SDNY Bankruptcy Court Grants Chapter 15 Relief for US Entities in Canada

On June 4, 2025, the United States Bankruptcy Court for the Southern District of New York (SDNY) issued a pivotal ruling in the case of In re Giftcraft Ltd., granting provisional relief under Chapter 15 of the U.S. Bankruptcy Code to Giftcraft Canada and its three U.S. affiliates. Although these U.S. entities were not incorporated under Canadian law, the court determined that their center of main interests (COMI) was located in Canada, thereby qualifying them for relief.

The Giftcraft group, which operates as retailers and distributors of various consumer goods, found itself in financial distress following notifications from the Royal Bank of Canada (RBC) regarding covenant breaches under its credit facility. By March 19, 2025, the group was indebted to RBC for approximately USD 27.1 million and CAD 10.9 million. The financial strain was exacerbated by the imposition of global tariffs by the U.S. government in April 2025, which severely impacted their primary business segment, RipSkirt.

In response to these challenges, RBC applied for the appointment of KPMG Inc. as a receiver in Canada on May 9, 2025, leading to a receivership order from the Ontario Superior Court. Subsequently, KPMG sought recognition of this Canadian receivership in the U.S. under Chapter 15, which allows for the recognition of foreign bankruptcy proceedings.

The court's initial hearing on May 22, 2025, indicated a willingness to grant provisional relief to Giftcraft Canada. However, the court required further analysis regarding the other U.S. affiliates regarding their COMI status. On May 27, KPMG submitted supplemental filings that clarified that the U.S. entities maintained operational ties to Canada, including a centralized cash management system and shared management oversight, which ultimately supported the argument for their COMI being in Canada.

The U.S. Trustee's office objected to the provisional relief, asserting that the U.S.-based entities should have their COMI in the United States due to their incorporation and operational presence there. However, the court's ruling highlighted that the presumption of COMI being in the country of incorporation could be rebutted based on the operational realities presented in the case.

In its Memorandum Opinion, the court stated that KPMG had demonstrated a likelihood of success in establishing that the U.S. affiliates had their COMI in Canada. The court emphasized that immediate and irreparable harm would occur without provisional relief, and that the balance of harms favored the foreign representative. This ruling not only underscores the importance of operational ties in determining COMI but also sets a precedent for other entities seeking cross-border bankruptcy relief.

The implications of this ruling extend beyond the Giftcraft case, suggesting an increase in Chapter 15 filings by U.S.-based entities with significant foreign operations. The court's analysis showcases the evolving landscape of international bankruptcy proceedings, particularly in light of regulatory changes brought forth by agreements such as the USMCA, which has relaxed requirements for cross-border business operations.

As the Giftcraft case illustrates, U.S. entities are not strictly confined to domestic bankruptcy remedies like Chapter 7 or Chapter 11, especially when their operational nexus lies abroad. The ruling could signal a shift in how international insolvency cases are approached, emphasizing the need for comprehensive analysis of a debtor's actual business operations when determining eligibility for foreign bankruptcy recognition.