36 | LEXPERT • June 2019 | www.lexpert.ca/usguide
Over the years, it seems, the systems
have overlapped and adapted to each
other.
"DIP financing, for example, is some-
thing that had its roots in the US but
has become a very positive addition to
the CCAA process," Carfagnini notes.
"Conversely, US debtors were originally
very guarded about our use of the moni-
tor, because their processes were still char-
acterized by adversarial litigation. But
nowadays, US judges are even asking for
the monitor's position on issues that come
up in their jurisdiction."
Carfagnini credits the international
restructuring bar for the convergence and
success of cross-border restructurings.
"The bar around the world has been
very active in coordinating and facili-
tating educational activities in which
the judges and lawyers get to know one
another and understand each other's sys-
tems, with the result that more and more
cases are resorting to cross-border proto-
cols for the benefit of all stakeholders,"
he says.
Still, the question remains: which sys-
tem, Canadian or US, is best?
Ever the lawyer, Thornton would say it
depends on the case.
"Some cases are better with rigidity,
and some are better with flexibility," he
explains. "But empirical evidence suggests
that on average, Chapter 11 proceedings
are about 50 percent longer and 10 times
as costly as CCAA proceedings."
Those numbers are correct, Bish agrees,
but there is a price for efficiency.
"We're faster and cheaper but at the ex-
pense of process," he says. "What's most
interesting, however, are the politics be-
tween the lawyers from the two countries
and how that plays out — especially when
people are trying to manipulate who's go-
ing to control the agenda."
of a DIP security, a development that had
the indirect effect of increasing Canadian
creditors' exposure.
And in the proceedings relating to
White Birch Paper Holding Company,
the monitor called the Quebec Superior
court's attention to the fact that the allo-
cation methodology approved in the US
could favor the company's US subsidiary.
The intervention eventually resulted in a
settlement that was acceptable to the Ca-
nadian creditors.
Driving the discord is the fundamen-
tal philosophical difference between
the regimes.
"The US has been very focused on
codification and has attempted to legislate
every foreseeable circumstance, whereas
Canadian law is much more driven by ju-
dicial discretion," Bish says.
Indeed, the Canadian system is often
frustrating for American clients.
"All that discretion means we can't
just quote them black letter law," says
Robert Thornton of Thornton Grout
Finnigan LLP in Toronto. "And saying
that 'we can do that under a particular
section of Chapter 11' is very different
from telling clients that 'we can convince
a judge to do that.'"
It's not that Canadians dealing with the
American system don't have their frustra-
tions too.
Distribution of funds, for example, is
a much more lengthy and complicated
process in the U.S. Thornton cites one in-
stance of a restructuring involving several
related corporate entities.
"We would have dealt with the distri-
bution in six weeks by using a distribution
order," he says. "But under Chapter XI, we
had to file a plan and a disclosure state-
ment for each company, a costly exercise
that took about six months and ate away
at the pot available for creditors."
The values by which plans are approved
vary too: in Canada, process rules, but in
the US, price rules.
"The Canadian view is to do as much as
you can in the boardroom and only go to
court if you have to," Thornton says. "So
our restructurings are done almost entirely
by way of negotiations outside the court-
room, which most often culminate in a
pre-packaged settlement that the monitor
puts to the court for approval."
In the US, however, no agreement is se-
cure if a better bid appears.
"Even if that better bid arrives at the last
moment at the courthouse door, the deal
reached can be trumped," Thornton says.
"But in Canada, so long as the process has
been open and transparent with full dis-
closure, the deal will stand even if someone
comes up with a better bid."
One aspect of the US system, however,
has considerable appeal to Thornton. It's
known as the "cramdown" and refers to
the imposition of a reorganization plan by
a court despite objections by certain classes
of creditors.
"Here, every class of creditor must ap-
prove the plan because our law doesn't al-
low for the bifurcation of creditor classes,"
Thornton explains. "But in the US, there
is the ability to arrange classes of creditors
into subclasses, and if any one subclass ac-
cepts the plan, its members can cram the
plan down on everyone else."
However, many lawyers believe the sys-
tems are converging.
"Originally, the processes in the two sys-
tems were not very well lined up," says Jay
Carfagnini, a lawyer at Goodmans LLP in
Toronto. "But nowadays, my belief is that
the differences are more related to process
and style than to substance. In the end, the
CCAA and Chapter 11 achieve the same
results, and I'm not sure the differences be-
tween them are fundamental."
Insolvency
"The US has been very focused on codification and has attempted to legislate every
foreseeable circumstance, whereas Canadian law is much more driven by judicial discretion."
David Bish, a lawyer in Torys LLP's Toronto office
