Cross-Border Strategy: O Canada — U.S. Companies Look North for Main Insolvency Proceedings

Note: This article originally ran in The Review of Banking & Financial Services Journal, Vol. 42 No. 1.

This article examines the emerging trend of U.S.-based companies with Canadian ties initiating primary insolvency proceedings in Canada and seeking recognition in the United States under Chapter 15 of the U.S. Bankruptcy Code. As described herein, this two-step strategy enables debtors to take advantage of the flexibility and efficiency of Canadian restructuring regimes, while securing key U.S. bankruptcy protections.

A Strategic Shift in Cross-Border Insolvency

Recently, certain U.S.-based companies with Canadian ties have opted to file their primary insolvency proceedings in Canada and then seek recognition in the United States under Chapter 15 of the United States Bankruptcy Code. This strategy allows debtors to leverage the flexibility of Canadian restructuring regimes under either the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (“CCAA”) or the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”), while preserving access to U.S. protections such as the automatic stay, enforcement of non-U.S. orders (including releases), and sale processes, including sales of assets pursuant to Section 363 of the U.S. Bankruptcy Code. The CCAA offers many of the attributes of Chapter 11 together with expediency. In addition, Chapter 15 has become a robust tool for facilitating sales of U.S.-based assets, the imposition of a broad stay that is effective within the United States, and the implementation of third-party releases. Specifically, this approach has become increasingly attractive in the wake of the U.S. Supreme Court decision in Purdue,¹ which severely limited the ability to obtain nonconsensual third-party releases under Chapter 11. In contrast, Canadian courts have shown greater flexibility in approving such provisions when they are fair and reasonable.²

A Two-Step Cross-Border Playbook:

The typical structure of these cross-border filings involves two key steps:

1. Initiation of a Canadian Proceeding: The debtor, often a Canadian parent or a U.S. subsidiary, commences a restructuring under the CCAA or BIA. The CCAA is primarily used for large corporations to restructure their debts and requires at least C$5 million in debt, while the BIA is used for both personal and corporate insolvencies, including smaller businesses, and has no minimum debt requirement. The CCAA offers more flexibility in its restructuring plans and requires significant court oversight and approval for restructuring plans (akin to Chapter 11), while the BIA is a more structured and prescriptive process, and, as such, requires less court involvement due to its more standardized procedures.
2. Chapter 15 Recognition in the U.S.: The debtor then seeks recognition of the Canadian proceeding in a U.S. bankruptcy court under Chapter 15, thereby gaining access to the automatic stay, enforcement of Canadian court orders in the U.S., and the ability to conduct sales of U.S.-based assets under Section 363 of the Bankruptcy Code.

The Comi Question

At the heart of Chapter 15 recognition is the determination of a debtor’s “center of main interests” (“COMI”). While the Bankruptcy Code does not define COMI, section 1516(c) provides that “the debtor’s registered office . . . is presumed to be the debtor’s COMI.³ In Fairfield Sentry Ltd., the Second Circuit applied a list of non-exclusive factors to determine COMI, including: (1) the location of the debtor’s headquarters; (2) the location of those who actually manage the debtor; (3) the location of the debtor’s primary assets; (4) the location of the majority of the debtor’s creditors, or a majority of the creditors who would be affected by the case; and (5) the jurisdiction whose law would apply to most disputes.⁴ The court held that COMI “should be determined based on [the debtor’s] activities at or around the time the Chapter 15 petition is filed.”⁵ COMI has emerged as a central issue in cases where Chapter 15 is used to achieve outcomes traditionally pursued under Chapter 11, such as court approved sales of U.S.-based assets.

Why Canada?

Canada offers several advantages for debtors seeking to restructure:

• Judicial Flexibility: Canadian courts have broad discretion to approve creative restructuring solutions, including third-party releases and DIP financing arrangements.
• Speed and Efficiency: The Canadian process is often faster, less procedurally burdensome, and cheaper than Chapter 11 proceedings.
• Comity and Recognition: U.S. courts have generally shown a willingness to recognize Canadian proceedings under Chapter 15, even when the Canadian plan includes provisions that would not be permissible under U.S. law.
• Monitor: Canadian proceedings often involve a court-appointed monitor, which provides oversight and transparency at a lower cost than an official committee of unsecured creditors in a U.S. Chapter 11.

Section 363 Sales Under Chapter 15

Debtors in Chapter 15 proceedings can utilize Section 363 of the Bankruptcy Code. Section 363 applies to sales or uses of property within the territorial jurisdiction of the United States in both Chapter 11 and Chapter 15 proceedings. Section 1520 provides, in pertinent part, that “[u]pon recognition of a foreign proceeding that is a foreign main proceeding, [Section 363 of the Bankruptcy Code applies] to a transfer of an interest of the debtor in property that is within the territorial jurisdiction of the United States.” Section 363(b)(1), in turn, provides that a debtor “after notice and a hearing, may use, sell or lease [its property] other than in the ordinary course of business.” Bankruptcy courts have approved sale transactions for Chapter 15 debtors free and clear of any and all liens, claims, encumbrances, and other interests pursuant to Section 363(f) of the Bankruptcy Code, and afforded the purchaser all protections under Section 363(m) of the Bankruptcy Code as a good-faith purchaser.⁶

The procedures used in transferring estate property pursuant to Section 363 are subject to the debtor’s business judgment, which is entitled to substantial deference, so long as the debtor articulates an adequate business justification.⁷ Pursuant to Section 1520(a)(2) and (3), those same procedures apply to the sale by a foreign representative and the foreign representative’s decision to effectuate a sale is likewise entitled to substantial deference. Furthermore, Section 1521 of the Bankruptcy Code provides the statutory basis to provide relief to a foreign representative following the recognition of a foreign main proceeding. Under Section 1521 of the Bankruptcy Code, “upon recognition of a foreign proceeding . . . [and] at the request of the foreign representative,” the court may grant “any appropriate relief” to “effectuate the purpose of [Chapter 15] and to protect the assets of the debtor or the interests of the creditors,”⁸ “including . . . (5) entrusting the administration or realization of all or a part of the debtor’s assets within the territorial jurisdiction of the United States to the foreign representative.”⁹ Additionally, under Section 1521(a)(7) of the Bankruptcy Code, the Court may grant the Foreign Representative any relief available to a trustee, with certain exceptions. Relief under Section 1521 of the Bankruptcy Code is conditioned on a determination that the interests of “the creditors . . . are sufficiently protected.”¹⁰

Canadian Releases vs. U.S. Standards

Canadian courts have continued to approve releases where they are integral to the restructuring and supported by creditors. Under the CCAA, Canadian courts apply a multi-factor test to determine whether third-party releases are appropriate. Factors include whether: (1) the released parties are necessary and essential to the restructuring of the debtor; (2) the claims to be released are rationally related to the purpose of the Plan and necessary for it; (3) the Plan cannot succeed without the releases; (4) the parties who are to have claims against them released are contributing in a tangible and realistic way to the Plan; (5) the Plan will benefit not only the debtor companies but creditors generally; (6) the voting creditors who have approved the Plan did so with knowledge of the nature and effect of the releases; and (7) the releases are fair and reasonable and not overly broad or offensive to public policy.¹¹ This standard differs from the more restrictive U.S. approach in Chapter 11 cases following the U.S. Supreme Court’s decision in Purdue, which held that the Bankruptcy Code does not authorize “a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a non-debtor without the consent of affected claimants.”¹² U.S. Bankruptcy courts have declined to apply the holding of Purdue in the Chapter 15 context, instead determining that it is appropriate to grant recognition to non-U.S. debtors’ plans that included third-party releases.¹³

Recent Cases:

Li-Cycle Holdings Corp. In Li-Cycle, Judge Bentley of the Southern District of New York granted recognition of Canadian proceedings as foreign main proceedings for three U.S. subsidiaries, despite the U.S. Trustee’s objection that their COMI was in the United States. The court cited factors such as the suspension of Li-Cycle’s U.S. operations, that others can easily ascertain that Canada is the U.S. subsidiaries’ COMI as of the petition date, the Chief Restructuring Officer was based in Canada, and the sale process was being run from Canada. The court also noted the absence of creditor objections as evidence that recognition aligned with creditor expectations. As described in the debtor’s reply, “the Chapter 15 Debtors operate as one corporate group, controlled by Holdings, which manages the operations and strategic direction of the Chapter 15 Debtors.”¹⁴ The debtors conducted a sale and realization process under the auspices of the Canadian Court, which the U.S. Court recognized and approved. Judge Bentley granted an approximately 65-day sale process¹⁵ and ultimately authorized the sale under Section 363.¹⁶ Li-Cycle illustrates how Chapter 15 can be used to coordinate cross-border sales and restructuring activities.

In re Iovate Health Sciences International Inc. In a recent decision, Judge Glenn of the United States Bankruptcy Court for the Southern District of New York issued a detailed opinion confirming that the debtors’ COMI, including that of the Delaware-incorporated entity whose registered office was also in Delaware, was likely in Canada.¹⁷ In Iovate, Judge Glenn granted immediate provisional relief under Chapter 15, applying the automatic stay to stay U.S. creditor actions. Notably, Judge Glenn found that Iovate Health Sciences USA Inc.’s, COMI was likely in Canada, despite its Delaware incorporation and having its registered office there, based on the debtors’ centralized management based in Ontario and integrated operations between all of the debtors, including accounting, finance, and HR functions, all of which occur in Canada. The opinion demonstrated that U.S. bankruptcy courts will look beyond mere place of incorporation to the actual location of decision-making and business activity. By recognizing the Canadian proceeding as the foreign main proceeding for both Canadian and U.S. entities, the court enabled coordinated cross-border relief, protected U.S. assets, and promoted equitable treatment of creditors.

Giftcraft Ltd. In Giftcraft Ltd., Judge Glenn recognized a Canadian receivership as a foreign main proceeding for both Canadian and U.S. entities.¹⁸ In the Memorandum Opinion & Order Granting Provisional Relief (the “Opinion”), Judge Glenn overruled an objection from the U.S. Trustee to the debtors’ motion for provisional relief, which objection argued that the COMI and the establishment of each of the U.S.-based subsidiaries was the United States, rather than Canada.¹⁹ Judge Glenn recognized the likelihood that the Canadian receivership would be deemed a foreign main proceeding for all moving debtors, including the U.S.- based subsidiaries. Key to this analysis was the rule that the determination of the location of the debtor’s COMI is the date on which the “Chapter 15 petition is filed.”²⁰ Factors indicating that the U.S. subsidiaries’ COMI may be in Canada included maintaining office space in Canada, storing books, records, and corporate documents in Canada, and holding no inventory in the United States, all material financial strategic, management, accounting, marketing, and personnel decisions related to the operation of the U.S. subsidiaries were made by Giftcraft Canada’s senior management as of the Petition Date, and the U.S. debtors’ most significant creditor was RBC, a bank based in Toronto. Additionally, as of the entry of the Canadian Court’s order appointing the foreign representative as receiver of the debtors on a provisional basis, the Receiver, who was based in Toronto, was “vested with all property assets, and undertakings of [U.S. debtor entity] with broad power and authority over such assets, and the management and operations of [U.S. debtor entity] business.” For the U.S.-based debtors, the initiation of the receivership constituted pre-filing restructuring activities of the sort that suggest that, as of the Petition Date, the U.S. debtors’ COMI is likely Canada. On June 16, 2025, Judge Glenn entered the Order Granting Verified Petition of Foreign Representative for (I) Recognition of Canadian Proceeding as Foreign Main Proceeding, (II) Recognition of Foreign Representative, and (III) Related Relief Under Chapter 15 of the Bankruptcy Code [ECF. No. 37] finding that “the Giftcraft Receivership is pending in Canada, where the Debtors have their ‘center of its main interests’ as referred to in Section 1517(b)(1) of the Bankruptcy Code.”²¹ Judge Glenn, however, cautioned against bad faith COMI manipulation, warning that “insider exploitation, untoward manipulation, [and] overt thwarting of third-party expectations” could undermine recognition.²²

Sunac China Holdings Ltd. In In re Sunac China Holdings Ltd., Judge Bentley held that even if a Chapter 15 debtor maintains only a “limited physical presence” in the country where the foreign proceeding is pending, its COMI may still be deemed to be located there, provided that the country serves as the primary location of the debtor’s business activities and decision-making.²³ The court relied on the “nerve center” test, concluding that the location of executive decision-making and restructuring activities in Canada established COMI there. The court also noted the absence of creditor objections as evidence that recognition aligned with creditor expectations “in many cases where no creditors object, deference to the forum chosen by the debtor and supported by its creditors is warranted.”²⁴

Lion Electric Company. In Lion Electric, Judge Cleary of the Northern District of Illinois recognized Canadian proceedings as foreign main proceedings for eight debtors, five of which had registered offices in the U.S. As described in the debtors’ Verified Petition, the U.S. and Canadian operations were functionally integrated, with senior management based in Canada “[t]he Debtors operate on a consolidated basis with a unified cash management system. The Debtors operate as one corporate group controlled by Lion Electric,” whose registered, head office, and chief place of business is in Quebec, Canada, and is organized under the QBCA.²⁵

Implications for Cross-Border Strategy

These cases illustrate a growing trend to file Canadian proceedings as foreign main proceedings, even for U.S.-incorporated entities, when restructuring activities and executive control are centered in Canada, and then recognize them through a U.S. recognition case.

Key takeaways include:

• Timing matters: COMI is likely assessed as of the Chapter 15 petition date.
• Substance over form: Courts look beyond incorporation to actual operations and decision-making, which may include the debtors’ liquidation activities.
• Creditor expectations: Lack of objection supports recognition.
• Judicial scrutiny: Courts remain vigilant against bad-faith forum shopping.

Looking Ahead

As U.S. courts continue to grapple with the limits of Chapter 11, Canadian proceedings offer a flexible alternative. Chapter 15 recognition provides a bridge between jurisdictions, enabling coordinated restructurings that respect both U.S. and Canadian legal frameworks. The trend suggests continued receptiveness to cross-border cooperation, so long as the proceedings are not overtly abusive or prejudicial to creditors. For U.S. companies with Canadian ties, the northward path may offer a strategic advantage in navigating insolvency.

1. Harrington v. Purdue Pharma L. P., 603 U.S. 204, 206 (2024).
2. Metcalfe & Mansfield Alt. Invs. II Corp. (2008), 296 D.L.R. 4th 135, para. 39 (Can. Ont. C.A.).
3. 11 U.S.C. § 1516(c); see also In re Olinda Star I, 614 B.R. 28, 41 (Bankr. S.D.N.Y. 2020); In re Ocean Rig UDW Inc., 570 B.R. 687, 705 (Bankr. S.D.N.Y. 2017); In re ABC Learning Centers Ltd., 445 B.R. 318, 333 (Bankr. D. Del. 2010), aff’d, 728 F.3d 301 (3d Cir. 2013).
4. In re Fairfield Sentry Ltd., 714 F.3d 127, 138 (2d Cir. 2013)
5. Id. at 137.
6. Order Granting Motion for Entry of an Order (I) Recognizing and Giving Effect to the Canadian Court’s Approval and Vesting Order, (II) Approving the Sale of U.S. Transferred Equity Interests and the Purchased Assets Free and Clear of All Liens, Claims, and Encumbrances, (III) Approving Dismissal Procedures for Chapter 15 Debtor Li-Cycle Inc., (IV) Recognizing and Giving Effect to the Canadian Court’s Priority Claims and Cure Amounts Procedure Order and (V) Granting Related Relief, Li-Cycle Holdings Corp., Case No. 25-10991 (Bankr. S.D.N.Y. May 22, 2025), ECF. No. 114; Final Order Recognizing and Enforcing the Realization Process Approval Order and Granting Additional Relief, In re Ted Baker Canada Inc., et al., Case No. 24-10699 (Bankr. SD.N.Y. May 17, 2024), ECF. No. 53; Order Pursuant to Sections 105(a), 363, 365, 1501, and 1521 of the Bankruptcy Code, and Bankruptcy rules 2002, 6004, and 9014, for Entry of an Order (I) Recognizing and Enforcing the Approval Vesting, and Distribution Order (II) Authorizing the Sale of Substantially All of the Debtors’ Assets Free and Clear of Any and All Liens, Claims, Encumbrances, and Other Interests, (III) Authorizing Assignment of Certain Executory Contracts and Unexpired Leases, And (IV) Granting Related Relief, In re Thane Int’l, Inc. et al., Case No. 15-12186 (Bankr. D. Del. Dec. 1, 2015), ECF. No. 42; Order Granting Receiver’s Motion for Recognition of Canadian Court Vesting Orders Approving Sale of Substantially All of the Fletcher Entities’ Assets, In re Fletcher Leisure Group LTD. Case No. 13-13420 (BRL) and In re Fletcher Leisure Group Inc./LE GROUPE DE LOISIRS FLETCHER INC. Case No. 13-13421 (Bankr. S.D.N.Y. Nov. 13, 2013), ECF. No. 26.
7. In re GSC, Inc., 453 B.R. 132, 173 (Bankr. S.D.N.Y. 2011) (“The overriding consideration for approval of a Section 363 sale is whether a good business reason has been articulated.”).
8. 11 U.S.C. § 1521(a).
9. 11 U.S.C. § 1521(a)(5).
10. 11 U.S.C. § 1522.
11. Metcalfe at para. 113.
12. Harrington v. Purdue Pharma L. P., 603 U.S. 204, 227 (2024).
13. In re Imperial Tobacco Canada Limited No. 19-10771 (JPM) (ECF No. 95), (Bankr. S.D.N.Y. August 27, 2025) (Mastando, J.) (granting full force and effect to CCAA Plan, including third-party releases). See also In re JTI-Macdonald Corp. No. 25-11530 (JPM) (ECF No. 10) (Bankr. S.D.N.Y. August 5, 2025) (Mastando, J.) (granting full force and effect to CCAA Plan, including third-party releases); In re Engenharia No. 25- 10482 (MG) (ECF No. 21), 2025 Bankr. LEXIS 990 (Bankr. S.D.N.Y. 2025) (Glenn, J.) (granting full force and effect to Brazilian plan, including non-consensual third-party releases); In re Credito Real, S.A.B. de C.V., SOFOM, E.N.R., No. 25-10208 (TMH) (ECF No. 65), 2025 Bankr. LEXIS 751 (Bankr. Del. Mar. 11, 2025), (Horan, J.) (granting full force and effect to Mexican concurso that included non-consensual thirdparty releases and rejecting application of holding in Purdue to releases in a Chapter 15 case); In re Nexii Bldg. Sols. Inc., No. 24-10026 (Bankr. D. Del. July 22, 2024) (Stickles, J.), ECF No. 66 (granting recognition of a CCAA proceeding and approving a plan that included non-consensual third-party releases for certain claims against Nexii’s directors and officers, DIP lenders and prepetition secured lenders); In re Mega NewCo Limited, No. 24-12031 (MEW), 2025 WL 601463, at *2 (Bankr. S.D.N.Y. Feb. 24, 2025) (Wiles, J.) (granting recognition of a Scheme of Arrangement that included non-consensual third-party releases).
14. Reply to U.S. Trustee Objection, Li-Cycle Holdings Corp., Case No. 25-10991 (Bankr. S.D.N.Y. May 22, 2025), ECF. No. 36.
15. Order Granting Motion for Entry of An Order (I) Recognizing and Giving Effect to the Sale and Investment Solicitation Process Order and (II) Granting Related Relief, Li-Cycle Holdings Corp., Case No. 25-10991 (Bankr. S.D.N.Y. May 23, 2025), ECF. No. 61.
16. Order Granting Motion for Entry of an Order (I) Recognizing and Giving Effect to the Canadian Court’s Approval and Vesting Order, (II) Approving the Sale of U.S. Transferred Equity Interests and the Purchased Assets Free and Clear of All Liens, Claims, and Encumbrances, (III) Approving Dismissal Procedures for Chapter 15 Debtor Li-Cycle Inc., (IV) Recognizing and Giving Effect to the Canadian Court’s Priority Claims and Cure Amounts Procedure Order and (V) Granting Related Relief, Li-Cycle Holdings Corp., Case No. 25-10991 (Bankr. S.D.N.Y. Aug. 4, 2025), ECF. No. 114.
17. Memorandum Opinion Granting Motion for Provisional Relief, In re Iovate Health Sciences International Inc., et al. Case No. 25-11958 (Bankr. S.D.N.Y. Sept. 12, 2025), ECF. No. 23.
18. In re Giftcraft Ltd. et al., Case no. 25-11030 (MG).
19. Opinion, In re Giftcraft Ltd. et al. Case No. 25-11030 (Bankr. S.D.N.Y. June 4, 2025), ECF. No. 32.
20. Id. citing Fairfield Sentry, 714 F.3d at 137.
21. Order Granting Verified Petition of Foreign Representative for (I) Recognition of Canadian Proceeding As Foreign Main Proceeding, (II) Recognition of Foreign Representative, And (III) Related Relief Under Chapter 15 of the Bankruptcy Code, In re Giftcraft Ltd. et. al., Case No. 25-11030 (Bankr. S.D.N.Y. June 16, 2025), ECF. No. 37.
22. Opinion citing In re Fairfield Sentry Ltd., 440 B.R. 60, 66 (Bankr. S.D.N.Y. 2010), aff’d, 2011 WL 4357421 (S.D.N.Y. Sept. 16, 2011), aff’d, 714 F.3d 127 (2d Cir. 2013).
23. In re Sunac China Holdings Ltd., 656 B.R. 715, 719 (Bankr. S.D.N.Y. 2024).
24. Id. at 733.
25. Verified Petition for (I) Recognition of Foreign Main Proceeding, (II) Recognition of Foreign Representative, (III) Recognition of Initial Order, Amended and Restated Initial Order, and SISP Order, and (IV) Related Relief, Lion Elec. Co., Case No. 24-18898 (Bankr. N.D. Ill. Dec. 18, 2024), ECF. No. 3