Johnston v. Court-Appointed Receiver
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 23-7932-cv (2nd Circuit, Jul 02,2025) Not Published
- Tag(s):
-
- Ruling:
- The United States Court of Appeals for the Second Circuit affirmed the judgment of the District Court. The Court upheld the Receiver's motion, which included: (1) permanently enjoining the prosecution of Omnia's Claim 145, (2) confirming the Receiver's disallowance of Claim 145, and (3) authorizing the release of an indemnity escrow fund and held that the District Court did not violate the automatic stay because the stay does not apply to actions initiated by the debtor and that the excusable neglect standard was not satisfied.
- Procedural context:
- John Johnston and Edward Willmott (“Appellants”), the joint provisional liquidators (JPLs) of Bermuda-based Omnia Ltd., sought to revive a secured claim that had been rejected in the receivership of the Platinum Partners hedge-fund family.
- Facts:
- The U.S. Securities and Exchange Commission (SEC) sued Platinum Management entities, placing several related entities into receivership due to alleged securities law violations.
Appellants challenged the Receiver's motion to permanently enjoin prosecution of Omnia's secured claim, disallow Claim 145, and release an indemnity escrow fund, alleging violations of an automatic bankruptcy stay and arguing excusable neglect for a delayed objection.
Specifically, 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).
First, with respect to to the automatic stay, the Court held that "[under] [t]he plain language of the Bankruptcy Code, [the] stay provision applies only to an 'action or proceeding against the debtor.'"
Second, the Court affirmed the District Court's finding that Appellants have not demonstrated excusable neglect under Pioneer because (i) Reopening the matter four years later would dilute established distributions and unsettle other creditors’ expectations and thus cause prejudice; (ii) claims administration was nearly finished and that reviving Claim 145 would cause material delay; (iii) the reason for the delay was within the creditor’s control because its agent had notice and failed to act; and (iv) while no evidence of bad intent, mere ignorance is insufficient to tip the balance.
- Judge(s):
- Chin, Merriam & Kahn
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