In Re: Silicon Valley Bank

Background

Silicon Valley Bank was an FDIC-insured, state-chartered bank. In 2007, it registered in the Cayman Islands and obtained a banking license for its Cayman Islands branch, SVB Cayman. The opinion states that SVB Cayman had no physical presence, assets, or employees in the Cayman Islands other than a mailing address. It operated as a branch of Silicon Valley Bank, not as a separate corporation or legal entity, and relied on Silicon Valley Bank for certain services and infrastructure.

SVB collapsed in March 2023, and the FDIC became its receiver. The FDIC transferred SVB’s deposits and substantially all of its assets, including those of SVB Cayman, to a newly created bridge bank. First-Citizens Bank & Trust Company later purchased certain bridge-bank assets, but the agreement did not include SVB Cayman. SVB Cayman ceased operating. The FDIC treated holders of some SVB Cayman accounts as general unsecured creditors, while treating holders of Eurodollar Sweep Accounts as insured depositors.

The joint official liquidators of SVB Cayman began winding-up proceedings in the Cayman Islands. The Cayman Islands’ Grand Court appointed them to act concerning SVB Cayman’s assets, affairs, and creditors. The liquidators then filed a Chapter 15 petition seeking recognition of the Cayman Islands liquidation proceedings as a foreign main proceeding. Chapter 15 provides a process for cooperation between United States courts and foreign courts in cross-border insolvency matters.

The Bankruptcy Court dismissed the petition after an evidentiary hearing. It held that SVB Cayman was ineligible for Chapter 15 relief because it was an inseparable branch of Silicon Valley Bank, an FDIC-insured bank excluded from bankruptcy eligibility under 11 U.S.C. § 109(b). The liquidators appealed.

Issue and Arguments

The issue on appeal was whether SVB Cayman was eligible for recognition under Chapter 15 despite being a foreign branch of an FDIC-insured domestic bank. The liquidators argued that SVB had ceased to exist as a bank when the FDIC receivership began, that SVB Cayman had become an “orphaned” branch when it was not transferred to First-Citizens, and that the Cayman winding-up order had transformed SVB Cayman into an insolvency estate and trust eligible for Chapter 15 relief.

Court’s Analysis

The court explained that § 109(b) excludes certain entities, including an insured domestic bank, from being bankruptcy debtors. Section 1501(c)(1) applies that exclusion to Chapter 15 proceedings. The court concluded that Silicon Valley Bank remained an FDIC-insured bank for purposes of § 109(b), even after entering FDIC receivership.

The court further held that SVB Cayman was also excluded because it had no separate legal existence from Silicon Valley Bank. The branch’s status did not change when the FDIC became receiver, when the branch was not included in the First-Citizens transaction, or when the Cayman Islands court issued its winding-up orders. The FDIC’s succession to Silicon Valley Bank’s rights and assets did not create a new legal entity eligible for bankruptcy relief.

The court also rejected the argument that a Cayman insolvency trust changed SVB Cayman’s legal character. Even assuming that such a trust existed, the court said it did not receive new or different property rights and did not separate SVB Cayman from Silicon Valley Bank. Allowing the branch to pursue Chapter 15 relief would interfere with the FDIC’s exclusive process for administering failed insured banks, contrary to the purpose of the statutory exclusion.

The court distinguished the prior cases cited by the liquidators because those cases involved different entities or circumstances, including a foreign bank that no longer had domestic branches and an industrial bank that was not FDIC-insured.

Disposition

Judge Lorna G. Schofield affirmed the Bankruptcy Court’s dismissal of the Chapter 15 petition. The court denied the request for oral argument as moot and directed the Clerk of Court to close the case.