• Post category:Court Cases

In The Matter of Voyager Digital Ltd., 2022 ONSC 4553

What is the COMI for a Canadian company with significant operations in the US?

Voyager, a company with its registered office at a law firm in British Columbia, operates a cryptocurrency brokerage and custodial and lending services via its United States subsidiaries. In July 2022, Voyager, together with other US affiliates, filed for Chapter 11 protection in the United States Bankruptcy Court for the Southern District of New York. The US Bankruptcy Court granted certain orders and Voyager sought recognition of these orders in Canada. Among other things, Voyager sought a declaration that the proceeding before the US Bankruptcy Court was a “foreign main proceeding” within the meaning of s. 45(1) of the Companies’ Creditors Arrangement Act.

Comity mandates that Canadian courts should recognize and enforce the judicial acts of other jurisdictions, provided that those other jurisdictions have assumed jurisdiction on a basis consistent with principles of order, predictability, and fairness. Canadian courts have emphasized the importance of comity and cooperation in cross-border insolvency proceedings to avoid multiple proceedings, inconsistent judgments, and general uncertainty.

The issue to be decided by the court was whether the US Bankruptcy Court proceeding was a foreign main proceeding or foreign non-main proceeding under s. 45 of the CCAA. This was dependent on where Voyager’s centre of main interests (COMI) is, as defined under s. 45 of the CCAA. Voyager argued that its COMI is in the US. The parties opposing the declaration argued that Voyager’s COMI is in Canada.

The test to determine whether the location in which the proceeding has been filed is the COMI involves consideration of three primary factors, namely whether the location is:

  1. readily ascertainable by creditors;
  2. one in which the debtor’s principal assets or operations are found; and
  3. where the management of the debtor takes place.

When determining the COMI of a Canadian entity operating as part of a larger corporate group, courts have considered, among other factors:

  1. the location where corporate decisions are made;
  2. the location of employee administrations, including human resource functions;
  3. the location of the company’s marketing and communication functions;
  4. whether the enterprise is managed on a consolidated basis;
  5. the extent of integration of an enterprise’s international operations;
  6. the centre of an enterprise’s corporate, banking, strategic and management functions;
  7. the existence of shared management within entities and in an organization;
  8. the location where cash management and accounting functions are overseen;
  9. the location where pricing decisions and new business development initiatives are created; and
  10. the location of an enterprise’s treasury management functions, including management of accounts receivable and accounts payable.

In a case involving a public company, a logical place to look for the objectively ascertainable expectations of shareholders and other stakeholders as to the location of a company’s principal assets and operations is its publicly filed documents, such as the short form shelf prospectus dated August 17, 2021 used for Voyager’s public offering on the TSX. The Prospectus contextualized Voyager’s business and was an objective source from which to ascertain the reasonable expectations of its stakeholders.

The prospectus clearly indicated the locale of Voyager’s principal assets and operations and management to be the US. Voyager was clearly managed in the US. Voyager did not have, and never had, any physical premises in Canada. Operationally, the entirety of the cryptocurrency business was run out of the US. Although the COMI of Voyager must be analyzed at the entity level, the Court held that the existence of a corporate group operating through foreign subsidiaries could not be ignored.

The proceedings before the US Bankruptcy Court correspond with where “the debtor’s true seat or principal place of business actually is, consistent with the expectations of those who dealt with the enterprise prior to commencement of the proceedings.” The legitimate expectations of third parties dealing with Voyager and its subsidiaries would consider the US to be the principal seat of Voyager’s business.

The Court found that there were no existing identified public policy concerns that would lead it to exercise its jurisdiction under s. 61(2) of the CCAA to refuse to make the finding that the US was the COMI of Voyager and/or to refuse to make the declaration that the US Bankruptcy Court proceeding was a foreign main proceeding under part IV of the CCAA.

Judge: Kimmel J.

Counsel: Stuart Brotman, Daniel Richer and Aubrey Kauffman of Fasken for Voyager Digital Ltd.; Miranda Spence, Steve Graff, Anthony O’Brien and Garret Hunter of Aird & Berlis for Francine De Sousa (proposed class action plaintiff); and Linc Rogers and Caitlyn McIntyre for Alvarez Marsal, the Proposed Information Officer

Fullcase: https://mcusercontent.com/a3e2039936cbf8a31bda45ab3/files/f63e2dd0-931a-9de4-98e5-09c4c4acc5e5/VOYAGER_DIGITAL_LTD.Endorsement.Initial.Recognition.Order.July.2022_1_1_.pdf

By Matilda Lici