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Avoidance Provisions of the Bankruptcy Code under §547(b) Does Not Apply Extraterritorially

Spizz v. Goldfarb Seligman & Co. (In re Ampal-Am. Isr. Corp.), 562 B.R. 601 (Bankr. S.D.N.Y. 2017)

Debtor Ampal-American Israel Corp worked out of offices located in Herzliya, Israel, where its books and records were also maintained. Defendant Goldfarb Seligman & Co is a law firm organized under the laws of Israel with its only office in Tel Aviv, Israel. Debtor had retained Goldfarb to provide legal services in connection with various corporate and securities matters in Israel and compliance with Israeli securities laws. During their business engagement, Goldfarb issued a series of invoices to the Debtor and the Debtor instructed its bank in Israel to transfer the amount from its account to Goldfarb’s account. The amount was transferred and after a few days, the Debtor filed for bankruptcy. Alex Spizz, the Chapter 7 Trustee for the Debtor brought an adversary proceeding to avoid and recover the bank transfer made as a preference under sections 547 and 550 of the Bankruptcy Code. The sole issue was whether the presumption against extraterritoriality prevents the Trustee from avoiding the transfer.

The Court relied upon the decisions in Sec. Investor Prot. Corp. v. BLMIS (In re BLMIS) and Maxwell Commc’n Corp. plc v. Societe Gen. plc (In re Maxwell Commc’n Corp. plc and concluded that the avoidance provisions of the Bankruptcy Code do not apply extraterritorially because Congress did not intend them to apply extraterritorially. The Court determined that some provisions of the Bankruptcy Code and corresponding jurisdictional sections do contain clear statements that they apply extraterritorially. However, §547 does not include a clear, affirmative indication that it applies extraterritorially, or allows the trustee to avoid transfers “wherever located,” or wherever they occurred. In the case at bar, the transfer at issue took place in Israel between a U.S. transferor headquartered in Israel and an Israeli transferee, most of the services were also performed in Israel. Since the avoidance provisions do not apply extraterritorially; the Court entered judgment for Goldfarb dismissing the action. The Court also concluded that the focus of Bankruptcy Code §547 is the initial transfer, and that transfer occurred in Israel and as the transfer was not domestic, it cannot be avoided.


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