Chapter 15's Automatic Stay

A recent Delaware District Court ruling in In re Point Investments, Ltd. has highlighted important distinctions between cross-border bankruptcy cases under Chapter 15 and other U.S. bankruptcy proceedings, particularly regarding the automatic stay's scope and application. This decision underscores the unique role U.S. bankruptcy courts play in supporting foreign bankruptcy proceedings.

The automatic stay typically prevents creditors from collecting debts once a bankruptcy petition is filed. However, in Chapter 15 cases, which govern cross-border bankruptcies, the stay only takes effect after a U.S. court formally recognizes the foreign bankruptcy as a "main" proceeding. This recognition process reflects Chapter 15's foundation in international comity—the principle of courts respecting and cooperating with foreign jurisdictions' legal decisions.

The Point Investments case emerged when Falcata, a Cayman Islands investment fund, filed an adversary proceeding against Point Investments (a Bermuda corporation) in U.S. bankruptcy court, despite an existing recognition order. The case centered on whether this filing violated the automatic stay and if the "home court" rule—which typically allows adversary proceedings in the bankruptcy court handling the case—applied in Chapter 15 proceedings.

Key distinctions between Chapter 15 and other bankruptcy chapters shaped the court's analysis:

First, unlike traditional bankruptcy cases, Chapter 15 filings don't create a U.S. bankruptcy estate. Instead, the debtor's assets remain under the foreign court's administration, with U.S. courts providing cooperative assistance regarding U.S.-based assets. This fundamental difference affects how claims are handled creditors must file and resolve claims in the foreign bankruptcy court rather than the U.S. court.

Second, the "home court" rule, which treats adversary proceedings as equivalent to filing proofs of claim, doesn't apply in Chapter 15 cases. The Delaware court explained this exception exists because U.S. courts don't adjudicate claims in Chapter 15 proceedings—that authority remains with the foreign bankruptcy court.

In Point Investments, the District Court affirmed the bankruptcy court's decision that:

• Falcata's adversary proceeding violated the automatic stay

• The home court rule didn't apply because the foreign main proceeding served as the actual home court

• Stay relief wasn't warranted

• The Bermuda proceeding was the proper forum for resolving the dispute

The court emphasized that forcing the debtor to address claims in multiple countries would create undue prejudice, particularly given Chapter 15's limited scope. Importantly, the court rejected arguments that requiring creditors to pursue claims in foreign jurisdictions was unfair, noting that U.S. courts have repeatedly recognized Bermuda bankruptcy proceedings under Chapter 15.

This ruling carries several significant implications for cross-border bankruptcy practice:

1. The automatic stay in Chapter 15 cases activates only upon recognition of the foreign proceeding, not at filing

2. U.S. bankruptcy courts serve an auxiliary role, supporting rather than replacing foreign bankruptcy proceedings

3. Creditors must generally pursue their claims in the foreign bankruptcy court

4. U.S. courts expect domestic creditors to participate in recognized foreign proceedings, just as foreign creditors must participate in U.S. bankruptcy cases

The decision reinforces Chapter 15's core purpose: facilitating international cooperation in cross-border insolvencies while respecting the primary jurisdiction of foreign bankruptcy courts. It demonstrates how U.S. courts balance protecting creditor interests with international comity principles, ensuring that cross-border insolvencies proceed efficiently and fairly within their jurisdictional limits.

For practitioners and creditors, this ruling emphasizes the importance of understanding Chapter 15's unique framework when dealing with cross-border insolvencies. It particularly highlights the need to timely pursue claims in the appropriate foreign forum rather than assuming U.S. bankruptcy courts will adjudicate such matters. This approach promotes the orderly administration of international bankruptcy cases while respecting the jurisdictional boundaries established by Chapter 15.