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Cross-border insolvency in Canada

The Bankruptcy and Insolvency Act (BIA) and the Companies' Creditors Arrangement Act (CCAA) provide clear rules for legal proceedings between creditors and distressed debtors in Canada. But since insolvency law varies from one country to the next, complications can arise when either a debtor's assets or creditors are located in more than one country.

Increased international coordination after 2009 amendments

In 2009, the federal government made amendments to both the BIA and CCAA. These included provisions modeled after the United Nations' UNCITRAL Model Law on Cross-Border Insolvency. Since then, the legal framework in Canada to address foreign insolvency has become more comprehensive and more conducive to harmonizing proceedings taking place over several countries. The amendments also afford the courts greater discretion and flexibility in cross-border cases.

Before a foreign insolvency order to protect creditors or debtors can be effective in Canada, the foreign proceedings must be "recognized" by Canadian courts. A debtor company that files for bankruptcy or bankruptcy protection in a foreign country can then apply for such a court order in Canada and for an order appointing a representative to act on its behalf in Canada. At such an application, the court must decide if the foreign insolvency proceedings are the "main" or "non-main" proceedings. This is primarily a question of whether or not the debtor has its "centre of main interests" in the foreign jurisdiction, and is an important question as it affects the types of further orders that may be made in Canada regarding the proceeding and the debtor's assets.

The BIA and CCAA also set out general principles surrounding the handling of foreign insolvency proceedings. Among others, these include equitable treatment for all stakeholders regardless of their country of origin and the need for communication both between international courts and with involved stakeholders.

As foreign insolvency cases can be particularly complex, debtors and creditors involved in such cases should seek the advice of an experienced insolvency lawyer.

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