Allen & Overy contributes to the Annual Review of Insolvency Law

The article discusses two recent Canadian restructuring trends, the reverse vesting order (“RVO”) and cannabis company restructurings, which have yet to be tested under Chapter 15.

Canada is fortunate to enjoy a long-standing reciprocal relationship with the United States when it comes to foreign recognition of insolvency proceedings, and we have seen a great degree of deference granted by courts on both sides of the border.

While the analysis with respect to the RVO may be more straightforward, with respect to cannabis filings, the main gating issue to consider is whether a U.S. bankruptcy court would open its doors to a cannabis company.

Despite the legalization of cannabis both for recreational use and medical use in a number of U.S. states, the sale and use of cannabis remains illegal under federal law in the form of the Controlled Substances Act. On that basis, U.S. bankruptcy courts have refused to provide bankruptcy relief under Chapter 7, the Bankruptcy Code’s liquidation chapter; Chapter 11, the Bankruptcy Code’s corporate reorganization chapter; and Chapter 13, the Bankruptcy Code’s non-corporate reorganization chapter, to U.S.-based cannabis businesses and certain individuals seeking to restructure their debts. 

Notwithstanding the fact that domestic plenary bankruptcy relief has so far been largely unavailable to U.S. cannabis companies, the article makes a strong argument that cannabis companies in Canadian insolvency proceedings can and should be permitted to obtain necessary Chapter 15 recognition of the Canadian proceeding.

This article was presented by Dan Guyder and the co-authors at the 20th ARIL Conference in Calgary, Canada and has been published in the April 2023 edition of ARIL, a leading law journal for thought leadership relevant to U.S./Canadian restructuring. A full copy of the article can be accessed here.