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Alleged Preferential Transactions Made by a Bahraini Investment Bank Debtor were not Subject to Dismissal Based on the Doctrine of International Comity and Extraterritoriality

October 13, 2017, New YorkDebtor Arcapita is an investment bank in Bahrain. Defendant BisB is an Islamic commercial bank headquartered in Bahrain. Defendant Tadhamon is a Bahraini corporation and a subsidiary of Tadhamon International Islamic Bank, a Yemeni bank that offers Islamic banking and investment services to customers in Yemen and abroad. Before its bankruptcy filing, the Debtor made several discrete short-term investments through the Defendants. The Defendants used New York’s correspondent bank accounts to receive funds from the Debtor. After the Debtor filed for bankruptcy, the creditors’ committee brought an adversary action against the Defendants and sought the return of funds invested with the Defendants just before the Debtor’s bankruptcy filing. The Defendants contended that these claims should be dismissed based on the presumption against extraterritoriality and the principle of international comity.

The Court held that the dismissal of adversary proceedings under §547 was not warranted based on the principle of international comity. Since there was no parallel foreign proceeding, adjudicatory comity was inapplicable, and applicable factors weighed against abstention based on international comity. The Court ruled that the conduct of parties touched and concerned the United States in a manner sufficient to displace the presumption against extraterritoriality. The alleged transfers at issue were made from the Debtor’s New York bank to the Defendant New York correspondent banks. Thus, the Defendants New York contacts, i.e., the receipt of the transferred funds in New York correspondent bank accounts were at the heart of this cause of action. Moreover, while the transferor Arcapita was a foreign entity, it created a further connection between itself and the United States by availing itself of U.S. law through its filing for bankruptcy and creating an estate under the bankruptcy code. Thus, the Plaintiff’s claims were either based on domestic conduct or on statutes that applied extraterritorially. The Defendants’ motion to dismiss was denied.

(Arcapita Bank B.S.C.(c) v Bahr. Islamic Bank (In re Arcapita Bank B.S.C.(c), 2017 Bankr. LEXIS 3556 [Bankr SDNY Oct. 13, 2017, Nos. 12-11076 (SHL), 13-01434 (SHL), 13-01435 (SHL)]