New York District Court Affirms Narrow Scope of "Public Policy Exception" in Chapter 15 Cases

Chapter 15 of the Bankruptcy Code reached its 20th year of enactment in October 2025. A legislative framework premised on international comity, it has proven to be an invaluable tool for coordinating cross-border bankruptcy and insolvency cases and providing assistance to foreign bankruptcy courts and their functionaries.

One safeguard built into chapter 15 to ensure that recognition of foreign bankruptcy proceedings and related relief does not violate chapter 15's purpose and underlying principles is the "public policy exception" set forth in section 1506 of the Bankruptcy Code. That exception dictates that any form of chapter 15 relief (including recognition of a foreign bankruptcy) may be denied by a U.S. bankruptcy court if it is "manifestly contrary" to U.S. public policy. However, as demonstrated by a ruling handed down by the U.S. District Court for the Southern District of New York, the exception erects a high bar and has rarely been successfully invoked to preclude chapter 15 relief. 

In In re Canterbury Securities, Ltd., 675 B.R. 109, (S.D.N.Y. 2025), appeal filed, No. 25-3200 (2d Cir. Dec. 23, 2025), the district court affirmed a bankruptcy court's denial of a motion to dismiss a chapter 15 petition and terminate related relief. The motion was based upon allegations by a foreign debtor's principal that the debtor's Cayman Islands liquidation proceeding was commenced to further massive fraud and securities law violations. According to the district court, those allegations were both unsupported and not a basis for denying chapter 15 relief under the public policy exception.

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 50 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). 

Section 1501(a) of the Bankruptcy Code states that the purpose of chapter 15 is to "incorporate the [Model Law] so as to provide effective mechanisms for dealing with cases of cross-border insolvency with the objectives of," among other things, cooperation between U.S. and foreign courts, greater legal certainty for trade and investment, fair and efficient administration of cross-border cases to protect the interests of all stakeholders, protection and maximization of the value of a debtor's assets, and the rehabilitation of financially troubled businesses. 

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." 

Section 1502 provides that "for the purposes of [chapter 15] … 'debtor' means an entity that is the subject of a 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). An establishment is defined by section 1502(2) as "any place of operations where the debtor carries out a nontransitory economic activity."

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). These same provisions can be deployed in a "nonmain" proceeding if requested and authorized by the bankruptcy court.

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." This includes 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. Under section 1521(b), the court may entrust the distribution of the debtor's U.S. assets to the foreign representative or another person, provided the court is satisfied that the interests of U.S. creditors are "sufficiently protected." 

Section 1507(a) of the Bankruptcy Code provides that, upon recognition of a main or nonmain proceeding, the bankruptcy court may provide "additional assistance" to a foreign representative "under [the Bankruptcy Code] or under other laws of the United States." However, the court must consider whether any such assistance, "consistent with principles of comity," will reasonably ensure that: (i) all stakeholders are treated fairly; (ii) U.S. creditors are not prejudiced or inconvenienced by asserting their claims in the foreign proceeding; (iii) the debtor's assets are not preferentially or fraudulently transferred; (iv) proceeds of the debtor's assets are distributed substantially in accordance with the order prescribed by the Bankruptcy Code; and (v) if appropriate, an individual foreign debtor is given the opportunity for a fresh start. See 11 U.S.C. § 1507(b). 

Section 1522(a) provides that the bankruptcy court may exercise its discretion to order the relief authorized by sections 1519 and 1521 upon the commencement of a case or recognition of a foreign proceeding "only if the interests of the creditors and other interested entities, including the debtor, are sufficiently protected." 

The Public Policy Exception 

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 U.S.); Jaffé v. Samsung Elecs. Co., 737 F.3d 14, 27 (4th Cir. 2013); In re Vitro S.A.B. de CV, 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). 

Most courts have concluded that the narrow and rarely invoked public policy exception in section 1506 does not prohibit chapter 15 recognition in situations where the debtor has engaged in bad faith—a circumstance that might warrant dismissal of a bankruptcy case filed under other chapters of the Bankruptcy Code. See, e.g., In re Black Gold S.A.R.L., 635 B.R. 517, 528 (B.A.P. 9th Cir. 2022) (reversing a bankruptcy court order denying chapter 15 recognition of a Monaco bankruptcy proceeding on the basis that the petition was inconsistent with the objectives of chapter 15 because of the debtor's bad faith conduct in attempting to evade payment of a judgment, and noting that, once the Bankruptcy Code's requirements for chapter 15 recognition are satisfied, recognition is mandatory unless it would be "manifestly contrary" to U.S. public policy—a threshold that is rarely met in chapter 15 proceedings); In re Culligan Ltd., 2021 WL 2787926, at *14 (Bankr. S.D.N.Y. July 2, 2021) (declining to deny chapter 15 recognition even though the case was filed as a litigation tactic to avoid adverse rulings by a state court); In re Manley Toys Ltd., 580 B.R. 632, 648–52 (Bankr. D.N.J. 2018) (recognizing a Hong Kong liquidation proceeding even though the debtor and its insiders may have acted in bad faith in other litigation and where Hong Kong fraudulent transfer laws were not "manifestly contrary" to U.S. laws), aff'd, 597 B.R. 578 (D.N.J. 2019); In re Creative Fin. Ltd., 543 B.R. 498, 502 (Bankr. S.D.N.Y. 2016) (declining to invoke section 1506 to deny recognition even though the chapter 15 case, which was filed after the debtor's principal caused all of the debtor's liquid assets to be transferred out of the debtors' UK bank accounts pending the entry of a final adverse judgment, "was the most blatant effort to hinder, delay or defraud a creditor this Court has ever seen"); In re Millard, 501 B.R. 644, 653 (Bankr. S.D.N.Y. 2013) (granting chapter 15 recognition of a Cayman Islands bankruptcy case filed to avoid enforcement of two default tax judgment entered against the debtors in the Marianas Islands). 

Instead, the question under section 1506 is not whether the debtor's actions violate public policy, but whether the foreign court's procedures and safeguards fail to comport with U.S. public policy. Culligan, 2021 WL 2787926, at *14.

As emphasized by the bankruptcy appellate panel in Black Gold, a U.S. bankruptcy court is not helpless when confronted with misconduct or bad faith in a chapter 15 case. For example, after recognition, the court could abstain from or suspend all proceedings in a chapter 15 case under sections 305(a)(2) and 1529(4) of the Bankruptcy Code. The court could also grant relief from the automatic stay under section 362(d)(1) upon demonstration of "cause." Finally, the court has the power under section 1517(d) to modify or terminate recognition "if the grounds for granting it were fully or partially lacking or have ceased to exist." Black Gold, 635 B.R. at 533. 

Canterbury 

Against this legal backdrop, the Canterbury case illustrates how courts apply the public policy exception in practice. Canterbury Securities, Ltd. ("CSL") is a Cayman Islands-incorporated limited liability company that provides financial services for high-net-worth individuals. Its parent company is Canterbury Group. Until 2023, Erin Winczura ("Winczura") owned and controlled both the debtor and Canterbury Group. 

In May 2018, CSL entered into a brokerage agreement with Fortunate Drift Ltd. ("FDL") to hold certain securities (the "YRIV shares") on FDL's behalf. To raise more capital for FDL, Winczura introduced FDL to PFS Ltd. ("PFS"), a Cayman Islands company she also owned, as a potential source of financing, but without disclosing her interest in PFS. 

In August 2018, FDL entered into a stock purchase agreement with PFS under which PFS agreed to purchase approximately 1.1 million YRIV shares from FDL. The agreement included a put option giving PFS the right to sell the shares back to FDL within three months for approximately $12.9 million. Under the agreement, PFS would waive the put option if it moved the YRIV shares from the debtor or short-sold the shares. FDL kept its unsold YRIV shares as collateral in the event that PFS exercised the put option. 

In September 2018, a dispute among the companies erupted over whether the put provision had been waived due to PFS's sale of some of the YRIV stock. 

In December 2018, negative press regarding YRIV caused its stock price to plummet. To secure FDL's obligations under the put option, CSL, without FDL's authorization, conducted a fire sale of 1.71 million YRIV shares owned by FDL. The sale netted nearly $20 million but caused the YRIV stock value to deteriorate even more. 

In late December 2018, FDL sued CSL in a Cayman Islands court (the "Cayman court") for breach of fiduciary duties, breach of contract, conversion, and unjust enrichment in connection with the YRIV stock liquidation sale. CSL filed counterclaims, alleging, among other things, that FDL falsely induced it to provide brokerage services as part of a scheme to manipulate YRIV's stock price. Separate litigation (the "Nevada litigation") involving substantially the same nexus of facts was also filed in a state court in Nevada (the "Nevada court") because the purchase agreement between FDL and PFS was governed by Nevada law. 

In August 2023, the Cayman court issued its ruling, finding for FDL on its breach of contract claim but reserving a determination regarding the amount of damages subject to the Nevada court's ruling on whether PFS had waived the put option. 

Although CSL pledged to keep the proceeds of the YRIV stock liquidation sale secure pending the outcome of the Cayman court proceedings, it notified the court in May 2023 that the assets could not be located and offered alternate security in the form of a treasury bill. The court accepted the alternate security, but prohibited any sale or transfer of the treasury bill. CSL, however, later "sold" the bill and failed to comply with the Cayman court's order directing it to deposit the cash equivalent of the bill with the court. Moreover, it later came to light that the treasury bill was a forgery and had never been purchased by CSL. 

In December 2023, the Cayman court appointed provisional liquidators for CSL (hereinafter, the "debtor") "in the most compelling case imaginable … to prevent the dissipation or misuse of assets and/or misconduct by [the debtor's] directors." The court also ordered the debtor to pay FDL approximately $2 million that had been held in trust. 

In January 2024, the Cayman court issued a winding-up order for the debtor and made the provisional liquidators official. 

In February 2024, the Cayman court issued a judgment awarding FDL $16 million in damages from the debtor, subject to enhancement after the Nevada court issued its own judgment in the put option waiver litigation (the judgment was later liquidated at approximately $20 million in August 2025). In April 2024, the Cayman court issued an asset-freezing injunction as to Winczura and Canterbury Group and ordered them to disclose information about their assets. 

In June and September 2024, the Cayman court entered default judgments against Canterbury Group, PFS, and Winczura for failure to comply with its orders. In its October 2024 written opinion, the Cayman court found that Winczura's "deliberate non-compliance" warranted barring her and the entities that she controlled from defending actions brought against them by the liquidators to recover misappropriated funds. 

In October 2024, the joint liquidators, as the debtor's foreign representatives (the "FRs"), filed a chapter 15 petition in the U.S. Bankruptcy Court for the Southern District of New York (the "bankruptcy court") seeking recognition of the Cayman liquidation and related chapter 15 relief. Winczura opposed recognition, arguing that it would be manifestly contrary to U.S. public policy within the meaning of section 1506 of the Bankruptcy Code. 

In November 2024, the bankruptcy court issued an order recognizing the Cayman liquidation as a "foreign main proceeding," finding, among other things, that Winczura failed to adduce any competent evidence to support her opposition to recognition. The court also directed that the Cayman court's asset freezing injunction be implemented in the U.S. to prevent further dissipation of assets and authorized certain discovery. 

In January 2025, Winczura moved to dismiss the chapter 15 case and/or to terminate the injunctive relief, arguing that the FRs were "acting at the behest of fraudsters" and reprising her contention that chapter 15 recognition was manifestly contrary to the U.S. public policy of "maintain[ing] fair and transparent securities markets and curtail[ing] money laundering." 

The bankruptcy court denied the motion to dismiss in February 2025. Among other things, the bankruptcy court determined that: (i) Winczura failed to demonstrate that the Cayman liquidation had not been conducted "according to law"; (ii) she had not shown any "procedural prejudice or violation of a constitutional or statutory right" that would flow from chapter 15 recognition or related relief; and (iii) Winczura's allegation of "massive fraud" did not support denial of relief under section 1506. According to the bankruptcy court, the public policy exception in section 1506 has been "applied sparingly and in circumstances that have not been established here." 

Winczura appealed the bankruptcy court's ruling in March 2025. 

After a December 2023 trial, the Nevada court ruled in August 2025 that PFS had waived the put option under the stock purchase agreement. 

The District Court's Ruling 

The district court affirmed the bankruptcy court's ruling. 

Initially, U.S. District Judge Paul A. Engelmayer noted that the bankruptcy court used the correct standard for determining whether section 1506 applied. 

Next, Judge Engelmayer found no fault with the bankruptcy court's determination that the appropriate standard had not been satisfied. According to the district court, the bankruptcy court correctly found that the Cayman liquidation was not procedurally unfair because: (i) Winczura and her Cayman lawyers fully participated in the Cayman proceeding for years and retained the ability to seek relief from the Cayman court order barring her from participating in future proceedings as a sanction for her intransigence; (ii) although the Cayman liquidation was not identical in form to U.S. proceedings, it satisfied "fundamental standards of fairness"; and (iii) U.S. courts have routinely recognized proceedings in the Caymans, the sophisticated legal system of which reinforces a finding of procedural regularity. Canterbury, 675 B.R. at 119–21. 

The district court similarly agreed with the bankruptcy court's conclusion that recognizing the Cayman liquidation and granting related chapter 15 relief would not impinge upon a U.S. statutory or constitutional right. According to Judge Engelmayer, Winczura's contentions of massive fraud and money laundering "effectively asked the [bankruptcy] court to 'second-guess or engage in collateral challenges' to the Cayman proceedings, which had found no such thing." Id. at 121 (citation omitted). Under principles of comity, the district court emphasized, the bankruptcy court appropriately accorded "considerable weight" to the Cayman liquidation proceeding, a U.S. court should not adjudicate creditor claims that are the subject of such a proceeding, and Winczura's recourse to seek redress on her claims was in the Cayman court. 

Moreover, the district court emphasized, Winczura's claims of fraud and money laundering "misapplied Section 1506" by asking the bankruptcy court "to revisit and reject the Cayman Court's factual findings rather than identifying why adoption of those findings would violate U.S. public policy." Id. According to Judge Engelmayer, rejection of Winczura's "factual take" that the Cayman court, after conducting a meticulous analysis in a procedurally sound foreign proceeding, erred in rejecting her fraud claims "would not offend any fundamental public policy of the United States." Id. He concluded that the bankruptcy court "rightly held that Winczura's collateral attack on the factfinding in those proceedings does not implicate Section 1506." Id. at 124. 

According to the district court, only two cases in the Second Circuit have refused chapter 15 recognition or related relief under section 1506, and "each is far afield." Id. at 122 (discussing In re Toft, 453 B.R. 186 (Bankr. S.D.N.Y. 2011) (denying chapter 15 recognition sought by a German insolvency administrator in an individual debtor's bankruptcy case for the purpose of gaining access to the debtor's email accounts because the discovery request far exceeded what was ordinarily available to a bankruptcy trustee and would violate U.S. federal law because it extended to future correspondence); In re Gold & Honey, 410 B.R. 357 (Bankr. E.D.N.Y. 2009) (denying chapter 15 recognition under section 1506 of an Israeli insolvency proceeding commenced in violation of the automatic stay triggered by a previous U.S. chapter 11 filing by the debtor)). 

Outlook 

On December 3, 2025, the debtor's FRs filed a petition in the bankruptcy court on behalf of parent company Canterbury Group (for which they had also been appointed as liquidators) seeking chapter 15 recognition of a Cayman liquidation proceeding commenced for the parent to facilitate an investigation into alleged wrongdoing and recover Canterbury Group assets to be distributed to its creditors. The bankruptcy court granted the petition on January 29, 2026. 

On December 23, 2025, Winczura appealed the district court's ruling to the U.S. Court of Appeals for the Second Circuit. 

Canterbury provides useful guidance regarding both a U.S. bankruptcy court's role in a chapter 15 case and the scope of the public policy exception in section 1506 of the Bankruptcy Code. 

Key takeaways from the decision include the following:

• Chapter 15 continues to be a sound resource for providing aid and cooperation to foreign courts. Chapter 15, like the Model Law on which it is patterned, is premised upon the principle of international adjudicative comity. A U.S. bankruptcy court's role in a chapter 15 case is to render assistance to a foreign bankruptcy court (or equivalent body) presiding over the foreign debtor's bankruptcy proceedings. It does so by, among other things, recognizing the foreign proceeding under chapter 15 and granting related relief, such as an injunction preventing the dissipation of U.S. assets, the issuance of an order enforcing the terms of a foreign court-approved restructuring agreement, or facilitating discovery to determine the extent of the foreign debtor's U.S. assets or to investigate potential causes of action.
• Substantial similarity, not identical treatment, is the benchmark for recognition. A foreign restructuring regime need not be identical to U.S. bankruptcy law to warrant chapter 15 recognition and related assistance from a U.S. court. Instead, the foreign bankruptcy must be similar and provide roughly equivalent substantive and procedural safeguards to all stakeholders.
• The public policy exception remains a high bar that is rarely cleared. The public policy exception in section 1506 is narrowly construed and rarely successfully invoked to defeat chapter 15 recognition. As noted by the district court in Canterbury, only a handful of courts in the Second Circuit, where the vast majority of chapter 15 cases have been filed since chapter 15's enactment in 2005, have concluded that recognition or related relief was "manifestly contrary" to U.S. public policy.
• The public policy exception focuses on the foreign court's procedures and safeguards. The public policy exception in section 1605 is focused on whether the foreign tribunal's procedures and safeguards comport with U.S. public policy and not the facts of the case.
• S. courts will not serve as a forum to relitigate foreign court findings.Judge Engelmayer's ruling underscores that a U.S. bankruptcy court's role in chapter 15 is to assist—not second-guess or relitigate—matters addressed by foreign tribunals. Parties who lost in foreign proceedings cannot use section 1506 to collaterally attack those rulings.