As readers of The International Scene appreciate, international cases are becoming more and more common, but there is not yet a great deal of guidance on how courts in different countries should coordinate their administrations for the benefit of the stakeholders involved. However, a Canadian court has recently set out a succinct statement of the principles applicable to cooperation between courts in different countries in multinational cases, and at the same time, has established new ground in protecting non-debtor parties in an international reorganization. The case involved Babcock & Wilcox, which filed for bankruptcy protection earlier this year in Louisiana, largely as a result of the weight of asbestos litigation. Babcock & Wilcox had an operating subsidiary in Canada (B&W Canada) that was not involved in the chapter 11 case. By all accounts, B&W Canada was a solvent entity. Because its parent had sought chapter 11 protection, however, it might have become subject to creditors' claims in Canada based on alter-ego or other comparable theories, since it did not have insolvency protection in Canada. The difficulty for B&W Canada in seeking Canadian insolvency protection was that both of Canada's insolvency statutes, the conventional Bankruptcy and Insolvency Act (BIA) and the less conventional but more flexible Companies' Creditors Arrangement Act (CCAA), both required the debtor to be insolvent to obtain protection from creditors. The issue became how to protect the Canadian company as a part of the overall Babcock & Wilcox corporate group. Because B&W Canada was solvent, it was not eligible to seek protection under Canadian legislation. Moreover, Canadian creditors and Canadian courts might not have recognized a stay of proceedings under chapter 11 if the Canadian company had been included in the chapter 11 filing (assuming there had been jurisdiction to do so). The answer lay in the new international insolvency provisions that had been added to Canadian insolvency legislation in 1997. These amendments were the first international insolvency provisions ever introduced into Canadian bankruptcy legislation, and briefly, they allow Canadian courts to cooperate with bankruptcy courts in other countries to coordinate and harmonize their respective administrations in cross-border cases. The legislative intent behind the new provisions was to allow enterprise value to be maintained in multinational cases while a reorganizational solution to the financial difficulties of a multinational debtor was negotiated. A specific provision in the new legislation allows a Canadian court to "make such orders and grant such relief as it considers appropriate to facilitate, approve or implement arrangements that will result in a coordination of [Canadian] proceedingsÖwith any foreign proceedings." The threshold issue for the Canadian court in B&W Canada was whether this relief could be made available to a solvent entity that, after all, was itself not eligible to seek insolvency protection under the statute. The Canadian court concluded that its jurisdiction to assist other courts in international cases was distinct from its jurisdiction to offer protection to a reorganizing insolvent debtor. Consequently, the court reasoned that it could extend injunctive protection against creditors' claims to a solvent affiliate of a debtor in a foreign reorganizational proceeding. The court concluded that B&W Canada was a significant participant in the Babcock & Wilcox corporate group, and that there was an interdependence between it and the parent company that merited granting Canadian protection to the subsidiary against proceedings by asbestos claimants. The court consequently made an interim injunctive order restraining actions by asbestos claimants against B&W Canada. In doing so, the court took into account a request from the bankruptcy court for the assistance of the Canadian courts with the bankruptcy court's administration. In its decision, the Canadian court formulated principles to deal with situations in which a Canadian court is asked to cooperate with an administration in another country. This decision is perhaps the broadest statement of principles of this kind in a Canadian international case. The court concluded, among other things, that: * comity and cooperation among courts in different countries should be encouraged; * the overall effect of foreign insolvency legislation should be respected unless it is radically different from Canadian insolvency legislation; * all stakeholders should be treated equitably, and whenever possible, like stakeholders should be treated equally regardless of the jurisdiction in which they reside; * a reorganizing business should be allowed to reorganize as a global unit, especially where there is an established interdependence between units in different countries; * it may be practical that the court in the jurisdiction where the principal assets of the business are located should take the lead in a global reorganization, although the corollaries of that would be that courts in other jurisdictions should be kept current with information as to developments in the case, and that stakeholders in the other jurisdiction should be afforded appropriate access to the proceedings in the principal jurisdiction. In terms of determining which country might have the majority of the debtor's interests, the court suggested that it would consider such factors as the location of the debtor's principal operations and of its stakeholders, the law in each jurisdiction that would be applicable to the specific problems of the debtor and the enterprise, the law to be applied in analyzing any undue prejudice, and other factors that might be appropriate in particular circumstances. After assessing the interdependence of the B&W Canada within the Babcock & Wilcox corporate group and the need for the corporate group to have an opportunity to put together a reorganization that would benefit all of its stakeholders, the Canadian court granted a temporary injunction against the asbestos claimants that, on an interim basis, precluded them from pursuing their claims against the Canadian subsidiary. On the facts of the case, the Canadian court did not have to contend with domestic Canadian creditors opposing the application for relief on the basis that they were being prejudiced by having their remedies against a solvent Canadian company curtailed in the interests of a foreign insolvency proceeding. It is worth noting that in an earlier Canadian case arising out of the Dow Corning reorganization (see The International Scene column of the ABI Journal, April 1999, at p.16), the Alberta Court of Queen's Bench was faced with those arguments from local Canadian creditors and nonetheless stayed their proceedings against Dow Corning pending its reorganization under chapter 11. The decision in Re Babcock & Wilcox (Canada) Inc. is perhaps the clearest and most unambiguous statement to date of the extent to which Canadian courts will cooperate with the courts of other countries in cross-border and multinational reorganizations. It is encouraging for the insolvency profession that the globalization of businesses is being matched with global communications in cross-border insolvency cases... Increasing Cross-border Technology As Mr. Justice J.M. Farley of Ontario Superior Court of Justice observed earlier in this column (see "A Judicial Perspective on International Cooperation in Insolvency Cases," ABI Journal, March 1998, at page 12), reorganizational cases involve "real-time litigation" where matters must commonly be dealt with urgently if there is to be anything left to save. This contrasts with "autopsy litigation," where it "doesn't matter much whether the case is dealt with this month or next year." It is also increasingly important that courts in different countries that are faced with administering different segments of the same global enterprise at the same time be aware of what each other is doing to ensure that the value of the enterprise can be maintained for the benefit of all of its stakeholders. There have been amazing advances in technology over the last half-dozen years, and it is encouraging to see a trend developing where courts in insolvency cases are taking advantage of opportunities presented by these kinds of advances. The most recent example of technology assisting a joint country-to-country administration of a case took place in Re Loewen Group Inc. Loewen was the second-largest funeral services company in North America at the time of its financial difficulties, and it filed under both Canada's CCAA in Toronto and chapter 11 in the District of Delaware (see the October 1999 ABI Journal, page 12). The case was highly complex, and the parties and the courts all recognized that it was essential that communication be maintained between the two countries. To that end, a joint court hearing was held on March 27 between the Ontario Superior Court of Justice in Toronto (Mr. Justice J. M. Farley) and the U.S. Bankruptcy Court for the District of Delaware in Wilmington (Hon. Peter J. Walsh). Although the Toronto court had live television facilities, the Delaware court had not yet had its equipment installed. Courtesy of Raymond Shapiro of Blank, Rome, Comisky & McCauley in Philadelphia and his partner, Richard Herman (whose firm was not involved in the case), arrangements were made to provide television equipment to the Wilmington courtroom so that the Delaware court could share its hearing with that in the Ontario court in Toronto. The court hearing featured a complete report to both courts by counsel for the company and the creditors' committee. Reports were made to both jurisdictions, and the judges in both courts were able to converse with each other and to ask questions of counsel in the other jurisdiction. Absent this kind of technological cooperation, comparable communications between the courts in the two countries might have taken some days or weeks, but with some advance preparation, the matter was dealt within the space of less than two hours. The hearing was so successful that it is quite likely that Loewen will further feature joint hearings by satellite television as the case proceeds. In another technologically assisted hearing bankruptcy court hearing, Hon. Sidney B. Brooks (D. Colorado) recently held a transatlantic hearing during which evidence was given by liquidators in England to a hearing in Denver before Judge Brooks concerning property in the People's Republic of China. It is encouraging for the insolvency profession that the globalization of businesses is being matched with global communications in cross-border insolvency cases when the interests of justice and the proper administration of the case determines that to be appropriate. Author's Note: Copies of the decision of the Ontario Superior Court of Justice in Re Babcock & Wilcox (Canada) Inc. (Unreported: Ontario Superior Court of Justice, Feb. 25, 2000, Case No. 00-CL-3667) are available from the author by fax at (416) 360-8877 or e-mail at [email protected]. Readers with reports of other international cases of this kind are highly encouraged to bring them to the attention of the author for potential publication as future articles for The International Scene.