could not be recognized as a foreign
nonmain proceeding with regard
to the U.S. Catalyst entities, given
that they had no “establishment” in
Canada. They argued that CPC could
not meet its burden to prove an
“establishment” in Canada solely by
showing that the U.S. Catalyst entities
were part of an integrated enterprise
with Canadian connections.
CPC argued, among other things,
that the most important factor to be
considered by courts in determining
a debtor’s COMI is where the debtor
regularly conducts administration
of its interests, describing such a
location as a debtor’s “nerve center.”
CPC submitted that the location of the
company’s nerve center overshadows
presumptions based on the location
of a debtor’s registered office.
CPC conceded that certain production
may have occurred in the U.S., but
argued that Canada was still the nerve
center of the U.S. Catalyst entities
and therefore their COMI. As proof,
CPC noted that those entities were
subject to centralized management
based in British Columbia, Canada.
Additionally, CPC drew attention
to the fact that tax, treasury, and
cash management functions for
the Catalyst entities were managed
out of Canada, along with human
resources, research and development,
and information technology.
Finally, CPC argued that management
of the U.S. Catalyst entities from Canada
qualified as “nontransitory economic
activity,” thereby indicating that the
entities had an “establishment” in
Canada. Therefore, CPC submitted,
at minimum the Canadian
proceedings should be recognized
as a foreign nonmain proceeding.
The Bankruptcy Court held that the
COMI for both the U.S. and Canadian
Catalyst entities was in Canada and
recognized the Canadian proceeding
as a foreign main proceeding.
Unfortunately, the court did not
provide written reasons for its decision.
However, one can deduce factors
that may lead to such an order from
the structure and operations of CPC
and the other Catalyst entities.
The Catalyst entities’ argument
for recognition of a foreign main
proceeding turned on COMI being
determined by a company’s nerve
center. To this point, factors that
indicated that the U.S. Catalyst
entities’ nerve center was in Canada
boiled down to their being subject to
Canadian centralized management.
The Bankruptcy Court’s decision shows
that (a) centralized foreign management
over a U.S. company indicates that the
company’s nerve center is foreign,
and (b) the location of a company’s
nerve center is a factor that courts
will consider over the location of a
company’s registered office when
determining the location of its COMI.
Canadian companies with operations
similar to those seen in Catalyst are
common. A U.S. subsidiary of a foreign
corporation that centralizes decision
making in a foreign jurisdiction may
have a foreign COMI, thus paving
the way for recognition of a foreign
main proceeding if a cross border
restructuring effort is necessary.
Building on this, it will be interesting to
see when and under what circumstances
foreign corporations with operations
dissimilar from CPC’s succeed or fail
in gaining recognition of a foreign
When failure is not an option.
INTERIM EXECUTIVE MANAGEMENT
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