A Historic Cross-border Proceeding
Legal history was recently made in a complex reorganizational proceeding between Canada and the United States. For the first time, a simultaneous joint hearing was held between a Canadian bankruptcy court and a U.S. bankruptcy court. The joint hearing was a highly successful and innovative response to a complex set of international issues and problems, which, but for the accommodating approaches taken by the courts in both countries, would have led to a disastrous set of litigious proceedings that would have doomed the reorganizations.
The case involved a company headquartered in New Mexico with a subsidiary in Canada. The Canadian subsidiary was the primary owner of a major oil sands recovery project in Alberta. The parent company was listed on NASDAQ but encountered financial difficulties in pursuing the development of its oil sands project in Alberta.
When it encountered financial difficulties, the U.S. parent and the Canadian subsidiary both sought protection under Canada’s venerable but curious Companies’ Creditors’ Arrangement Act (CCAA). (Briefly, the CCAA is an unusual piece of reorganizational legislation originating in the depths of the Depression; to the writer’s knowledge, it has no counterpart for brevity and lack of detail in any other reorganizational statute in the world.) Reorganizations under the CCAA proceed in ad hoc, manner with the supervising court setting the ground rules for the reorganization as matters proceed. The CCAA has, for that reason, been called "Chapter 11 Without Rules."
The parent company was also subject to a variety of legal proceedings in the United States which ultimately forced it to seek protection under chapter 11 for both itself and its Canadian subsidiary. Con-sequently, while most of the creditors of the business were in the United States, most of the tangible assets were in Canada, and, once the dust settled, the company and its subsidiary were in reorganizational proceedings in the United States and in Canada at the same time.
The possibilities for an endless set of conflicts and litigation over the complex insolvency and corporate governance issues presented in the case seemed limitless. Most particularly, stays of proceedings protected both companies in both countries (under the Bankruptcy Code in the United States and by court order under the CCAA in Canada), but the reorganizational proceedings in each country arguably contravened the stays of proceedings in the other. The situation was ripe for an international conflict over which reorganization should have priority but the courts and counsel quickly recognized that a protracted battle over which reorganizational system should have priority would inevitably lead to the failure of each reorganization.
The commercial solution to the financial difficulties of the companies involved a sale of a substantial portion of their interests in the Alberta oil sands project. Proceeding with a sale of the assets in Alberta, however, would almost certainly have contravened the automatic stay under the Bankruptcy Code. On the other hand, the Alberta court unquestionably had jurisdiction over the assets involved. A complete stand-off was a thoroughly feasible prospect.
After intense negotiation among the parties and with the encouragement of each of the courts, simultaneous court hearings were arranged for motions that were brought simultaneously in both courts regarding the sale of the assets. The hearings took place in bankruptcy court in Albuquerque (where the parties to the chapter 11 proceeding convened) and in Calgary (where the parties to the Canadian proceedings convened). The two hearings were connected by telephone conference call.
It was agreed that counsel in the U.S. proceedings would lead off with the presentation of their respective sub-missions in the joint hearing but that the U.S. court would not rule on the motion before it until counsel in the Canadian proceedings had made their submissions to the Canadian court. Each court invited counsel in the other proceedings to make submissions in both portions of the joint hearing. During the course of submissions, the Canadian judge and the U.S. judge exchanged comments regarding the resolution of the procedural and substantive issues before them. After submissions had been completed in Albuquerque and Calgary, both courts granted comparable orders authorizing the sale of the companies’ assets and ruling on the disposition of the proceeds. Both courts encouraged the parties to negotiate and present a Cross-Border Insolvency Protocol for the management of the remainder of the case and issued other related procedural rulings to harmonize the progress of the two cases.
The case was a remarkable example of a close and constructive cooperation between the Canadian court and the U.S. court in a very complicated situation. All of the parties benefited from this cooperation, and the negotiations between the parties and the two-country reorganization were helped immeasurably by the accommodating approach that each court took to the jurisdiction of the other.1
Copies of the orders made in the Calgary and Albuquerque proceedings are available from the author on request by fax (416-360-8877) or by e-mail. A detailed Cross-Border Insolvency Protocol has been prepared and is currently before both courts for their respective approvals. Copies of the Protocol also will be available if the necessary cross-border court approval is granted to it. Readers with experience in cross-border cooperation in other reorganizational cases are encouraged to discuss these situations so that others interested in this type of arrangement can benefit from future articles.
1In Calgary, the Canadian proceedings took place before Hon. Mr. Justice Gregory R. Forsyth, a senior judge of the Alberta Court of Queen’s Bench and one of Canada’s most experienced bankruptcy and insolvency judges. In Albuquerque, the proceedings took place before the Hon. Mark B. McFeeley. The counsel list in both courts abounded with ABI members. Counsel for the debtor in the U.S. proceeding was John D. Phillips of Hinkle, Cos, Eaton, Coffield & Hensley, and counsel for the Creditors Committee was James S. Starzynski of Francis & Starzynski, both of Albuquerque. Other ABI members participating included Jennie D. Behles of Behles-Giddens and Douglas R. Vadnais of the Modrall Law Firm in Albuquerque, Bruce J. Borrus of Graham & James in Seattle, Susan Freeman of Lewis & Roca in Phoenix and Thomas J. Moloney of Cleary Gottlieb Stein & Hamilton in New York. In the Calgary proceedings, the Canadian project co-owners were represented by Chris Besant of Cassels Brock & Blackwell in Toronto and Gordon Griffiths of their Calgary-affiliated office (Mackimmie Matthews).