February 5, 2018, New York – U.S. Bankruptcy Judge Sean H. Lane found that Arcapita’s creditors can seek to retrieve $30 million in investments in Bahrain Islamic Bank and Bahrain-based Tadhamon Capital BCS, rejecting the banks’ arguments that the investments’ foreign nature shields them from clawback attempts. The judge denied the defendants Bahrain Islamic Bank and Tadhamon Capital B.S.C.’s motion to reconsider its memorandum decision issued on October 13, 2017, and the related orders entered on November 3, 2017.
The Court had earlier held that (1) the facts of the case weighed against this Court’s abstention based on international comity, and (2) the presumption against extraterritoriality was inapplicable because the case did not involve an extraterritorial application of the statute in question.
In their motion to reconsider, the defendants offered two reasons for reconsideration: First, they argued that there has been an intervening change in controlling law. Second, they believed that the Court has overlooked controlling decisional authority when making its ruling.
Rejecting the defendants’ arguments, the Court held that the case involved a permissible domestic application of the statute because the conduct in question—the transfers between Arcapita and the Defendants—took place in the United States. The presumption against extraterritoriality was inapplicable because the case does not involve the extraterritorial application of Section 547 of the Bankruptcy Code because the conduct targeted by Section 547—the transfer of property— took place in the United States. Specifically, the transfers in question were made by the debtor to the defendant using New York correspondent bank accounts.
Next, the Court held that the defendants’ second argument fared no better than the first. As an initial matter, the cases cited by the defendants specify that the conduct to be examined for an extraterritoriality inquiry is the conduct that is the focus of the statutory provision or the object of the statute’s solicitude, and that was the very test applied by the Court in the memorandum decision.
The Court thus concluded that it wouldn’t reconsider its October ruling, thereby forcing a Bahraini bank and the investment arm of a Yemeni bank to face Chapter 11 clawback suits by the creditors of Arcapita Bank BCS.