Canada and the United States hare a unique economic relationship. As neighbors,
these two countries have increasingly
intertwined commercial activity. It
is not uncommon for a Canadian
company to have assets, operations,
and subsidiaries in the United States.
Naturally, unique complexities and
challenges flow from such cross
border operations, which is particularly
apparent when such companies pursue
a restructuring effort. Fortunately,
Chapter 15 of the U.S. Bankruptcy
Code provides a mechanism for
coordinating cross border insolvencies.
Canada has welcomed the introduction
of Chapter 15, having been the
source of more Chapter 15 filings
than any other jurisdiction. Canadian
companies that have employed
Chapter 15 have exhibited an ability
to “push the envelope,” seeking relief
that is, at times, unprecedented.
For example, through Chapter 15, an
order made in a Canadian proceeding
that provided releases in favor of third-party non-debtors was recognized and
enforced by a U.S. court. The scope of
benefits that can be gained through
Chapter 15 are distinct to Canadian
companies with U.S. assets and
operations, as opposed to companies
that do not have any “hard” presence
in the U.S. (for example, companies
based in offshore jurisdictions).
In re Catalyst Paper Corp., et al. illustrates
the tremendous utility afforded by
Chapter 15. Specifically, Catalyst shows
that U.S. subsidiaries of Canadian
companies can commence insolvency
proceedings with their parent company
in a foreign jurisdiction and have those
proceedings recognized as a foreign
main proceeding in the U.S. via Chapter
15. As a result, such companies receive
certain benefits, including an automatic
stay under the Bankruptcy Code. Catalyst
provides some clarity as to when such
a remedy may be available, given that
these recognition orders have previously
been granted without opposition. 1
In re Catalyst Paper Corp., et al.
Catalyst Paper Corporation (CPC) is a
Canadian corporation that produces
mechanical printing paper and provides
paper and pulp for commercial printers,
publishers, and paper manufacturers.
CPC’s operations are carried out through
various Canadian and U.S. subsidiaries,
and these Catalyst entities own and
operate plants in both countries.
As demand for and the price of the
company’s principal product declined,
the subsidiaries faced increasingly
challenging business conditions.
As a result, the Catalyst entities
sought protection under Canada’s
Companies’ Creditors Arrangement
Act (CCAA) so that the company
could pursue a restructuring.
In January 2012, the Catalyst entities
applied for and received an initial order
under the CCAA from the Supreme Court
of British Columbia, which provided
for, among other things, a stay of
proceedings against them. Additionally,
the initial order declared that the Catalyst
entities’ centre of main interest (COMI)
was located in British Columbia, Canada.
By way of background, a “debtor
company” must be subject to claims
in excess of $5 million to obtain relief
under the CCAA. Debtor companies
pursuing a cross border restructuring
request authorization for filing under
Chapter 15 from the Canadian Court.
Debtor companies include bankrupt
or insolvent companies that are:
• Incorporated in Canada
• Corporations with assets in Canada
• Corporations doing
business in Canada
• Income trusts
At the time of filing for CCAA
protection, the Catalyst entities’
indebtedness included an asset based
loan (ABL) facility, senior secured
notes, senior unsecured notes, trade
payables, accrued payroll and related
liabilities, and employee benefits.
The ABL facility and the secured
notes were both secured by a charge
against certain assets of the Catalyst
entities. The unsecured notes were
guaranteed by certain CPC subsidiaries,
including the U.S. Catalyst entities.
Concurrently with the Canadian
proceedings and as authorized foreign
representative of the Catalyst entities,
CPC commenced proceedings under
Chapter 15 of the U.S. Bankruptcy Code.
On CPC’s motion, the U.S. Bankruptcy
Court for the District of Delaware granted
a provisional stay of proceedings in favor
of the Catalyst entities, as provided by
Section 362 of the Bankruptcy Code.
This stay was in force pending
disposition of CPC’s motion for a
final order recognizing the Canadian
proceedings as a foreign main
proceeding or, alternatively, as a
foreign main proceeding regarding
the Canadian Catalyst entities and
as a foreign nonmain proceeding
regarding the U.S. Catalyst entities.
Holders of more than 50 percent of
the unsecured notes filed an objection
to the motion in Bankruptcy Court.
The objecting noteholders argued that
CPC sought to impose Canadian law
on U.S. corporations and their creditors.
They suggested that CPC was attempting
to obtain the benefits of bankruptcy
protection without providing U.S.
stakeholders with the transparency
and other protections associated with
a case under the U.S. Bankruptcy Code.
Additionally, the objecting noteholders
asserted that CPC’s motion sought
overreaching relief, given that Canada’s
connection to the U.S. Catalyst entities
and their assets was tenuous and remote.
The objecting noteholders submitted that
the Bankruptcy Code provides a statutory
presumption that “[i]n the absence of
evidence to the contrary, the debtor’s
registered office... is presumed to be the
center of the debtor’s main interests.”
They went on to argue that each of the
U.S. Catalyst entities was incorporated
in and had its registered office in the
U.S. The objection suggested that CPC
had not overcome the presumption that
the U.S. Catalyst entities’ COMI was in
the U.S., stating that these entities did
not have assets or employees in Canada
and had primarily domestic creditors.
Further, the objecting noteholders
submitted that the Canadian proceeding Journal of Corporate