Vol 9 (2012) - Issue 3

Article preview

The Chapter 15 'Centre of Main Interest': Filling in the Blanks

1. Introduction
In the recent Catalyst Paper decision, the United States Bankruptcy Court of the District of Delaware granted recognition of the debtors’ insolvency proceedings pursuant to Canada’s Companies’ Creditors Arrangement Act ('CCAA') as a foreign main proceeding. In spite of the company’s substantial presence in the US through its US debtor subsidiaries, the court found that all debtors’ 'centre of main interest' ('COMI'), including US debtors’ COMI, is in Canada, and allowed the debtors to benefit from protections afforded in a chapter 15 proceeding without having to incur the costly chapter 11 process. This is not the first case in which US bankruptcy courts have overcome the registered office presumption to recognise that a US debtor’s COMI was abroad. However, in most of these cases, the foreign COMI of US debtors was not directly contested. Notably, the Catalyst Paper court overruled the objection of a significant group of creditors arguing that the US debtors’ substantial presence in the US warranted a finding that their COMI is in the US. By following in the footsteps of other US courts and considering the 'nerves' of the company as an essential element, the Catalyst Paper court provided further guidance on the factors courts take into consideration when determining a company’s COMI. Thus, the Catalyst Paper decision adds another layer to greater legal certainty, and perhaps brings COMI another step closer to the concept of a 'corporate group COMI', which envisions one sole main insolvency proceeding in corporate group cases.

2. The undefined COMI concept
In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act ('BAPCPA') added chapter 15 to the Bankruptcy Code, and repealed Bankruptcy Code section 304, which was, until then, the gateway for US bankruptcy courts to assist in foreign insolvency proceedings. Chapter 15, which incorporates the Model Law on Cross-Border Insolvency ('Model Law'), provides a simple process of recognising a foreign proceeding as either 'main' or 'nonmain', depending on whether the foreign proceeding is pending in the location of the debtor’s COMI or 'establishment'.