Court: District Court, S.D. New York; December 26, 2012; Federal District Court
Ernst & Young Inc., acting as the Monitor for Oilsands Quest, Inc. and its subsidiaries, filed Verified Petitions for Recognition of Foreign Proceedings under Chapter 15 of the Bankruptcy Code. The Monitor seeks recognition of the Canadian bankruptcy proceedings as foreign main proceedings, an order enforcing certain Alberta Court orders in the U.S. (with the primary dispute concerning stays on litigation against Oilsands's officers), and a stay of proceedings against McDaniel Associates Consulting, Ltd. Initially opposed by the plaintiffs, they later agreed to the Monitor's requests if the first two were granted. The Court, in a March 29, 2012 order, granted all petitions.
The recognition hinges on whether the Canadian proceedings are in the country where Oilsands has its center of main interests, with the Monitor bearing the burden of proof. Although Oilsands has a registered office in Colorado, evidence indicates its center of main interests is in Canada, where it operates fully. The Court noted that Oilsands's management, corporate functions, and principal assets are in Alberta, Canada, including permits and leases related to natural resources. The presence of a Colorado agent and listing on the American Stock Exchange do not negate this evidence.
Oilsands’s principal creditors are predominantly located in Canada, with only two of the 90 claims filed by creditors outside the country. The plaintiffs assert that their putative class constitutes the largest creditor group, but their status as proven creditors is not established, and even if successful, their claims would rank behind general unsecured claims under 11 U.S.C. 510(b) and the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36. The Court identifies Canada as the governing jurisdiction for most bankruptcy-related disputes, which will pertain to assets and property. Oilsands has consistently presented itself as a Canadian company in all public disclosures, despite being incorporated in the U.S., with its principal executive offices in Alberta.
The Court recognizes the Canadian bankruptcy proceedings as "foreign main proceedings" and evaluates whether to enforce the orders from the Alberta Court. Under Section 1509 of the Bankruptcy Code, U.S. courts must grant comity and cooperation to recognized foreign representatives but are not required to enforce every order from the foreign court. The principle of comity allows for withholding deference to avoid violating U.S. laws or public policies, as clarified in 11 U.S.C. 1506. The public policy exception is to be narrowly interpreted, focusing on fundamental U.S. policies. The Canadian proceedings have been found to be fair and impartial, providing creditors with a full opportunity to be heard in alignment with U.S. due process standards. The stay of proceedings for officers and directors is a standard aspect of CCAA proceedings, which U.S. courts typically enforce upon recognition under Chapter 15.
A stay against individual directors is integral to Canadian bankruptcy proceedings, where claims against a company and its officers and directors are typically processed together. While this is not universally the case in the United States, the Court recognizes the validity of differing approaches. The enforcement of a Canadian Court's temporary stay is not contrary to U.S. policies, particularly regarding investor protection and securities regulation. Although the Court might not have initially granted a stay request, it is bound by comity to respect the Alberta Court's orders. The Plaintiffs claim that Oilsands and the Monitor engaged in tactical gamesmanship by filing for bankruptcy in Canada to secure benefits not available in the U.S. However, their assertion that the Monitor delayed filing for ten weeks undermines their argument, suggesting no intent to manipulate proceedings. Additionally, during oral arguments, Plaintiffs acknowledged that if the Court recognized the Canadian Proceedings, it would also grant the request to stay the civil case against McDaniel. Consequently, the Court reaffirms its prior order from March 29, 2012, supporting the Monitor's petitions. It notes that on August 23, 2012, the Alberta Court lifted its stay concerning Oilsands's former officers and directors, leading to the Court's own lifting of the stay on October 19, 2012. Furthermore, on December 21, 2012, the parties filed a joint motion for preliminary approval of a class action settlement, pending resolution.
