Since the seminal decision of the Ontario Court of Appeal in Metcalfe & Mansfield Alternative Investment II Corp. (“Metcalfe”) in 2008, third party releases have been part of the restructuring landscape. Metcalfe involved the asset back commercial paper crisis that resulted from the financial crisis of 2007-2009. A plan of compromise or arrangement under the Companies’ Creditors Arrangement Act (“CCAA”) was put to creditors that involved a release of creditor claims against the debtors and also against certain non-filing third parties. The plan was approved by the requisite number of creditors but opponents challenged the jurisdiction of the courts to approve such a plan at the court sanction stage.

This article addresses foreign discovery pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and the application of the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters (the “Hague Convention” or the “Convention”) to such discovery. It concludes that discovery under the Hague Convention, including Bankruptcy Rule 2004 discovery, may end up being a drawn-out and difficult process.

Bankruptcy Rule 2004

Bankruptcy Rule 2004 is an important discovery tool for a party in interest in a chapter 11 bankruptcy case. Bankruptcy Rule 2004(b)’s definition of the scope of discovery is broad and includes any matter that may relate to the property and assets of the estate, to the financial condition of the debtor, or that may affect the administration of the estate. Bankruptcy Rule 2004 is also commonly used as a prelitigation device that affords estate representatives the opportunity to assess whether to pursue estate claims. However, once litigation associated with a bankruptcy case begins, Bankruptcy Rule 2004 discovery ceases to apply and Bankruptcy Rules 7026–7037 govern discovery under the resulting adversary proceeding.

More than a decade after chapter 15 was added to the Bankruptcy Code, there has been an influx of large, complex cases brought by foreign representatives in the U.S. Bankruptcy Court. The number of chapter 15 cases initiated in 2016 rivals the number of cases commenced as a result of the economic crisis in 2009, and many of the current cases are some of the largest and most complex chapter 15 cases filed to date.

The influx of many of the chapter 15 filings is, in large part, due to the drop in the price of oil and its impact on commodity-based and industrial resource-based sectors. However, the increase in filings is likely also due in part to the expanding body of legal precedent that makes chapter 15 more predictable, and thus more attractive than it once was. For example, a developing body of case law now exists on one of the most fundamental concepts in chapter 15 — how to determine a foreign main proceeding by defining a debtor’s center of main interests. As these important concepts have been addressed and continued to be developed, foreign representatives and local practitioners have been willing to pursue more complex and ground-breaking forms of relief available under chapter 15.