The case of Arcapita and the role of U.S. courts in international restructurings

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United States Bankruptcy Courts, particularly in New York and Delaware, are some of the most preferred courts for multinational corporate bankruptcy filings.

This trend has been on display throughout the most recent credit cycle, as companies with global operations and assets (think shipping) have frequently selected the U.S. as their destination of choice for reorganisations and recapitalisations. There are a number of advantages foreign companies enjoy when choosing the U.S. for dealing with distress, as well as pitfalls and limitations that companies and their advisors should be mindful of.

The Chapter 11 cases of Arcapita Bank B.S.C.(c) (“Arcapita” or the
Company”) and its subsidiaries present a compelling case study for the benefits and potential pitfalls of relying on U.S. Bankruptcy Courts. Arcapita was a leading global manager of Shari’ah- compliant alternative investments and operated as an investment bank. It was not a domestic bank licensed in the United States, and it did not have any branches in the United States. However, Arcapita did have an office in Atlanta. The Company was
eadquartered in Bahrain and regulated under an Islamic wholesale banking license issued by the Central Bank of Bahrain (CBB). Arcapita’s subsidiaries were holding companies that held minority ownership interests in a global
portfolio of operating companies, and AIHL, a wholly owned subsidiary of Arcapita, was incorporated as a Cayman Islands exempt company in 1998 for the purpose of holding Arcapita’s ownership interests in its investments.

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