U.S. Chapter 11 and Canada’s Companies’ Creditors Arrangement Act (CCAA) both help companies restructure, but the two systems work differently.  In this article, we will highlight the main variations between the two, as well as why we are seeing an increasing number of U.S.-based companies with Canadian ties file their primary insolvency proceedings in Canada.

As summarized by Blake, Cassels & Graydon:

Insolvency Prerequisite

Chapter 11 (U.S.)

• A company does not need to be insolvent to file
• Voluntary filings are common and easy to initiate

CCAA (Canada)

A company can seek CCAA protection only if it:

• Is insolvent, bankrupt, or has committed an “act of bankruptcy” and
• Has over C$5 million in liabilities (alone or as part of a corporate group)

Creditors can also initiate an involuntary CCAA proceeding, though this is rare.

Stay of Proceedings

Chapter 11:

• A broad, immediate and automatic stay is granted upon the filing of the petition, which includes a stay of enforcement actions and contractual remedies. While there is no time limit on the stay, it generally continues throughout the pendency of the Chapter 11 proceedings.

CCAA:

• The stay of proceedings is not automatic. However, courts typically exercise their discretion and issue orders on the initial application providing a broad initial stay up to a maximum of 10 days. While the scope of the stay is ultimately in the discretion of the court, enforcement actions and contractual remedies are typically stayed. The initial stay is typically extended upon application to the court by the debtor. To obtain an extension of the stay, the debtor must demonstrate that it is acting in good faith and with due diligence.

Creditors’ Committees and Representative Counsel

Chapter 11

• An “official committee of unsecured creditors” is often appointed
• The committee’s fees are paid by the estate
• Committees consult with the debtor, investigate operations, and help shape the reorganization plan

CCAA

• Fees for representative counsel are typically paid by the debtor
• No statutory creditors’ committees
• Courts may appoint representative counsel for groups like:
  • employees
  • pensioners
  • investors

Critical Vendors/Suppliers

Chapter 11:

• The debtor may request that the bankruptcy court authorize it to immediately pay the pre-petition claims of “critical vendors”. In exchange, such critical vendors sell to the debtor post-petition or continue to provide services to the debtor.

CCAA:

• Courts can order critical suppliers to continue to supply goods and services on terms and conditions consistent with the supply relationship or that the court considers appropriate, with or without payment of pre-petition claims. The court may grant the critical supplier(s) a priority charge over the debtor’s property for post-filing supply. In addition, the court may also permit the payment of pre-filing claims of certain critical vendors to ensure uninterrupted supply.

Recent Trend: Why U.S. Companies Are Filing in Canada First

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. 

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 Bankruptcy and Insolvency Act (BIA). The CCAA is primarily used for large corporations to restructure their debts and requires at least C$5 million in debt. The BIA on the other hand is used for both personal and corporate insolvencies, including smaller businesses, and has no minimum debt requirement.
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.

Why Canada?

• 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.

Case Examples:

Li-Cycle Holdings Corp. In Li-Cycle, 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 “center of main interests” (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.” The debtors conducted a sale and realization process under the auspices of the Canadian Court, which the U.S. Court recognized and approved. The court granted a sale process and ultimately authorized the sale under Section 363. Li-Cycle illustrates how Chapter 15 can be used to coordinate cross-border sales and restructuring activities.

Lion Electric Company. In Lion Electric, 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’ Petition, the U.S. and Canadian operations were functionally integrated, with senior management based in Canada “the 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.

Understanding the differences between Chapter 11 and the CCAA, along with the recent trend of Canadian‑first filings, helps credit professionals anticipate how a customer’s insolvency might unfold, understand court processes in both countries, and protect their organization’s interests when cross‑border restructuring occurs.