Skillz Objects to Papaya Chapter 15 Petition in Federal Bankruptcy Court

By jili tutorial · September 19, 2026

Papaya Gaming’s Chapter 15 Bankruptcy Strategy Challenged by Skillz: A Legal and Financial Breakdown

Overview of the Dispute

Skillz (now operating as Firy Inc.) has formally opposed Papaya Gaming’s attempt to use Chapter 15 bankruptcy protections in U.S. federal court, arguing that the Israeli-based company is improperly using the cross-border insolvency process as a tactical shield against a single, massive creditor. The case, filed in the U.S. Bankruptcy Court for the District of Delaware, centers on a $719 million judgment that Papaya owes Skillz—a sum the company admits it cannot immediately pay.

At its core, this dispute tests whether a foreign company whose business operations and primary creditor are overwhelmingly U.S.-based can legitimately invoke Chapter 15, a law designed to coordinate multinational insolvencies, when its sole apparent goal is to delay or renegotiate a single litigation debt.

The Roots of the $719 Million Judgment

The financial stakes trace back to April, when a federal jury in New York sided with Skillz on claims that Papaya deceived consumers by using computer bots instead of real human players in its head-to-head mobile games. Papaya’s titles include Solitaire Cash, Bingo Cash, and Bubble Cash—games that rely on peer-to-peer matchmaking where speed and player availability directly affect user experience.

Skillz alleged that Papaya artificially inflated its player base by deploying bots, making it appear that Papaya had far more active users. This deception, Skillz claimed, caused its own players to leave Skillz’s platform because Papaya offered significantly faster pairing times. In July, U.S. District Judge Denise Cote ordered Papaya to pay $719 million in damages for poaching Skillz’s players through this fraudulent scheme.

Papaya, headquartered in Israel, responded by immediately seeking legal protection. It obtained a temporary stay of enforcement from the Tel Aviv District Court and simultaneously filed a Chapter 15 petition in Delaware’s federal bankruptcy court. The goal of the Chapter 15 filing is straightforward: prevent Skillz from initiating collection efforts while Papaya’s appeals play out. Papaya has argued that allowing it to pay the penalty over several years would “preserve … the rights of all parties.”

Understanding Chapter 15 Bankruptcy: Purpose and Requirements

To grasp why Skillz is objecting, it helps to understand what Chapter 15 actually does. Chapter 15 of the U.S. Bankruptcy Code governs cross-border insolvency cases. It was enacted to implement the Model Law on Cross-Border Insolvency created by the United Nations Commission on International Trade Law (UNCITRAL). Its primary purpose is to promote cooperation between U.S. courts and foreign courts when a company with assets or creditors in multiple countries becomes insolvent.

Key features of Chapter 15 include:

It allows a foreign debtor to obtain recognition of a foreign insolvency proceeding in the U.S.
Upon recognition, the debtor typically receives an automatic stay that prevents U.S. creditors from pursuing collection actions or lawsuits against the debtor’s U.S. assets.
It is designed as a collective proceeding—meaning it should address the rights of all creditors, not just a single one.
The foreign debtor must demonstrate that its Center of Main Interests (COMI) is in the country where the foreign proceeding is pending. For a company based in Israel but operating mostly in the U.S., this can be a contested issue.

In Papaya’s case, the Israeli proceeding is not a full bankruptcy or liquidation. It is a more limited action—what Skillz calls a “debt arrangement” proceeding—that lacks many core features of a genuine collective insolvency process.

Skillz’s Legal Objections: Bad Faith and Forum Shopping

Skillz’s objection is not merely procedural; it is grounded in allegations of bad faith and strategic abuse of the bankruptcy system. In its court petition, Skillz’s attorneys laid out several key arguments:

1. Chapter 15 Is Not Designed for Single-Creditor Disputes

“A proceeding aimed at impairing a single creditor is not the collective administration Chapter 15 contemplates,” Skillz argued. “The mismatch is not a technicality. It is part of the Debtors’ bad faith effort to forum shop for the most advantageous tool to use against their litigation adversary.”

Example of proper Chapter 15 use: A Taiwanese electronics manufacturer with factories in four countries, suppliers in six others, and customers worldwide files a restructuring proceeding in Taipei. It then seeks Chapter 15 recognition to halt a U.S. supplier from suing for payment while the restructuring is negotiated for all creditors. That is a collective proceeding.

Papaya’s situation in contrast: Papaya’s only significant creditor is Skillz. It has not proposed any restructuring for its ordinary-course creditors—such as landlords, software vendors, or marketing agencies—and it granted a $10 million dividend to shareholders at the end of 2025. This suggests the company is financially healthy enough to pay dividends but is using the bankruptcy process solely to avoid paying the judgment to Skillz.

2. Preserving Equity and Insiders While Targeting the Judgment Creditor

Skillz’s petition further alleged: “The Debtors here deployed an insolvency statute against the one creditor whose judgment they wished to defer and compromise, left every ordinary-course creditor untouched, preserved their own equity, and sought releases for the insiders who directed the conduct that produced the judgment.”

This is a classic indicator of bad faith forum shopping. If a company is truly insolvent, it typically must treat all creditors fairly, often by proposing a plan that affects everyone with claims. Papaya appears to have selectively chosen which debts to address, targeting only the one it finds most burdensome.

3. Manifestly Contrary to U.S. Public Policy

“The Court should refuse the relief requested … because it is manifestly contrary to the public policy of the United States based on the Debtors’ well-documented and pervasive bad faith conduct,” the petition concluded. “The Debtors are using the Israeli Action—a limited action which lacks many of the core characteristics of a collective insolvency proceeding—as a strategic tool to evade responsibility for their deceptive conduct.”

U.S. bankruptcy courts have broad discretion to deny Chapter 15 recognition if granting it would be “manifestly contrary to the public policy of the United States.” Here, Skillz argues that allowing Papaya to escape its fraud-based judgment through a bankruptcy loophole would undermine the integrity of the U.S. legal system and the deterrent effect of fraud verdicts.

Papaya’s Position and the Israeli Court’s Recent Ruling

Papaya has not yet filed a detailed response to Skillz’s Delaware petition, but its actions in Israel provide some context for its strategy. On August 26, Tel Aviv District Court Judge Iris Lushi-Abudi rejected Papaya’s motion to pay down the $719 million judgment over 6.5 years using profits from continuing operations. This was a significant setback for Papaya.

According to Yaron Elhawi, an attorney based in Tel Aviv representing Skillz, Papaya has not proposed any reformulated debt arrangement since that rejection, nor has it suggested how it intends to treat Skillz’s debt. The Israeli proceeding currently appears to be in a state of limbo, with no clear plan for resolution.

Papaya’s decision to grant a $10 million dividend to shareholders at the end of 2025—while owing $719 million—further undercuts any claim of financial hardship. In typical bankruptcy or insolvency proceedings, paying dividends while unable to pay a judgment is viewed as a strong indicator of bad faith or at least a lack of genuine insolvency.

Public Policy and the “Center of Main Interests” Test

A threshold issue in any Chapter 15 case is determining the debtor’s Center of Main Interests (COMI) . The COMI is presumed to be the country of the debtor’s registered office, but that presumption can be rebutted if the debtor’s actual business operations, management, and creditor base are overwhelmingly located elsewhere.

Key factors courts consider when assessing COMI:

Location of principal assets: Papaya’s games are played primarily by U.S. users, and its revenue is generated almost exclusively from the U.S. market.
Location of management and control: While Papaya is headquartered in Israel, the day-to-day operations may be U.S.-focused, especially for marketing, user acquisition, and engineering for the mobile game market.
Location of creditors: The single largest creditor—Skillz—is a U.S. company. Ordinary trade creditors may also be U.S.-based.
Forum shopping intent: If the debtor chose to file in Israel specifically to obtain a more debtor-friendly legal environment, U.S. courts are likely to reject recognition.

Skillz’s petition explicitly argues that Papaya’s business is “based almost exclusively in the United States” and that its “primary creditor is a U.S.-based enterprise.” If the Delaware bankruptcy court agrees, it could deny recognition on these grounds alone, rendering the Israeli stay effectively unenforceable in the U.S.

Key Takeaways and Implications

For the parties involved:

If Skillz prevails, it can proceed with collection efforts, potentially seizing Papaya’s U.S. assets, including revenue from its mobile games.
If Papaya succeeds in obtaining Chapter 15 recognition, it gains a stay while its Israeli proceeding continues, potentially buying years to negotiate a payment plan or appeal.
The Israeli court’s rejection of the 6.5-year payment plan suggests that Papaya’s legal options are narrowing.

For the broader legal and business community:

This case serves as a cautionary example for companies that attempt to use cross-border insolvency laws as a litigation avoidance strategy. U.S. courts are increasingly skeptical of “bankruptcy tourism” where foreign companies file in debtor-friendly jurisdictions to escape U.S. judgments.
The outcome may clarify the boundaries of Chapter 15’s “public policy” exception, especially in cases involving fraud-based judgments.
App developers and gaming platforms should note the serious consequences of using bots to misrepresent player counts, as both the fraud verdict and the subsequent bankruptcy maneuver demonstrate the lengths to which courts and competitors may go to hold bad actors accountable.