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The European Commission (Commission) adopted its long-anticipated guidelines on the scope of obligations for general-purpose artificial intelligence (GPAI) models under Regulation (EU) 2024/1689 (AI Act) (Guidelines) on July 18, 2025. The Guidelines closely follow the publication of the Commission’s and AI Office’s GPAI Code of Practice (Code), which outlines several measures that providers of GPAI models can take to comply with their obligations under the AI Act. Further information on the Code, including key provisions for organizations, is outlined in DLA Piper’s summary of the Code.

What are the Guidelines?

The Guidelines are part of a broader package of guidance tied to the obligations of GPAI model providers that entered into application on August 2, 2025. The Guidelines outline the Commission’s interpretation of the obligations for GPAI model providers, set out in Chapter V of the AI Act. While they are non-binding, the Guidelines provide valuable insight into the likely approach that national regulators will take in interpreting and enforcing the provisions of the AI Act.

The Guidelines provide clarity to operators, including providers, downstream providers, and deployers, across several key considerations in application of the AI Act’s GPAI model obligations. These include:

• What constitutes a GPAI model
• When a GPAI model poses a systemic risk
• When a modification converts a downstream party into GPAI model provider
• Nuances regarding exceptions for open-source models
• Enforcement and transition periods

These key elements are outlined in further detail below.

It is important to note that while the Guidelines offer valuable direction to providers and downstream parties (such as organizations integrating models into their AI systems), ambiguity remains, particularly with respect to enforcement timeframes and grandfathering provisions. Therefore, organizations are encouraged to carefully assess their models’ compliance status against additional insights provided by the Commission and the AI Office.

Definition and scope of GPAI models

A key component of the Guidelines is its further detail on what is considered a GPAI model.

Article 3(63) of the AI Act defines a GPAI model as

“an AI model, including where such an AI model is trained with a large amount of data using self-supervision at scale, that displays significant generality and is capable of competently performing a wide range of distinct tasks regardless of the way the model is placed on the market and that can be integrated into a variety of downstream systems or applications, except AI models that are used for research, development or prototyping activities before they are placed on the market.”

This definition, on publication of the final text of the AI Act, received heavy criticism, due to its vague characteristics that could be broadly interpreted.

The Guidelines note that it is not feasible to provide a precise list of characteristics that would clearly display when a model meets this definition. Instead, they interpret the definition in a more restricted manner and focus on whether the model

• Is trained with at least 10²³ FLOPs (floating-point operations)
• Can generate language (text or audio), text-to-image, or text-to-video outputs, and
• Is capable of competently performing a wide range of distinct tasks.

The guidelines concede, however, that models below the above threshold may still qualify as GPAI models, and vice versa, depending on whether they demonstrate “significant generality,” which remains undefined. Illustrative examples are provided of models that are likely to fall out of scope, such as models with defined tasks (eg, weather modeling). While the vague nature of classification is likely deliberate to accommodate rapid developments in technology, it nevertheless continues the ongoing uncertainty around what constitutes a GPAI model and requires organizations to closely assess the capabilities of their models for compliance purposes.

The Guidelines emphasize the AI Act’s intent to classify GPAI models based on their general applicability and broad capabilities. However, it is noted that the Commission envisages that these characteristics may evolve over time to keep with the development of technologies, as has already been demonstrated, for example, when draft guidelines on GPAI models originally required a lower compute threshold of 10²² FLOPs.

Any transformations of models trained with greater than 10²³ FLOPs, such as distillations or quantized versions of the models, must take into account the FLOPs used in creating the original model, not just the compute power used in the distillation or quantization. This means that smaller/more computationally efficient variants of larger models will still be considered GPAI if the larger variants from which they were produced met the relevant test.

GPAI models with systemic risk

The Guidelines also clarify the specific criteria that categorize a GPAI model to have systemic risk.

Article 51(1) of the AI Act states that a GPAI model poses a systemic risk if it

• Has certain “high-impact capabilities,” or
• Is designated as a GPAI model with systemic risk by the Commission.

High-impact capabilities are presumed if the GPAI model’s cumulative training compute exceeds 10²⁵ FLOPs.

The Guidelines outline that organizations may contest the presumption of systemic risk classification if they demonstrate, based on the model’s capabilities, that the model does not present a systemic risk, despite meeting the compute threshold. It is important to note that organizations must clearly demonstrate that a GPAI model does not pose a systemic risk for the presumption to be rebutted, for which demonstrating that various potential emergent properties have not, and will not, manifest in the resulting model can be difficult. It is not sufficient to demonstrate that a systemic risk is mitigated through appropriate measures, although such measures may form part of the risk mitigation plan for the model outlined under Article 55(1) of the AI Act.

The criteria for rebutting this presumption are qualitative and discretionary, and the organization rebutting the presumption is responsible for providing sufficient evidence. The Commission retains broad interpretative leeway in determining whether a model’s capabilities match or exceed those of “the most advanced models” – itself a standard left deliberately broad on the basis that it is expected to evolve.

Downstream modifications

The Guidelines also attempt to clarify when a model is significantly changed, therefore becoming a new model, resulting in the organization becoming a GPAI model provider.

Downstream actors, who modify a GPAI model leading to a “significant change” in the model’s generality, capabilities, or systemic risk, may be considered providers of a separate model. The Commission outlines that the degree of modification required to be considered a “significant change” is to be assessed on a case-by-case basis.

A significant change will generally be presumed if the modification uses more than one-third of the original model’s training compute. The Guidelines acknowledge that it may be difficult to apply the one-third threshold where the original compute is unknown, though it notes that few current modifications are expected to meet this threshold. Given the lack of specificity around “significant change” to a model’s generality, capability, or systemic risk, providers and downstream operators are encouraged to carefully consider whether work on a model constitutes a development that forms part of the original lifecycle, or whether a significant change has occurred giving rise to a new model. We have seen examples of institutions undertaking fine-tuning training on open-weights pre-trained models where that fine-tuning has rapidly had a material impact on model capabilities, even when the tuning data set is not particularly large, nor the compute expended anywhere near one-third of the compute expended creating the underlying pre-trained model. Therefore, it seems possible that “significant change” to a GPAI model’s generality or capability could be made well before the “one-third of original compute” threshold is reached.

New models and their providers (the downstream organization making the substantial change) will be immediately subject to the requirements of the AI Act and will not benefit from the grandfathering provisions outlined in Article 111(3) of the AI Act (see enforcement timeline below).

Open-source exemptions

The Guidelines clarify that GPAI models may be exempt if they use a genuinely free and open-source license; are not monetized (eg, through accessory support or professional services offered against a fee); and publicly disclose model weights, architecture, and usage information. For instance, imposing usage limitations, requiring supplementary licensing, or restricting public access to model parameters (including its weights) would not be deemed as falling into the open-source exemption.

Enforcement and the transitional period

The Guidelines clarify that providers placing GPAI models on the market before August 2, 2025 have until August 2, 2027 to comply with their obligations under the AI Act. Models that are nearly ready for use but are not actually made available on the market before this time will not benefit from the extension.

The Guidelines suggest that providers expecting compliance difficulties after August 2, 2025 should proactively inform the AI Office of how and when they intend to comply. Given the narrow timeline associated with the grandfathering mechanism, the ambiguities surrounding enforcement present a challenge for providers seeking to assess the compliance risk of a later deployment.

Next steps for operators

In preparation for the GPAI model obligations of the AI Act taking effect, organizations should consider the following steps:

• Model providers should determine whether:
• Any models would be categorized as a GPAI model or GPAI model with systemic risk
• Any exemptions to the classifications apply, or
• They may benefit from the transitional grandfathering provisions that extend compliance timelines for existing GPAI models.
• Downstream operators should assess whether their modifications to existing GPAI models may result in them becoming model providers.
• GPAI model providers should review and update documentation, copyright policies, and training data summaries to align with applicable obligations under Chapter V of the AI Act.
• GPAI model providers should consider whether adherence to the Code may streamline compliance with applicable obligations.

Find out more

DLA Piper’s team of AI lawyers, data scientists, and policy experts helps organizations navigate the complex workings of their AI systems and comply with current and developing regulatory requirements. We continuously monitor updates and developments arising in AI and their impact on industry across the world.

For more information on AI and the emerging legal and regulatory standards, visit DLA Piper’s focus page on AI.

Gain insights and perspectives that will help shape your AI strategy through our AI ChatRoom series.

For further information or if you have any questions, please contact any of the authors.

The US Bankruptcy Court for the Southern District of New York recently issued a ruling in In re Giftcraft Ltd., Case No. 25-11030, granting provisional relief to Giftcraft Ltd. (Giftcraft Canada) – a company organized under the laws of Ontario, Canada – as well as three affiliates (the US Debtors) organized, respectively, under the laws of New York, Delaware, and Oregon.

In granting provisional relief on June 4, 2025, the court concluded that, although the US Debtors were not incorporated or formed under Canadian law, they had their center of main interests (COMI) in Canada and thus were eligible for relief under chapter 15 of the US Bankruptcy Code.

Background

Giftcraft Holdings, Inc. (GHI) and its affiliates (collectively, the Debtors) are a group of seven companies that operate as retailers and distributors of gifts, novelty items, jewelry, decor apparel, and other items. The direct and indirect subsidiaries of GHI include Giftcraft Canada, Giftcraft Midco, Inc. (Midco), Giftcraft Holdings USA Inc. (GH USA), Yosox USA Inc. (Yosox), Giftcraft Inc. (Giftcraft US), and RipSkirt Hawaii, LLC (RipSkirt).

To provide a sense of the relationship between the Canadian and US entities, the Debtors’ corporate structure is depicted in the following diagram:

The Debtors financed their operations utilizing various credit facilities provided by Royal Bank of Canada (RBC), with the obligations thereunder secured by liens on the Debtors’ assets, including a first-ranking security interest in all present or after-acquired personal property of each of the US-based Debtors.

Financial distress

In February 2025, RBC notified Midco and Giftcraft Canada that they had breached various covenants under the credit facility, resulting in events of default. As of March 19, 2025, the Borrowers collectively were indebted to RBC in the aggregate principal amounts of approximately USD27.1 million and CAD10.9 million.

The Debtors entered into a forbearance agreement with RBC, under which RBC conditionally agreed to refrain from exercising enforcement rights until April 30, 2025.

The forbearance agreement afforded the Debtors’ management time to (1) wind down their unprofitable business segment that specialized in sales to specialty retailers, (2) focus on more profitable key account sales, and (3) sell aged inventory to generate cash flow.

During the early stages of the forbearance period, the Debtors were able to manage cash flow and meet their reporting requirements. However, according to the Verified Petition (defined below), following the imposition of global tariffs by the US government in April 2025, the Debtors’ primary profit-generating business segment, RipSkirt, experienced an extraordinary decline in sales. The Debtors requested an extension of the forbearance period, which RBC declined to grant, and the forbearance period expired on April 30, 2025.

Canadian receivership

On May 9, 2025, RBC filed an application with the Ontario Superior Court of Justice seeking the appointment of KPMG Inc. – a licensed insolvency trustee – as receiver, to secure the Debtors’ assets and to review strategic alternatives with the goal of maximizing value for all stakeholders.

On May 14, 2025, the Canadian court issued an order appointing KPMG as receiver of the Debtors on a provisional basis, thus implementing the Giftcraft receivership under Canadian law. Under the appointment order, all property and assets of the Debtors became vested in KPMG and all collection and enforcement efforts against the Debtors were stayed.

On May 20, 2025, KPMG, as the Foreign Representative of the Debtors, filed the Verified Petition for (I) Recognition of Foreign Main Proceedings, (II) Recognition of Foreign Representative, and (III) Related Relief Under Chapter 15 of the Bankruptcy Code. Contemporaneously, KPMG filed a motion seeking entry of an order granting the following provisional relief (pending a final hearing on the Verified Petition):

“(a) providing that Bankruptcy Code sections 362 and 365 apply to the Debtors and their property located within the territorial jurisdiction of the United States;

(b) giving full force and effect to the Appointment Order on a provisional basis, including the stay provisions therein and the powers granted to the Receiver;

(c) recognizing KPMG as the representative of the Debtors with full authority to administer their assets and affairs in the United States; and

(d) granting certain procedural relief and such other relief as the Court deems just and proper.”

The court held an initial hearing on the motion on May 22, 2025, at which the court indicated that it would grant provisional relief to Giftcraft Canada for a 14-day period. The court declined to grant relief to the other Debtors pending an entity-by-entity COMI analysis. To assist in this analysis, on May 27, 2025, KPMG submitted a supplemental memorandum of law and a supplemental declaration.

KPMG supplemental filings

As an initial matter, supplemental filings stated that KPMG, as Foreign Representative, had determined to withdraw the request for recognition of the receivership with respect to GH USA, GHI, and Midco (collectively, the Nonmoving Debtors).

According to KPMG, none of Nonmoving Debtors required urgent provisional relief as none had any operations, assets, bank accounts, or customers. Accordingly, KPMG sought to narrow the scope of the court’s analysis and to seek provisional relief only for Giftcraft Canada, Giftcraft US, RipSkirt, and Yosox (the Moving Debtors).

Next, the supplemental memorandum set forth the legal requirements for obtaining chapter 15 recognition of a foreign proceedings, including that the court must find that the foreign proceeding is either a main or nonmain proceeding as to each debtor. A main proceeding is one pending in the country where the debtor has its COMI and a nonmain proceeding is one pending in the country where the debtor has an establishment, ie, a place of business where the debtor carries out nontransitory economic activity.

KPMG noted that there is a rebuttable presumption that a debtor’s registered office is its COMI, but explained that this presumption can be overcome based on consideration of other factors, including the (1) location of the debtor’s headquarters, (2) the location of management, (3) the location of primary assets, (4) the location of a majority of the debtor’s creditors, and (5) the jurisdiction whose law would apply to most disputes involving the debtor. The supplemental memorandum observed that courts have “wide latitude and discretion” in determining COMI, which is determined as of the time a chapter 15 petition is filed.

After citing ample authority for the recognition of a Canadian receivership as a “foreign proceeding” under chapter 15, KPMG focused on the key issue before the court: whether each of the Moving Debtors had its COMI in Canada. KPMG noted that the Debtors “operate a consolidated business with their sole office and headquarters in Canada,” and that Canada served as the hub for all of the companies’ operations throughout the US and Canada. KPMG posited that these operations were “functionally and operationally integrated” so that none of the Debtors organized in the US could operate independently of the Canadian business.

With regard to Giftcraft Canada, KPMG pointed out that the entity was organized under the laws of Ontario, Canada, carried on the Debtors’ business in Canada, and employed 62 individuals (all of which were located in Canada).

Turning to the more contentious issue – whether the US-based Moving Debtors had sufficient connections with Canada to establish COMI there – KPMG explained that each of the Moving Debtors located in the US (1) had no office space in the US, (2) maintained its headquarters at leased premises located at 8550 Airport Road, Brampton, Ontario, (3) maintained its books and records at the leased premises, and (4) utilized a centralized cash management system managed in Brampton, Ontario. In addition, RBC, located in Ontario, Canada, was the primary creditor of each of the Moving Debtors.

In addition, prior to the chapter 15 filing, the Debtors shared one board of directors. Although the five US-based directors resigned from the board upon the commencement of the receivership, the board continued with a single member – Krista Halliday, the President of each of the chapter 15 Debtors – who was located in and worked in Ontario, Canada. Each of the chapter 15 Debtors reports to Halliday.

More significantly, as of the petition date and as a result of the receivership, all property and assets of the Debtors had become vested in KPMG in Canada, providing further weight to the argument that the COMI of each of the Moving Debtors was in Canada.

US Trustee objection

On May 28, 2025, the Office of the US Trustee filed an objection to the provisional relief KPMG was seeking.

The US Trustee argued that the COMI for each of the US-based Moving Debtors was in the US, rather than Canada, based on the fact that each was (1) incorporated in a US state and (2) conducted business and had meaningful assets in the US.

As a result, the US Trustee asserted, provisional relief was not appropriate because KPMG, as Foreign Representative, was not able to meet its burden of establishing a likelihood of success on its request for chapter 15 recognition for each of the US-based Moving Debtors.

Bankruptcy court ruling

On June 4, 2025, the court issued its Memorandum Opinion and Order Granting Provisional Relief, overruling the UST objection and finding that KPMG had satisfied the requirements for provisional relief under Bankruptcy Code section 1519 as to each of Moving Debtors.

The court held that (1) KPMG, as Foreign Representative, had met its burden of establishing a likelihood of success of recognition as to the Moving Debtors, (2) absent provisional relief, imminent and irreparable harm would likely result, (3) the balance of harms favored the Foreign Representative, and (4) granting such relief was in the public interest.

The court stated that “Chapter 15 is not a substitute for Chapters 7 and 11 for US-based debtors,” and that the court is vigilant to prevent abuse of the chapter 15 process. Based on the facts presented, however, the court was satisfied that the Foreign Representative was likely to establish that the COMI of each of the Moving Debtors, as of the petition date, was in Canada.

COMI analysis

The court’s analysis of the COMI of each of the Moving Debtors was key to the ruling granting provisional relief. With regard to Giftcraft Canada, the court noted that the company was organized under the laws of Ontario, Canada – where it had its registered office – and had 62 Canada-based employees performing a wide variety of functions for the corporate enterprise.

Based on the facts presented, and as no party had objected to provisional relief for Giftcraft Canada, the court concluded that the Foreign Representative was likely to obtain recognition of the receivership of Giftcraft Canada as a foreign proceeding.

With respect to the US-Based Moving Debtors (Giftcraft US, RipSkirt, and Yosox), the court noted that each of these parties was organized in the US, creating a rebuttable presumption of COMI in the US. However, the court concluded that this presumption was overcome by the fact that as of the petition date, all property and assets of the Debtors became vested in KPMG, which was granted broad authority to operate the Debtors’ businesses.

The court also observed that the primary creditor of each of these entities was RBC, located in Canada. The court further concluded that the Giftcraft receivership constituted “pre-filing restructuring activities” that suggest that, as of the petition date, the COMI of the US-based Moving Debtors likely was in Canada.

The court therefore concluded that the Foreign Representative was likely to succeed on obtaining recognition of these entities, and granted the requested provisional relief. In reaching this conclusion, the court appears to have credited the factual statements in support of recognition contained in the supplemental filings.

Takeaways of Giftcraft

Central to any effort to obtain relief under chapter 15 is the ability of the Foreign Representative to establish the location of the Debtor’s operations as of the petition date.

As shown by the Giftcraft ruling, (1) the presumption that a US debtor’s COMI is in the state in which it is organized is rebuttable, and (2) COMI can be shifted from that jurisdiction based on business activities and other factors, including prefiling restructuring activities. As a result, an entity organized in the US is not necessarily limited to seeking relief under chapter 7 or chapter 11.

In the aftermath of Giftcraft, an uptick in chapter 15 proceedings by entities organized in the US is possible. The US–Mexico–Canada Agreement, which replaced North American Free Trade Agreement as of July 1, 2020, abolished all requirements in the affected countries that an entity engaged in cross-border transactions must maintain a representative office or be a resident of a country in order to conduct business there.

As a result, an enterprise engaged in business in the US and Canada (or Mexico) need not maintain an office in both countries. This could lead to scenarios where an entity is organized in the US but has its headquarters outside the US – as was the case with the Giftcraft entities.

This could provide significant flexibility for US debtors that have foreign operations. In two recent rulings, bankruptcy courts have upheld the use of nonconsensual third-party releases in chapter 15 cases, notwithstanding the prohibition on such releases under Harrington v. Purdue Pharma LP, 603 U.S. 204 (2024). See our alert (analyzing the rulings in In re Crédito Real, SAB de CV, SOFOM, ENR, Case No. 25-10208 (TMH), 2025 Bankr. LEXIS 751, at *1 (Bankr. D. Del. Apr. 1, 2025) [D.I.65] (involving recognition of a Mexican concurso plan) and In re Odebrecht Engenharia e Construção SA, Case No. 25-10482 (MG), 2025 Bankr. LEXIS 990, at *1 (Bankr. S.D.N.Y. Apr. 21, 2025) [D.I. 23] (involving recognition of a Brazilian recuperação judicial proceeding).

In light of the Giftcraft ruling, the rulings in Credito Real and Odebrecht, and the change in bankruptcy procedure occasioned by the US Supreme Court’s ruling in Purdue Pharma, the US Bankruptcy Courts will likely need to continue to address issues that arise when US-formed entities are part of a foreign proceeding and seek recognition of those proceedings in the US under chapter 15.

For more information, please contact the authors.