Chapter 15 Update: Cannabis, COMI, and US Property Rules Clarified
Recent US bankruptcy court decisions offer key guidance on recognizing foreign insolvencies, including a path for cannabis companies via Canadian proceedings.
Three recent US bankruptcy court decisions have clarified the requirements for recognizing foreign insolvency proceedings under Chapter 15. Most notably, a Delaware court recognized the Canadian restructuring of a cannabis holding company. This decision is significant because US courts typically deny bankruptcy protection to cannabis-related businesses due to federal illegality. The apparent workaround—using a foreign proceeding for a holding company that does not directly handle cannabis operations, combined with a lack of objection from the US Trustee—may signal a new path for the industry to access US courts.
In other decisions, a Massachusetts court denied recognition of a Russian bankruptcy, finding the debtor’s center of main interests (COMI) was in the US where he resided, not Russia. A Texas court also denied recognition of a Hong Kong proceeding, ruling that the debtor must have property in the US on the petition date and that speculative litigation claims were insufficient to meet this test. Counsel for foreign debtors should monitor whether the cannabis-related approach is adopted elsewhere and note the ongoing judicial split regarding the necessity of US-based assets.