First Impressions: New York Bankruptcy Court Enforces Canadian Reverse Vesting Order in Chapter 15 Case
"Reverse vesting transactions" ("RVTs") have become a popular vehicle under Canadian restructuring law to permit a company to transfer preferred assets and liabilities to an acquiror, after which the excluded assets and liabilities are administered in the bankruptcy case of a newly formed residual entity. In the residual entity's bankruptcy case, a Canadian court, applying factors delineated in Canadian bankruptcy law that normally apply to asset sales, approves the terms of the RVT in a "reverse vesting order" ("RVO"). To enforce the terms of an RVO in the United States, foreign representatives of residual entities have resorted to chapter 15 filings seeking recognition of the residual entities' Canadian bankruptcy proceedings and enforcement of the RVOs in the United States. Many U.S. bankruptcy courts have granted such chapter 15 relief, but, until recently, only one had done so in a written ruling explaining the rationale for its decision.
The U.S. Bankruptcy Court for the Southern District of New York became the second court to do so in In re Iovate Health Sciences Int'l Inc., No. 25-11958 (MG), 2026 WL 1295907 (Bankr. S.D.N.Y. May 12, 2026). In a matter of first impression among courts in the Second Circuit, the bankruptcy court, having previously recognized a debtor's Canadian bankruptcy proceeding under chapter 15, granted a petition seeking enforcement of the Canadian court's RVO in the United States. In so ruling, the U.S. bankruptcy court held that: (i) the absence of any direct parallel to an RVT or RVO under U.S. bankruptcy law was not an impediment to chapter 15 recognition and enforcement; (ii) enforcement of the RVO was not manifestly contrary to U.S. public policy; and (iii) the stock issuance pursuant to the RVT and proposed asset sale should not be subjected to scrutiny under the standards applicable to a bankruptcy asset sale in the United States.
Procedures, Recognition, and Relief Under Chapter 15
Chapter 15 was enacted in 2005 to govern cross-border bankruptcy and insolvency proceedings. It is patterned on the 1997 UNCITRAL Model Law on Cross-Border Insolvency (the "Model Law"), which has been enacted in some form by more than 60 countries.
Both chapter 15 and the Model Law are premised upon the principle of international comity, or "the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws." Hilton v. Guyot, 159 U.S. 113, 164 (1895). Chapter 15's stated purpose is "to provide effective mechanisms for dealing with cases of cross-border insolvency" with the objective of, among other things, cooperation between U.S. and non-U.S. courts.
Under section 1515 of the Bankruptcy Code, the representative of a foreign debtor may file a petition in a U.S. bankruptcy court seeking "recognition" of a "foreign proceeding." Section 101(24) of the Bankruptcy Code defines "foreign representative" as "a person or body, including a person or body appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor's assets or affairs or to act as a representative of such foreign proceeding."
The basic requirements for recognition under chapter 15 are outlined in section 1517(a), namely: (i) the proceeding must be "a foreign main proceeding or foreign nonmain proceeding" within the meaning of section 1502; (ii) the "foreign representative" applying for recognition must be a "person or body"; and (iii) the petition must satisfy the requirements of section 1515, including that it be supported by the documentary evidence specified in section 1515(b).
"Foreign proceeding" is defined in section 101(23) of the Bankruptcy Code as:
[A] collective judicial or administrative proceeding in a foreign country, including an interim proceeding, under a law relating to insolvency or adjustment of debt in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation.
More than one bankruptcy or insolvency proceeding may be pending with respect to the same foreign debtor in different countries. Chapter 15 therefore contemplates recognition in the United States of both a foreign "main" proceeding—a case pending in the country where the debtor's center of main interests ("COMI") is located (see 11 U.S.C. § 1502(4))—and foreign "nonmain" proceedings, which may be pending in countries where the debtor merely has an "establishment" (see 11 U.S.C. § 1502(5)). A debtor's COMI is presumed to be the location of the debtor's registered office, or habitual residence in the case of an individual. See 11 U.S.C. § 1516(c).
Upon recognition of a foreign "main" proceeding, section 1520(a) of the Bankruptcy Code provides that certain provisions of the Bankruptcy Code automatically come into force, including: (i) the automatic stay preventing creditor collection efforts with respect to the debtor or its U.S. assets (section 362, subject to certain enumerated exceptions); (ii) the right of any entity asserting an interest in the debtor's U.S. assets to "adequate protection" of that interest (section 361); and (iii) restrictions on use, sale, lease, transfer or encumbrance of the debtor's U.S. assets (sections 363, 549, and 552).
Following recognition of a foreign main or nonmain proceeding, section 1521(a) provides that, to the extent not already in effect, and "where necessary to effectuate the purpose of [chapter 15] and to protect the assets of the debtor or the interests of the creditors," the bankruptcy court may grant "any appropriate relief," including a stay of any action against the debtor or its U.S. assets not covered by the automatic stay, an order suspending the debtor's right to transfer or encumber its U.S. assets, and "any additional relief that may be available to a trustee," with certain exceptions. Such post-recognition relief "is largely discretionary and turns on subjective factors that embody principles of comity." In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd., 329 B.R. 325, 333 (S.D.N.Y. 2008).
Under section 1521(b), the court may "at the request of the foreign representative,
entrust the distribution of all or part of the debtor's assets located in the United States to the foreign representative or another person, including an examiner, authorized by the court, provided that the court is satisfied that the interests of creditors in the United States are sufficiently protected."
Section 1522(a) provides that the bankruptcy court may exercise its discretion to order the relief authorized by section 1519 (authorizing certain pre-recognition relief) or 1521 "only if the interests of the creditors and other interested entities, including the debtor, are sufficiently protected."
"Sufficient protection" with the meaning of section 1521(b) has three elements: (i) just treatment of all creditors; (ii) protection of U.S. creditors against prejudice and inconvenience arising from having to assert their claims in in the foreign proceeding; and (iii) distribution of the assets of the foreign debtor's estate in accordance with the priorities established under U.S. law. See In re Markus, 610 B.R. 64, 76 (Bankr. S.D.N.Y. 2019), aff'd, 620 B.R. 31 (S.D.N.Y. 2020) (citing In re Atlas Shipping A/S, 404 B.R. 726 (Bankr. S.D.N.Y. 2009)); see also In re ENNIA Caribe Holding N.V., 596 B.R. 316, 322 (Bankr. S.D.N.Y. 2019) (noting that a determination of sufficient protection "requires a balancing of the respective parties' interests").
Similar to section 1521(a), section 1507 of the Bankruptcy Code states that, post-recognition, the court may provide "additional assistance" to a foreign representative under the Bankruptcy Code "or under other laws of the United States." In determining whether to provide such relief, the court must consider whether such assistance, "consistent with the principles of comity," will reasonably ensure, among other things: (i) just treatment of all creditors and interest holders; (ii) protection of U.S. creditors "against prejudice and inconvenience in the processing of claims in such foreign proceeding"; and (iii) "distribution of proceeds of the debtor's property substantially in accordance with the order prescribed" in the Bankruptcy Code.
Section 1506 of the Bankruptcy Code sets forth a "public policy exception" to the relief otherwise authorized in chapter 15, providing that "[n]othing in this chapter prevents the court from refusing to take an action governed by this chapter if the action would be manifestly contrary to the public policy of the United States." However, section 1506 requires a "narrow reading" and "does not create an exception for any action under Chapter 15 that may conflict with public policy, but only an action that is 'manifestly contrary.'" In re Fairfield Sentry Ltd., 714 F.3d 127, 139 (2d Cir. 2013) (also noting that "[t]he word 'manifestly' … restricts the public policy restriction to the most fundamental policies of the United States.") (quoting H.R. Rep. No. 109-31, pt. 1, at 109 (2005)); accord In re ABC Learning Ctrs. Ltd., 728 F.3d 301, 309 (3d Cir. 2013) (the public policy exception should be invoked only under exceptional circumstances concerning matters of "fundamental importance" to the United States); Jaffé v. Samsung Elecs. Co., 737 F.3d 14, 27 (4th Cir. 2013); In re Vitro S.A.B. de C.V., 701 F.3d 1031, 1069 (5th Cir. 2012). The public policy exception is applicable "where the procedural fairness of the foreign proceeding is in doubt or cannot be cured by the adoption of additional protections" or where recognition or other chapter 15 relief "would impinge severely a U.S. constitutional or statutory right." In re Qimonda AG Bankr. Litig., 433 B.R. 547, 570 (E.D. Va. 2010).
Reverse Vesting Transactions Under Canadian Law
RVTs have no parallel under chapter 11 of the Bankruptcy Code. Under an RVT, a debtor in a Canadian insolvency proceeding cancels all of its existing stock and issues new equity to a designated purchaser, which wishes to acquire preferred assets and liabilities but declines to purchase certain excluded assets and liabilities that are transferred to an entity specifically formed to hold the residuals (a "ResidualCo"). The purchased company, which holds only the assets and liabilities that the purchaser wants, may then exit the insolvency proceeding, with the ResidualCo substituted as the debtor. The presiding court then approves the RVT in an RVO.
RVOs are a relatively new and unusual yet popular innovation in proceedings under Canada's Companies' Creditors Arrangement Act (the "CCAA"). RVOs are sometimes perceived with skepticism because they are not expressly contemplated by the CCAA. Instead, Canadian courts—in more than 25 cases in 2024 alone—have relied for authority principally upon the wide latitude given to courts under section 11 of the CCAA. That section provides that "the court, on the application of any person interested in the matter, may, subject to the restrictions set out in [the CCAA], on notice to any other person or without notice as it may see fit, make any order that it considers appropriate in the circumstances." R.S.C., 1985, c. C-36, § 11. Courts considering a request to issue an RVO apply the following factors set forth in section 36(3) of the CCAA (the "section 36(3) factors"), which are normally used to evaluate asset sale transactions:
- whether the process leading to the proposed sale or disposition was reasonable in the circumstances;
- whether the monitor approved the process leading to the proposed sale or disposition;
- whether the monitor filed with the court a report stating that in their opinion the sale or disposition would be more beneficial to the creditors than a sale or disposition under a bankruptcy;
- the extent to which the creditors were consulted;
- the effects of the proposed sale or disposition on the creditors and other interested parties; and
- whether the consideration to be received for the assets is reasonable and fair, taking into account their market value.
R.S.C., 1985, c. C-36, § 36. In addition to the section 36(3) factors, courts consider: (i) the need for the RVO; (ii) whether its terms produce an economic result that is at least as favorable as any viable alternative; (iii) whether any stakeholders are treated less favorably under the RVO than under any viable alternative; and (iv) whether the purchase price for the debtor's business accurately reflects the importance and value of licenses, permits, and other intangible assets that are preserved under the RVO (the "Harte Gold factors"). See Harte Gold Corp. (Re), 2022 ONSC 653, para. 38 (Can. Ont. S.C.).
The rising popularity of Canadian RVOs has been accompanied by an increase in applications seeking chapter 15 recognition and enforcement of such orders in the United States, with many U.S. bankruptcy courts granting such recognition. See, e.g., In re Voxtur Analytics Corp., No. 25-11996 (JKS) (Bankr. D. Del. Feb. 13, 2026); In re STS Renewables Ltd., No. 25-10884 (KBO) (Bankr. D. Del. Oct. 28, 2025); In re The Lion Elec. Co., No. 24-18898 (DDC) (Bankr. N.D. Ill. June 26, 2025); In re Chesswood Grp., No. 24-12454 (CTG) (Bankr. D. Del. Mar. 24, 2025); In re 9139249 Canada Inc., No. 24-19627 (VZ) (Bankr. C.D. Cal. Jan. 10, 2025); In re Elevation Gold Mining Corp., No. 24-06359 (Bankr. D. Ariz. Dec. 30, 2024); In re VBI Vaccines (Delaware) Inc., No. 24-11623 (BLS) (Bankr. D. Del. Nov. 20, 2024); In re Contract Pharm. Ltd., No. 24-10915 (BLS) (Bankr. D. Del. May 28, 2024); In re NextPoint Fin., No. 23-10983 (TMH) (Bankr. D. Del. Dec. 11, 2023); In re Endoceutics Inc., No. 22-11641 (Bankr. D. Mass. Oct. 12, 2023); In re Acerus Pharm. Corp., No. 23-10111 (TMH) (Bankr. D. Del. June 13, 2023); In re Just Energy Grp., No. 21-30823 (Bankr. S.D. Tex. Dec. 1, 2022).
However, in the only written opinion discussing the basis for recognition, a Delaware bankruptcy court granted the petition due to the absence of objections, but cautioned that it may have ruled otherwise if there had been any resistance and that its holding should consequently not be relied on as precedent. See In re Goli Nutrition Inc., 2024 WL 1748460 (Bankr. D. Del. Apr. 23, 2024).
Iovate
Ontario, Canada-based Iovate Health Sciences Int'l Inc. ("IHS") manufactures internationally marketed nutritional supplements. In September 2025, IHS and its Canadian affiliates (collectively, the "Canadian debtors") commenced a proceeding under Canada's Bankruptcy and Insolvency Act (the "BIA"). Shortly afterward, IHS as the foreign representative ("FR") for itself and U.S. affiliates Iovate Health Sciences U.S.A. Inc. and Northern Innovations Holding Corp. (collectively, the "U.S. debtors") filed a petition in the U.S. Bankruptcy Court for the Southern District of New York (the "U.S. bankruptcy court") seeking recognition of the BIA proceeding under chapter 15.
Pending its ruling on the recognition petition, the U.S. bankruptcy court granted provisional relief to the FR under section 1519 and various other provisions of the Bankruptcy Code in the form of an order that, among other things, enjoining all creditor collection efforts against the U.S. debtors and their U.S. assets and recognized the FR as the U.S. debtors' foreign representative.
On October 31, 2025, the Ontario Superior Court of Justice (the "Canadian court") granted the Canadian debtors' request to convert the BIA proceeding to a proceeding under the CCAA (the "CCAA proceeding"). After having granted chapter 15 recognition to the BIA proceeding on October 28, 2025, the U.S. bankruptcy court entered an amended order on November 12, 2025, recognizing the CCAA proceeding.
The Canadian court later issued an order approving a sale and investment solicitation process with respect to IHS's assets under the supervision of a court-appointed monitor. The Canadian court gave the monitor enhanced power to supervise and manage the Canadian debtors' business to ensure a fair administration of the CCAA proceeding and the sale and investment solicitation process ("SISP"), including the power to exercise any powers that could be properly exercised by a board of directors of the Canadian debtors. The monitor received 10 letters of intent by the Phase 1 bid deadline, from which four offers were received, only two of which were in the form required by the SISP. Following marketing efforts, the monitor ultimately selected an offer submitted by Xiwang Iovate Holdings Co. Ltd. ("Iovate Holdings") and 1001542267 Ontario Inc. ("Ontario," and collectively, the "purchaser"). The purchase involved, among other things, an RVT memorialized in a subscription agreement.
In accordance with the RVT, after IHS issued new common stock to the purchaser and cancelled its existing equity, certain excluded assets, contracts, and liabilities owned by the U.S. debtors (the "excluded property") would be transferred to a newly formed ResidualCo in accordance with the terms of an RVO issued by the Canadian court. The subscription agreement was structured as an RVT because IHS possessed multiple nontransferable licenses to import and sell its goods in Canada.
The structure also would preserve approximately US$114 million in non-capital losses available to be carried forward that could not be preserved through an asset sale and would help ensure that contracts remained with the company through an expedited process. The RVT would allow the purchaser to acquire the U.S. debtors' assets and business "free and clear" of liens, claims, and encumbrances while still retaining the otherwise untransferable licenses. The RVT also provides that the purchaser and IHS would release the monitor and its affiliates, officers, directors, employees, and advisors from all liabilities related to the transaction.
After applying the section 36(3) and Harte Gold factors, the Canadian court approved the RVT (including the third-party releases, which are permitted under Canadian law) and issued the RVO on or about April 16, 2026. It also approved an "ancillary order" authorizing the monitor to make payments to an agent bank for a syndicate of lenders and a sales agent in accordance with the terms of an engagement letter governing the RVT.
The FR then sought entry of an order by the U.S. bankruptcy court recognizing and enforcing the RVO under sections 1507 and 1521 of the Bankruptcy Code, approving the transfer of the excluded property under section 363(b) of the Bankruptcy Code, and granting certain related relief.
The Bankruptcy Court's Ruling
The U.S. bankruptcy court granted the FR's motion in part.
Initially, Chief U.S. Bankruptcy Judge Martin Glenn noted that bankruptcy courts have "exceedingly broad" authority to grant post-recognition discretionary relief under sections 1507 and 1521 of the Bankruptcy Code. Moreover, he explained, "[the] Court is not limited in granting potential relief by the bounds of relief that would otherwise be available if this was [a] proceeding under Chapter 11, 'provided that such assistance is consistent with the principles of comity and satisfies fairness considerations set forth in Section 1507(b)' … or the sufficient protection considerations of Section 1522." Iovate, 2026 WL 1295907, at *10 (quoting In re Rede Energia S.A., 515 B.R. 69, 90 (Bankr. S.D.N.Y. 2014)).
Next, the U.S. bankruptcy court determined that chapter 15 recognition and enforcement of the RVO was warranted as a matter of comity. Judge Glenn explained that:
- S. bankruptcy courts regularly recognize CCAA proceedings and enforce orders issued in connection with such proceedings by Canadian courts.
- Based on the Canadian court's findings in approving the RVT and issuing the RVO, the RVO would sufficiently protect creditor interests, thereby satisfying section 1522. "Importantly," Judge Glenn emphasized, the RVO did not extinguish any creditor claims, which could still be asserted according to their original priorities against Iovate Holdings, the U.S. debtors, and certain affiliates, if such liabilities were retained, or against ResidualCo, if they were not. Because the RVO satisfied section 1522, the court noted, it need not determine whether it was appropriate under section 1507. Moreover, recognition of the RVO was an appropriate grant of "additional relief" under section 1521(a)(7).
- Recognition of the RVO was not manifestly contrary to U.S. public policy within the meaning of section 1506. Although the RVT structure differed from the way a debtor would proceed under chapter 11, the rights of all stakeholders were protected in the transaction.
Id. at **10–11.
Next, the bankruptcy court determined that the propriety of the RVT cannot be assessed in accordance with the standards applied to bankruptcy asset sales under section 363(b) of the Bankruptcy Code, which, as noted previously, applies in chapter 15 cases upon recognition of a foreign proceeding pursuant to section 1520(a). According to Judge Glenn, the RVT did not involve an asset sale or the transfer of a debtor's U.S. property, but the issuance of new stock in a Canadian company to the purchaser. During the May 6, 2026, hearing, the FR represented to the court that physical assets currently located in the United States would not constitute any of the excluded property. That representation provided the factual basis for the court's determination that the U.S. debtors' transfer of the excluded property did not implicate section 363(b) because the excluded property did not include any of the U.S. debtors' assets located in the United States. Id. at *11 (discussing Goli Nutrition).
Even so, the U.S. bankruptcy court found that the purchaser acted in good faith and was therefore entitled to the protections set forth in section 363(m) of the Bankruptcy Code, which provides that the reversal or modification on appeal of an order authorizing an asset sale does not impact the validity of the sale to a good faith purchaser unless the party challenging it obtained a stay pending the appeal. The monitor was informed that the purchaser was not related to IHS under section 36 of the CCAA, which would have required satisfaction of more stringent criteria if the purchaser were related. Nonetheless, the monitor conducted the section 36 analysis and found that its factors were satisfied. The SISP ensured broad market canvassing, and the FR had no knowledge of fraud or collusion. Id. at *12.
Finally, the U.S. bankruptcy court enforced the third-party release in the RVO, even though such releases might not be permissible in a chapter 11 case. Drawing on In re Crédito Real, S.A.B. de C.V., 677 B.R. 192 (S.D.N.Y. 2026), and In re Odebrecht Engenharia e Construção S.A., 669 B.R. 457 (Bankr. S.D.N.Y. 2025), Judge Glenn explained that sections 1521 and 1507 grant courts significantly broader authority than section 1123(b) because they permit courts to grant "any appropriate relief" or "any additional relief that may be available to a trustee," whereas section 1123(b) merely permits plan provisions not inconsistent with the Bankruptcy Code. The limitation under section 1521(a) is not whether the relief resembles the enumerated types in subsections (a)(1)–(7), but whether the relief is available to a trustee. Judge Glenn further explained that the releases: (i) were formulated to ensure sufficient protection of all stakeholders; (ii) were limited to any claims against the released parties relating to the RVT; and (iii) did not extend to claims amounting to fraud or willful misconduct. Id.
Outlook
The bankruptcy court's decision in Iovate is noteworthy for several reasons. It represents the first time that a bankruptcy court in the Second Circuit has weighed in on the propriety in a chapter 15 case of recognizing and enforcing an RVO—which has no direct correlation in a case under chapter 11 of the Bankruptcy Code.
Key takeaways from the ruling include:
- Absence of Corresponding Structure Under U.S. Bankruptcy Law Not an Impediment to Chapter 15 Recognition or Enforcement. Under principles of comity, the fact that a foreign restructuring regime (or an order issued by a foreign court in a foreign bankruptcy proceeding) differs from U.S. law or practice does not in and of itself mean that a U.S. bankruptcy court should not recognize the foreign bankruptcy or enforce the foreign court's orders. Instead, the U.S. bankruptcy court examines whether the foreign proceeding is substantively and procedurally fair, adequately protects stakeholders interests, and is not manifestly contrary to U.S. public policy.
- Enforcement of Nonconsensual Third-Party Releases in Chapter 15. Even though the U.S. Supreme Court's ruling in Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024), that the Bankruptcy Code does not permit nonconsensual, third-party releases under non-asbestos chapter 11 plans that do not pay creditors in full, bankruptcy courts in chapter 15 cases have enforced such releases approved by foreign bankruptcy courts. See, e.g., In re Crédito Real, S.A.B. de C.V., 677 B.R. 192 (S.D.N.Y. 2026); In re Odebrecht Engenharia e Construção S.A., 669 B.R. 457 (Bankr. S.D.N.Y. 2025); In re Mega Newco, Ltd., 2025 WL 601463 (Bankr. S.D.N.Y. Feb. 24, 2025).
- No Scrutiny of RVT/RVO under Section 363(b). Even though section 363(b) of the Bankruptcy Code applies in chapter 15 cases post-recognition, it was inappropriate to analyze the propriety of the RVT and RVO in Iovate under the standards normally applied to bankruptcy asset sales under section 363(b) because the stock issuance to the purchaser was not a sale of assets and no transfer of U.S. assets was involved.
- Chapter 15 as a Flexible Tool for Cross-Border Restructurings. As multinational enterprises with U.S. assets and operations increasingly become the subject of non-U.S. insolvency proceedings, Iovate highlights the capacity of chapter 15 to accommodate foreign restructuring mechanisms—even those without a direct analogue under U.S. law. The broad discretionary relief available under sections 1507 and 1521, tempered by the sufficient-protection requirements of section 1522 and the narrow public policy exception of section 1506, provides U.S. courts with a flexible yet principled framework for giving effect to foreign court orders in aid of cross-border restructurings.
Postscript
On September 23, 2026, Judge Craig T. Goldblatt of the U.S. Bankruptcy Court for the District of Delaware granted chapter 15 recognition and enforcement of an RVO issued by a Canadian court for Thentia Global Systems Inc. approving a sale of substantially all of the Canadian company's assets. In so ruling, he overruled an objection by a litigation creditor arguing that recognition and enforcement of the third-party releases approved by the Canadian court in the RVO was manifestly contrary to U.S. public policy. According to the bankruptcy court, the creditor failed to object to the releases before the Canadian court, the public policy exception in section 1506 of the Bankruptcy Code is narrow in scope, and the international comity underpinning chapter 15 is an essential element of cross-border bankruptcy cases. See Thentia Global Systems Inc., No. 26-10222 (CTG) (Bankr. D. Del. Sept. 23, 2026).
