Johnston v. Court-Appointed Receiver (2d Cir. 2025):
Automatic Chapter 15 Stay Does Not Shield a Debtor’s Own Affirmative Claims in a U.S. Equity Receivership

1. Introduction

John Johnston and Edward Willmott (“Appellants”), the joint provisional liquidators (JPLs) of Bermuda-based Omnia Ltd., sought to revive a secured claim (Claim 145) that had been rejected in the wide-ranging U.S. receivership of the Platinum Partners hedge-fund family. Appellants argued that (i) Chapter 15 of the Bankruptcy Code imposed an automatic stay barring the Receiver’s disallowance of the claim, and (ii) their late attempt to object to the disallowance should be excused under the “excusable neglect” doctrine of Pioneer Investment Services Co. v. Brunswick Associates L.P., 507 U.S. 380 (1993).

The United States Court of Appeals for the Second Circuit affirmed the district court’s order that (1) permanently enjoined the JPLs from prosecuting Claim 145, (2) confirmed the Receiver’s disallowance of that claim, and (3) authorised the release of escrowed funds formerly set aside for Omnia’s benefit.

2. Summary of the Judgment

• Automatic stay. The court held that the Chapter 15 automatic stay under 11 U.S.C. §§ 1520(a)(1) & 362(a) protects a debtor against actions, but does not impede proceedings brought by the debtor itself. Because Omnia (through its agent Beechwood Asset Management, “BAM”) had voluntarily filed Claim 145, the stay was inapplicable.
• Excusable neglect. Applying the four Pioneer factors, the panel agreed that none favoured Omnia: substantial prejudice to other claimants, lengthy delay, controllable cause (failure by the debtor’s own agent), and absence of good faith. The district court therefore acted well within its discretion in refusing to reopen the claim-objection window.
• Result. The Second Circuit affirmed the district court’s order in full, effectively ending Omnia’s effort to participate in the Platinum receivership distribution.

3. Analysis

3.1 Precedents Cited and Their Influence

• CCWB Asset Investments, LLC v. Milligan, 112 F.4th 171 (4th Cir. 2024) – reiterated that district courts enjoy “extremely broad” discretion in supervising receiverships. The Second Circuit adopted that perspective when applying narrow appellate review.
• Commodity Futures Trading Comm’n v. Walsh, 712 F.3d 735 (2d Cir. 2013) & SEC v. Credit Bancorp Ltd., 290 F.3d 80 (2d Cir. 2002) – earlier Second Circuit cases approving receivership distribution plans under an abuse-of-discretion standard; cited to benchmark judicial latitude given to equity receivers.
• Pioneer Investment Services Co. v. Brunswick Associates L.P., 507 U.S. 380 (1993) – established the four-factor “excusable neglect” test. The panel meticulously applied each factor.
• Koolik v. Markowitz, 40 F.3d 567 (2d Cir. 1994) – emphasised that §362(a) stays only “actions against the debtor.” Core textual anchor for rejecting the stay argument.
• Ostano Commerzanstalt v. Telewide Systems, Inc., 790 F.2d 206 (2d Cir. 1986) – clarified that a debtor cannot waive the automatic stay. The Receiver invoked it, but the panel found waiver discussion unnecessary because the stay never attached.
• Center v. Hampton Affiliates, Inc., 66 N.Y.2d 782 (1985) & Restatement (Second) of Agency §272 – supplied the doctrine that an agent’s knowledge is imputed to a principal. Critical for finding that BAM’s notice bound Omnia.
• In re Enron Corp., 419 F.3d 115 (2d Cir. 2005) & In re Oxford Health Plans, Inc., 383 F. App’x 43 (2d Cir. 2010) – confirmed abuse-of-discretion review for late-claim rulings, reinforcing deference to the district court.

3.2 Legal Reasoning

1. Textual interpretation of §362(a). The statute stays “any … action or proceeding against the debtor.” Because Omnia initiated the proof-of-claim process, the receivership’s disposition of that claim was, by definition, not adverse litigation “against” the debtor. The opinion parallels collector cases (Koolik) distinguishing offensive from defensive bankruptcy posture.
2. Agency principles and notice. The court tied federal bankruptcy/receivership procedure to state agency law: BAM, authorised to act for secured parties, received full notice of the claim-adjudication process; its silence bound Omnia. Consequently, the “reason for delay” rested squarely with the principal, defeating excusable-neglect arguments.
3. Application of Pioneer.
   • Prejudice. Reopening four years later would dilute established distributions and unsettle other creditors’ expectations.
   • Length and impact. Claim administration was nearly finished; reviving Claim 145 would cause material delay.
   • Reason for delay. Within the creditor’s control because its agent had notice and failed to act.
   • Good faith. No evidence of bad intent, but mere ignorance (imputed) is insufficient to tip the balance.
4. Standard of review. Citing Walsh, the panel reiterated that receivership decisions are reviewed narrowly; any decision “within the range of permissible choices” survives appeal.

3.3 Likely Impact of the Decision

• Cross-border insolvency. Chapter 15 debtors often lodge U.S. claims while pressing foreign insolvency proceedings. This judgment warns foreign representatives that initiating claims in a U.S. receivership can waive stay protections for those claims.
• Receivership efficiency. The ruling underscores courts’ willingness to close the door on late-surfacing creditors, thereby promoting finality and predictability in complex fraud-related receiverships.
• Agency risk management. Creditors relying on agents must monitor those agents; knowledge will be imputed. The decision may prompt drafting of more rigorous notice and reporting clauses in agency agreements.
• Pioneer doctrine. The opinion tightens circuit guidance: lengthy, controllable delay coupled with pronounced prejudice will rarely satisfy excusable neglect, even absent bad faith.

4. Complex Concepts Simplified

• Chapter 15. A Bankruptcy Code chapter that recognises and cooperates with foreign insolvency proceedings. When a “foreign main proceeding” is recognised, §362’s automatic stay applies in the United States.
• Automatic stay (11 U.S.C. §362). A legal freeze halting most litigation and collection actions against the debtor immediately upon bankruptcy filing.
• Equity receivership. A court-appointed receiver controls and liquidates assets of entities accused of wrongdoing (often securities fraud) to distribute funds equitably to victims and creditors.
• Excusable neglect (Pioneer). A flexible equitable doctrine allowing late filings in limited circumstances, judged by prejudice, delay, reasons, and good faith.
• Imputed knowledge. In agency law, information possessed by an agent within the scope of authority is legally attributed to the principal, whether or not actually communicated.

5. Conclusion

Johnston v. Court-Appointed Receiver reinforces two pivotal propositions. First, a foreign debtor may not wield Chapter 15’s automatic stay as both sword and shield: once the debtor voluntarily seeks relief in a U.S. receivership, the stay does not insulate that very claim from adjudication. Second, the Second Circuit continues to police the boundaries of Pioneer excusable neglect strictly, particularly where sophisticated parties and long delays are involved. Practitioners representing foreign liquidators, distressed-fund investors, and court receivers should heed the decision’s twin lessons regarding the interplay of cross-border insolvency, agency notice, and receivership finality.