Silicon Valley Bank’s Cayman Islands Branch is not Eligible for Chapter 15 Relief

David DaCosta

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff

Chapter 15 of title 11 of the United States Code (the “Bankruptcy Code”) provides for the recognition of foreign insolvency and bankruptcy proceedings.[1] Under section 1501(c) of the Bankruptcy Code, chapter 15 is not available to entities that are not eligible to be debtors under section 109(b) of the Bankruptcy Code (with the exception of foreign insurance companies).[2]  Consequently, banks that are not eligible to be debtors under section 109(b) are also not entitled to relief under chapter 15.[3]

In In re Silicon Valley Bank (Cayman Islands Branch), the United States Bankruptcy Court for the Southern District of New York dismissed the chapter 15 petition filed by the liquidators for Silicon Valley Bank Cayman Island’s (“SVB Cayman”).[4] SVB Cayman was a branch of the Silicon Valley Bank (the “Bank”), licensed by the Cayman Islands Monetary Authority (“CIMA”) to operate in the Cayman Islands.[5] The Bank was incorporated in California and insured by the Federal Deposit Insurance Corporation (“FDIC”).[6] SVB Cayman was not a separately incorporated entity:[7] In March 2023, the Bank failed, and the FDIC was appointed as a receiver for the Bank.[8] Before the Bank failed, SVB Cayman offered its customers three types of Eurodollar deposit accounts, and each deposit agreement explicitly informed customers that the accounts were not FDIC-insured.[9] Many SVB Cayman account holders filed claims in the FDIC’s receivership because SVB Cayman was neither purchased nor transferred during the FDIC receivership.[10] Separately, certain SVB Cayman depositors filed a winding-up application in the Grand Court of the Cayman Islands after the FDIC denied insurance coverage of certain deposit accounts.[11] Upon that request, the Cayman court appointed joint official liquidators (“JOLs”) for SVB Cayman.[12] Thereafter, the JOLs filed a petition for recognition of the Cayman Islands liquidation with the New York Bankruptcy Court.[13] The FDIC opposed recognition under chapter 15, arguing that SVB Cayman is not eligible to be a debtor in a chapter 15 case because it is a branch of the Bank.[14] The JOLs disagreed and argued that SVB Cayman was not a bank for purposes of chapter 15, but rather an estate that was entitled to relief under chapter 15.[15] Moreover, they argued that even if SVB Cayman was a branch prior to the chapter 15 filing, it would nevertheless  be eligible for  chapter 15 relief because “whether . . . a formerly operating bank is disqualified under Section 109(b) is to be determined at the time of recognition.”[16]

The court agreed with the FDIC and dismissed the petition.[17] According to the bankruptcy court, SVB Cayman is ineligible for chapter 15 relief because it possessed no separate legal existence outside of the Bank, which was U.S. incorporated and ineligible for bankruptcy relief under section 109(b)(2) as a domestic FDIC-insured bank.[18] Moreover, the JOLs have only shown that SVB Cayman possessed a mail drop presence in the Cayman Islands, insufficient to fulfill the prerequisite for relief under chapter 15, in which a “base level connection between the foreign debtor and the foreign jurisdiction that prevents a debtor from commencing a case in a jurisdiction where it has nothing more than a mail drop presence.”[19] The Court distinguished the SVB Cayman petition from other cases that JOLs relied on, finding that the banks in those cases unlike the Bank,  were eligible to be debtors under chapter 11. Finding that chapter 15 relief was inapplicable, the Court could not grant recognition or provisional relief and dismissed the chapter 15 petition, leaving “SVB Cayman, as part of the Bank, . . . to be wound up under the supervision of the Grand Court.”[20]

In its decision, which the JOLs have appealed, the Court highlighted that the JOLs were not without recourse in the US.[21] In particular, notwithstanding the lack of recognition, the JOLs could sue in a U.S. court to collect or recover a claim involving the Debtor's property.[22] Additionally, the JOLs may be able to obtain an order recognizing the Winding Up Order under general principles of comity.[23] Though some courts have given deference to foreign courts and their judgments without chapter 15 recognition under principles of international comity, the court notes that it still “remains an unsettled question.”[24]