days. Within this 21 day period, the proposal trustee must call a meeting of the debtor's creditors. The creditors vote by class on the proposal. Specific guidelines for the classification of secured creditors are contained in the BIA. Under the BIA, each class of unsecured creditors must vote for acceptance of the proposal by a majority in number and two-thirds in value, for the proposal to be deemed accepted by the creditors. Dissenting creditors within a class that votes to accept the proposal are bound by the proposal. Where a proposal has been accepted by unsecured creditors but a class of secured creditors does not approve the proposal by the statutory majority, the creditors in that class are not bound by the proposal and are free to exercise their remedies.

A debtor whose unsecured creditors refuse to approve its proposal is deemed to be bankrupt. If the proposal is accepted by the unsecured creditors, the trustee must apply to the court for approval of the accepted proposal. At this hearing, the court will hear submissions from interested parties, including any dissenting creditor. The court will refuse to approve the proposal if it is of the opinion that the terms of the proposal are not reasonable or are not calculated to benefit the general body of creditors. If the court refuses to approve the proposal, the debtor is automatically deemed to be bankrupt.

Advantages of Filing Main Proceeding in Canada

In certain circumstances it may be possible for a US based debtor to file a Main Proceedings (under Chapter 15) in Canada and commence an ancillary case under sections 1504 and 1509(a) of the Bankruptcy Code.

A good example of this is Re MuscleTech Research and Development Inc., a Canadian corporation and its affiliates ("MuscleTech") were facing numerous product liabilities and consumer lawsuits relating to the diet supplement, ephedrine, as well as certain prohormone products alleged to build muscles. The cross-border CCAA/Chapter 15 cases involving MuscleTech have produced a number of interesting decisions that are pertinent to other crossborder restructuring cases.

In January 2006, MuscleTech commenced a proceeding under the CCAA before the Ontario Superior Court of Justice (the "Canadian Court"). The initial CCAA order contained a stay of proceedings against MuscleTech and certain related and unrelated non-debtor defendants, including retailers who had sold the impugned products (the "Non-debtor Parties"). TheBankruptcy Court for the Southern District of New York (the "US Court") recognized the Canadian proceeding as the main proceeding and granted a stay of proceedings in favour of MuscleTech and the Non-debtor Parties.

MuscleTech subsequently requested that the US Court recognize and enforce a claims resolution order that had been made by the Canadian Court requiring all claims against MuscleTech to be proved in the Canadian proceeding. Certain creditors with product liability claims objected. They asserted that the Canadian order was manifestly contrary to public policy, as provided in section 1506 of the Bankruptcy Code, because the Canadian claims process denied them their constitutional right to a jury trial. The US Court held that the public policy exception should be narrowly interpreted and found the proposed Canadian claims process to be fair and impartial.9

This is a good example of how a Canadian filing can be used to the advantage differences in law in US and Canada. Another good example is the very limited availability of punitive damages in Canada as compared to the US. If a debtor was trying to reduce its exposure to punitive damages claims in an insolvency proceeding it might very well choose to file in Canada rather than the US.

In addition, as noted above, the benefits of operating the main proceeding under the CCAA include the fact that it has very few provisions and, as a result, very few restrictions on what a debtor can do in order to restructure its business. This allows creative counsel to come up with new mechanisms to assist their clients. In addition, given the lack of restrictions, CCAA proceedings typically entail fewer appearances and, as a result, the fees involved in the proceedings are generally less than those in a US proceeding.

The Effect of Proposed Amendments

In June 2005, legislation was introduced to revise the CCAA and the BIA.10 The amendments have been passed by Parliament however the majority of the provisions, including those relating to ancillary proceedings have yet to be enacted and declared in force. Since the amendments were first published, Parliament has introduced further amendments into legislature which aim to modify and provide additional technical guidance on the functioning of the original amendments. It is expected that all of the amendments will be enacted and declared in force within the coming months.

In several respects the amendments are similar in concept to provisions of the Bankruptcy Code. They will:

a) provide statutory authority for debtors in- possession lending and priming liens (but without introducing the adequate protection and other safeguards provided by section 364 of the Bankruptcy Code);

b) provide statutory mechanisms to terminate and assign many executory contracts, including protections for licencees (similar to that provided by section 365(n) of the Bankruptcy Code);

c) provide federal jurisdiction to make vesting orders that transfer title in the debtor's property free and clear of liens, claims and encumbrances as can be done under section 363 of the Bankruptcy Code;

d) result in the creation of public creditors' lists in CCAA cases; and

e) provide protection for lessors of aircraft objects (similar that provided by section 1110 of the Bankruptcy Code).

In addition, the amendments incorporate the United Nations Commission on International Trade Law's Model Law on Cross-Border Insolvency. The adoption of the Model Law will afford foreign representatives greater rights and powers regarding the possession and distribution of a debtor's assets than they currently have. This legislation is similar to, but not the same as, the action taken in the US in adopting the Model Law.

As per the Model Law, the proposed amendments permit a foreign representative to apply to the court for recognition of a foreign proceeding.11 Following recognition, the foreign representative may commence or continue proceedings under the BIA or CCAA, as applicable, as if the foreign representative were a creditor of the debtor or the debtor itself.12 There is no express requirement that foreign creditors have the same rights regarding the commencement of and participation in Canadian insolvency proceedings as Canadian creditors.

The recognition order would specify whether the foreign proceeding is a foreign main proceeding or a foreign non-main proceeding and adopt the definition of foreign main proceeding as a foreign proceeding in a jurisdiction where the debtor has the "centre of the debtor's main interests". Like the Model Law, the proposed amendments provide that, in the absence of proof to the contrary, a debtor's registered office is deemed to be the centre of the debtor's main interests. A foreign non-main proceeding is defined simply as a foreign proceeding other than a foreign main proceeding, and unlike the Model Law, there is no requirement that the debtor have an "establishment" in the foreign jurisdiction for that proceeding to be considered a foreign non-main proceeding.

The proposed amendments provide for the automatic stay of proceedings and a "freeze" on transfers of the debtor's property upon recognition of a foreign main proceeding, subject to exceptions specified by the court. While the proposed amendments to the BIA provide that this relief takes effect upon recognition, the proposed amendments to the CCAA require that the court make an order providing this relief upon recognition "subject to any terms and conditions it considers appropriate". The proposed amendments to the BIA also provide that the automatic relief is subject to the exceptions specified by the court in the recognition order that would apply in Canada had the proceeding taken place under the BIA. In the case of the proposed amendments to the CCAA, the proposed amendments provide that the order providing automatic relief must be consistent with any order that may be made under the CCAA.

Following recognition of a foreign proceeding, discretionary relief substantially similar to that provided for in the Model Law may be granted by the court where necessary for the protection of the debtor's property or interests of creditors. The discretionary relief includes a stay of proceedings and execution against the debtor's assets, suspending transfers or disposal of the debtor's assets, and, in the case of the proposed amendments to the BIA, entrusting the administration or realization of the assets of the debtor located in Canada to the foreign representative and appointing a trustee or receiver of all or any party of the debtor's property in Canada with authority to take possession of the debtor's property and take any action that the court considers appropriate. There is no provision for interim relief from the time of filing of the application until the application is decided and there is no requirement that in granting or denying relief, the court must be satisfied that the interests of creditors and other interested persons, including the debtor, are adequately protected. The granting of relief would not preclude the commencement or continuation of proceedings under the BIA or the CCAA.

The paramountcy of domestic proceedings in certain circumstances is preserved by the fact that the automatic relief prescribed upon recognition of a foreign main proceeding does not apply if proceedings under the BIA or CCAA have already been commenced in respect of the debtor. Furthermore, if domestic proceedings are commenced after recognition of a foreign proceeding, the relief granted by the court in connection with the foreign proceeding must be consistent with any order made in the domestic proceeding. The proposed amendments reflect the Model Law provisions with respect to multiple foreign proceedings requiring relief granted in respect of a non-main foreign proceeding to be modified or terminated if the court determines it to be inconsistent with orders granted in respect of a foreign main proceeding.

Differences in Canadian version of UNCITRAL model

While several Model Law provisions are substantially reflected in the proposed amendments, the amendments do not include certain restrictions imposed by the Model Law upon domestic proceedings. Unlike the Model Law, a domestic proceeding may be commenced after recognition of a foreign main proceeding even if the debtor has no assets in Canada. Moreover, the restrictions on the effects of such domestic proceedings are not reflected in the proposed amendments. Lastly, the proposed amendments do not adopt the Model Law requirement that a domestic court be satisfied that the relief it grants to a representative of a foreign non-main proceeding relates to assets that, under the domestic laws, should be administered in the foreign non-main proceeding.13

Although article 5 of the Model Law authorizes a designated administrator to act in a foreign proceeding in a foreign jurisdiction, the amendments are considerably broader granting Canadian courts the discretion to authorize any person or body to act as a representative for the purpose of having them recognized in a jurisdiction outside of Canada.

Although the proposed amendments do not include the public policy exception prescribed by the Model Law, the amendments do preserve existing safety valves that provide that (i) nothing in the amended statute would require the Canadian courts to make any order that is not in compliance with the laws of Canada or to enforce any order made by a foreign court, and (ii) nothing prevents the Canadian courts, on the application of a foreign representative, or any other interested person, from applying legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives that are not inconsistent with Canadian insolvency legislation.

Section 18.6 Of The Companies' Creditors Arrangement Act

18.6 (1) In this section,

"foreign proceeding" means a judicial or administrative proceeding commenced outside Canada in respect of a debtor under a law relating to bankruptcy or insolvency and dealing with the collective interests of creditors generally;

"foreign representative" means a person, other than a debtor, holding office under the law of a jurisdiction outside Canada who, irrespective of the person's designation, is assigned, under the laws of the jurisdiction outside Canada, functions in connection with a foreign proceeding that are similar to those performed by a trustee in bankruptcy, liquidator or other administrator appointed by the court.

(2) The court may, in respect of a debtor company, make such orders and grant such relief as it considers appropriate to facilitate, approve or implement arrangements that will result in a co-ordination of proceedings under this Act with any foreign proceeding.

(3) An order of the court under this section may be made on such terms and conditions as the court considers appropriate in the circumstances.

(4) Nothing in this section prevents the court, on the application of a foreign representative or any other interested person, from applying such legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives as are not inconsistent with the provisions of this Act.

(5) Nothing in this section requires the court to make any order that is not in compliance with the laws of Canada or to enforce any order made by a foreign court.

(6) The court may seek the aid and assistance of a court, tribunal or other authority in a foreign proceeding by order or written request or otherwise as the court considers appropriate.

(7) An application to the court by a foreign representative under this section does not submit the foreign representative to the jurisdiction of the court for any other purpose except with regard to the costs of the proceedings, but the court may make any order under this section conditional on the compliance by the foreign representative with any other order of the court.

(8) Where a compromise or arrangement is proposed in respect of a debtor company, a claim for a debt that is payable in a currency other than Canadian currency shall be converted to Canadian currency as of the date of the first application made in respect of the company under section 10 unless otherwise provided in the proposed compromise or arrangement.

Footnotes

1 Government of Canada, "The Canada – U.S. trade and investment partnership" available online at http://geo.international.gc.ca/can-am/Washington/trade_and_investment/trade_partnership-en/asp

2 "foreign representative" means a person, other than a debtor, holding office under the law of a jurisdiction outside Canada who, irrespective of the person's designation, is assigned, under the laws of the jurisdiction outside Canada, functions in connection with a foreign proceeding that are similar to those performed by a trustee in bankruptcy, liquidator or other administrator appointed by the court. R.S.C. 1985, c. C-36, s. 18.6(1).

3 "foreign proceeding" means a judicial or administrative proceeding commenced outside Canada in respect of a debtor under a law relating to bankruptcy or insolvency and dealing with the collective interests of creditors generally. R.S.C. 1985, c. C-36, s. 18.6(1).

4 (2001), 26 C.B.R. (4th) 45 (Ont. S.C.J.) at para 5.

5Ibid. at para 5.

6 CCAA s. 18.6(3).

7 CCAA s. 18.6(4).

8 (2000), 18 C.B.R. (4th) 157 (Ont. S.C.J.) at para13-14.

9 Order of Judge Rakoff, 04 MD 1598, 06 Civ. 538 (S.D.N.Y.)

10 Bill C-55, An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts, lst Session, 38th Parl., 2005.

11 Bill C-55, An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts, 1st Sess., 38th Parl., 2005, cls. 122 and 131 (First reading: June 3, 2005) amending s. 269 of the BIA and s.46(1) of the CCAA [Bill C-55].

12 Ibid at cls. 122 and 131amending s. 274 of the BIA and s.51 of the CCAA.

13 U.N. Doc. A/RES/52/158 (1997) [Model Law] at Article 21(3) and Article 29(3).

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2008 McMillan LLP

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    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions