In a recent decision, the Ontario Superior Court of Justice recognised the English law schemes of arrangement of the Syncreon group under the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 (“CCAA“). This was the first time a Canadian court was asked to determine whether proceedings under Part 26 of the Companies Act 2006 (the “Companies Act“) could be recognised as “foreign proceedings” under Part IV of the CCAA. The schemes, which included third party releases in favour of the Canadian operating entity of the Syncreon group, were given full force and effect in Canada.
The Syncreon group, which is headquartered in the United States and operates in more than 20 countries, provides specialised logistics and technology services. The group proposed a restructuring of US$680m owed under a secured revolving credit facility and US$225m of unsecured notes. Syncreon Group B.V. (“Syncreon B.V.“), a company incorporated in the Netherlands, was the principal borrower and the note issuer. Syncreon Automotive UK Limited (“Syncreon UK“), a company incorporated in the United Kingdom, was one of the guarantors of both the facility and the notes. The Syncreon group operates in Canada through Syncreon Canada Inc. (“Syncreon Canada“), which had also guaranteed certain of Syncreon B.V.’s obligations.
The debt documents were originally governed by New York law but the governing law clause was changed to English law to establish the sufficient connection to the English jurisdiction required to allow the group to use English schemes of arrangement to effect the restructuring. According to the practice statement letter issued on 10 July 2019, the Syncreon group favoured the English law process over the United States Chapter 11 proceedings due to the high cost of Chapter 11 and the stigma associated with formal insolvency proceedings.
On 22 July 2019 Syncreon B.V. and Syncreon UK (the “Scheme Companies“) commenced scheme of arrangement proceedings before the High Court of Justice of England and Wales under Part 26 of the Companies Act (the “English Proceedings“). The schemes provided for the restructuring of the group’s existing debt under the facility and the notes and for releases in favour of the Scheme Companies and certain of Syncreon group entities, including Syncreon Canada. Recognition of the schemes in both the United States and Canada was a condition precedent to the implementation of the schemes. The High Court granted a convening order on 25 July 2019, convening the meetings of creditors of the Scheme Companies.
Cross-Border Insolvencies in Canada
Substantial amendments were made to the CCAA in 2009 including the adoption of a new Part IV to facilitate the administration of cross-border insolvencies and create a system under which foreign insolvency proceedings can be recognised in Canada. Part IV, in large part, adopts the UNCITRAL Model Law on cross-border insolvency.
Under Part IV, a foreign representative may apply to court to have a foreign proceeding recognised in Canada. Section 45(1) defines a “foreign proceeding” as any judicial proceeding in a jurisdiction outside of Canada dealing with creditors’ collective interests generally under any law relating to bankruptcy or insolvency in which a debtor company’s business and financial affairs are subject to control or supervision by a foreign court for the purpose of reorganization. Canadian courts have consistently recognised proceedings under Chapter 11 of the United States Bankruptcy Code to be foreign proceedings for the purposes of the CCAA.
Recognition of the English Proceedings in Canada
On 8 August 2019 pursuant to the application of Carine Van Landschoot in her capacity as the foreign representative of the Scheme Companies, Justice Hainey of the Ontario Superior Court of Justice granted an order recognising the English Proceedings as “foreign non-main proceedings” under Part IV of the CCAA.
Justice Hainey was satisfied for the purposes of Part IV of the CCAA that the applicant was a “foreign representative” and that, based on the evidence submitted in support of the application, the English Proceedings were judicial proceedings in a jurisdiction outside of Canada that dealt with creditors’ collective interests generally. The evidence submitted established that the scheme of arrangement provisions of the Companies Act permit companies to impose a compromise upon their creditors and are often used to affect a restructuring and a corresponding compromise of their liabilities. It is worth noting that the definition of a “foreign proceeding” under section 45(1) of the CCAA contemplates a judicial proceeding “under any law relating to bankruptcy or insolvency.” While the Companies Act is not a piece of insolvency legislation, Justice Hainey accepted the applicant’s submission that schemes of arrangement under the Companies Act have a statutory nexus to insolvency legislation as they are only available to companies which are liable to be wound-up under the Insolvency Act 1986 (the “Insolvency Act“).
Sanction of the Schemes
The schemes were voted on and overwhelmingly approved by the creditors, and then sanctioned by the English High Court on 10 September 2019 (the “Sanction Order“). The English Proceedings were also granted recognition under Chapter 15 of the United States Bankruptcy Code and on 11 September 2019 the United States Bankruptcy Court for the District of Delaware granted an order recognising the Sanction Order in the United States. On 19 September 2019 the Ontario Superior Court of Justice granted an order which recognised the Sanction Order and gave the schemes of arrangement full force and effect in all provinces and territories of Canada.
In the context of cross-border insolvencies, Canadian courts have consistently encouraged comity in order to enable companies to restructure on a cross-border basis. There is at least one instance where the court has recognised an administration under Schedule B1 to the Insolvency Act to be a foreign proceeding for the purposes of the CCAA (Tucker v Aero Inventory (Uk) Limited, 2009 CanLII 63138 (ON SC)). The decision of the Ontario Superior Court of Justice to extend the recognition of foreign proceedings to schemes of arrangement under the Companies Act is consistent with the spirit and purpose of Part IV of the CCAA, which includes the promotion of cooperation between courts and other competent authorities in Canada with those foreign jurisdictions, and the fair and efficient administration of cross-border insolvencies.