In re Bank

• Decision Date: 04 August 2011
• Docket Number: Bankruptcy Nos. 09–15923 (ALG),10–15518 (ALG).Adversary No. 11–01535 (ALG).
• Parties: In re AWAL BANK, BSC, Debtor in a Foreign Proceeding.In re Awal Bank, BSC, Debtor.Charles Russell, LLP, London, as External Administrator of Awal Bank, BSC, Plaintiff,v.HSBC Bank USA, N.A., Defendant.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

455 B.R. 73

55 Bankr.Ct.Dec. 97

75 UCC Rep.Serv.2d 245

In re AWAL BANK, BSC, Debtor in a Foreign Proceeding.In re Awal Bank, BSC, Debtor.Charles Russell, LLP, London, as External Administrator of Awal Bank, BSC, Plaintiff,

v.HSBC Bank USA, N.A., Defendant.

Bankruptcy Nos. 09–15923 (ALG)

10–15518 (ALG).Adversary No. 11–01535 (ALG).

United States Bankruptcy Court, S.D. New York.

Aug. 4, 2011.

Brown Rudnick LLP, By: David J. Molton, Sunni P. Beville, Robert L. Harris, William R. Baldiga, New York, NY, Robert L. Harris, Rebecca L. Fordon, Nicolas M. Dunn, Boston, MA, for Charles Russell, LLP, London, as External Administrator of Awal Bank, BSC.Phillips Lytle LLP, By: William J. Brown, David J. McNamara, Allan L. Hill, New York, NY, for HSBC Bank USA, National Association.

United States Trustee, By: Tracy Hope Davis, Susan D. Golden, New York, NY.

MEMORANDUM OF OPINION

ALLAN L. GROPPER, Bankruptcy Judge.

INTRODUCTION

This opinion resolves certain aspects of a dispute between Charles Russell, LLP, London, as External Administrator (the “External Administrator”) of Awal Bank, BSC (“Awal Bank” or the “Debtor”), a bank in insolvency proceedings in Bahrain, and HSBC Bank USA, National Association (together with its affiliates, branches and subsidiaries, “HSBC” or “Defendant”), one of Awal Bank's largest creditors. The principal issue for decision arises in connection with the External Administrator's adversary proceeding seeking to avoid or invalidate HSBC's set-off of $12,996,220.98 of the Debtor's money two weeks before the opening of insolvency proceedings in Bahrain. In other proceedings, the External Administrator seeks relief from one of the usual duties of a chapter 11 debtor— viz. to disclose the details of each creditor's claim. In the alternative, the External Administrator seeks authorization to file the amount of each creditor's claim under seal. HSBC contends (i) that the requested relief should be denied (ii) that the chapter 11 case should be dismissed altogether; and (iii) whether or not the entire chapter 11 case is dismissed, the adversary proceeding should be dismissed for failure to state a claim on which relief can be granted. The United States Trustee has also objected to filing the details of each creditor's claim under seal.

Several of the matters addressed herein raise issues of first impression under chapter 15, including (i) the contours of a chapter 11 case brought subsequent to chapter 15 recognition and (ii) whether the External Administrator can sustain the Complaint against HSBC's motion to dismiss and pursue its efforts to avoid or invalidate the set-off. For the reasons set forth hereafter, (A) the chapter 11 case will not be dismissed; (B) it is appropriate in this case to modify § 521's disclosure requirements; and (C) the motion to dismiss the adversary proceeding will be denied as HSBC has not, on the pleadings and as a matter of law, demonstrated that (X) the External Administrator's § 553(b) action is untimely, (Y) Article 4A preempts the External Administrator's common law claims or (Z) the so-called discharge for value rule precludes the relief sought.

BACKGROUND

I. The Bahrain Administration

By Resolution No. 38 of 2009, dated July 30, 2009, the Central Bank of Bahrain (the “CBB”) placed Awal Bank into an administration proceeding. See External Administrator's Motion to Approve Debtor's Schedules, Statement and Form of Operating Agreement at ¶ 11, Case No. 10–15518 (Dkt. No. 48) (the “Revised Protocol Motion”). A short period later, the CBB appointed Charles Russell, LLP, an English law firm, to serve as the External Administrator of Awal Bank. See Id. Since Awal Bank was placed into administration, it has ceased to operate as a going concern. See Stewart Hey Declaration at ¶ 21, Case No. 09–15923 (Dkt. No. 5). Within two years, the External Administrator must complete one of its obligations in the administration and “submit a petition to a Bahraini court, with the approval of the CBB, either for: (1) compulsory liquidation of the bank; or (2) termination of the administration and restoration of the bank to its management and shareholders.” Id. at ¶ 22. The record does not show whether a decision to reorganize or liquidate Awal Bank has been made.

In the course of the administration in Bahrain, the External Administrator adopted a protocol for sharing information with creditors, including HSBC. See External Administrator's Objection to HSBC's Motion to Dismiss Chapter 11 at ¶ 15, Case No. 10–15518 (Dkt. No. 58) (the “Objection to Motion to Dismiss”). Upon execution of a confidentiality agreement, creditors who have filed a proof of claim are invited to attend quarterly meetings with the External Administrator and the CBB for updates on the status of the administration of Awal Bank's assets. Id. All attendees may question the External Administer and the CBB. Id. There also exists an informal creditors' committee (“ICC”) in the administration in Bahrain; HSBC is one of its five members. Id. It is undisputed that HSBC is one of Awal Bank's largest creditors, having a claim of approximately U.S. $ 75 million without considering the set-off at issue in this case, and that HSBC has been an active participant in the administration in Bahrain, with access to all of the information available to creditors in that proceeding.

II. The Chapter 15 Case

On September 30, 2009, the External Administrator applied for recognition of the administration in Bahrain as a foreign main proceeding.¹ There were no objections and on October 27, 2009, an order recognizing the administration in Bahrain was entered in the above-captioned chapter 15 case. See Recognition Order at ¶ 9, Case No. 09–15923 (Dkt. No. 18). The External Administrator is the duly authorized foreign representative of Awal Bank. See Id. at ¶ 12.

III. The Chapter 11 Case

On October 21, 2010, the External Administrator filed the above-captioned chapter 11 case. It is not disputed that the purpose of the filing was, to the extent necessary, to establish a statutory predicate for an action under U.S. law to avoid a set-off that HSBC had taken. On the day after the chapter 11 filing, the External Administrator sought relief from certain requirements of § 521 of the Bankruptcy Code, which provides that a debtor in a plenary case under the Bankruptcy Code must file a list of creditors and certain statements and schedules unless the court “orders otherwise.” 11 U.S.C. § 521; see External Administrator's Motion For An Order Establishing Protocol For Chapter 11 Case at ¶ 5, Case No. 10–15518 (Dkt. No. 5) (the “Initial Protocol Motion”). At a hearing held on October 26, 2010, the Court declined to consider the requested relief until additional notice had been provided to creditors. The External Administrator subsequently withdrew the Initial Protocol Motion and notified the Court that further filings would be made. See Notice of Withdrawal, Case No. 10–15518 (Dkt. No. 24).

On January 5, 2011, Awal Bank filed a statement of financial affairs (“SOFA”) and schedule of assets and liabilities that omitted some of the information typically provided pursuant to § 521 (Dkt. Nos. 36 and 37). In response to a request from the United States Trustee to supplement these documents, the External Administrator filed a motion seeking the Court's permission to file schedules that, in substance, omit the amount of the claims of individual creditors. See Revised Protocol Motion at ¶ 3. Amended Schedules that “disclose the existence of both U.S. and non-U.S. liabilities (including creditor name and address for each),” but do not “disclose specific creditor-by-creditor claim information, i.e., the scheduled amount of the creditors' claim” were filed on March 4, 2011.²Id. If the Revised Protocol Motion is denied and Awal Bank is compelled to provide the amount of each creditor's claim (the “Creditor Claim Information”), the External Administrator proposes to file such information under seal because the Creditor Claim Information was provided by the creditors under a promise of confidentiality in the administration in Bahrain.

The External Administrator contends that disclosure of the “foreign creditor-by-creditor claim amounts and foreign financial affairs ... would directly conflict with the duties and procedures of the Foreign Main Proceeding.” Id. at ¶ 5. The United States Trustee objected to the proposal, at least insofar as it sought to file the information under seal, contending that the External Administrator had failed to establish that the data it seeks to protect is the type of proprietary, commercial information covered by § 107(b)(1) of the Bankruptcy Code. The United States Trustee does not appear to object to the External Administrator's request for relief from some of the requirements of § 521. HSBC, by contrast, does object to the grant of relief from § 521 and the filing of Creditor Claim Information under seal.

IV. The Adversary Proceeding against HSBC

On February 24, 2011, the External Administrator commenced an adversary proceeding against HSBC in order to avoid and recover an allegedly improper set-off. Count I claims that under § 553(b) of the Bankruptcy Code, Awal Bank is entitled to recover $12,996,220.98 that HSBC purported to set-off against the $75,071,671.31 debt owed to HSBC or one of its affiliates by Awal Bank under a credit agreement. See Complaint at ¶¶ 38–41, Case No. 11–01535 (Dkt. No. 1). The remaining counts assert common law causes of action against HSBC that also seek to recover the amount of the set-off; these counts are based on theories of (i) unjust enrichment, (ii) conversion, (iii) monies had and received, and (iv) mistake of fact. Id. at ¶¶ 42–53, 61–71. The External Administrator also seeks the imposition of a constructive trust over the funds and a declaratory judgment that HSBC should immediately return the funds. Id. at ¶¶ 54–60, 72–77. HSBC has moved to dismiss the adversary proceeding.

V. Facts...