In a first, the Bankruptcy Court for the Southern District of New York in the Arcapita Bank case had to decide whether Shari’a compliant investment agreements, providing for Murabaha and Wakala transactions, qualify for the safe harbor protections provided in the bankruptcy code for securities contracts, forwards and swaps. The court held that they do not. Since the opinion runs about 100 pages long, we attempt to distill some very basic facts concerning Shari’a compliant transactions and point to important holdings made by the court.

Shari’a Compliant Transactions

In a recent decision, the Bankruptcy Court for the Southern District of New York held that a purported debt held by an entity with a near-majority membership interest in the Debtor was actually equity disguised as a loan.

Background

In American jurisprudence, resolution of disputes often involves the use of important tools to obtain information necessary to achieving a client’s goals. These tools are collectively known as “discovery.” Discovery is most often used in litigation; however, it may also be used as part of the bankruptcy process, without the need for a pending lawsuit.

In a recent decision, the Court of Appeals for the Third Circuit closed the door on triangular setoffs, ruling that the mutuality requirement under Section 553 of the Bankruptcy Code must be strictly construed and requires that the debt and claim sought to be setoff must be between the same two parties. In re: Orexigen Therapeutics, Inc., No. 20-1136 (3d. Cir. 2021).

Background

Key Takeaways

Key Takeaways

The imperative “justice, justice shall you pursue” is nowhere better illustrated than in the application of deadlines to perform an act, including filing dates, limitations dates, due dates for filing appeals, and deadlines for filing claims. Courts sometimes exercise their equitable jurisdiction rather than follow the literal language of rules of procedure.

When a debtor files bankruptcy, bankruptcy attorneys and creditors are well aware of the importance of assessing the need for creditors to file proofs of claim and making sure that proofs of claim are timely filed.

In a recent decision, the Court of Appeals for the Sixth Circuit held that the election of a tenant, under Section 365(h) of the Bankruptcy Code, to remain in possession of real property governed by a rejected lease causes a third-party guaranty on another rejected agreement to remain in effect, to the extent such agreement and the lease are part of an integrated transaction.

A recent decision of the New York Court of Appeals, Sutton v. Pilevsky held that federal bankruptcy law does not preempt state law tortious interference claims against non-debtors who participated in a scheme that caused a debtor—in this case a bankruptcy remote special purpose entity—to breach contractual obligations intended to ensure that the entity remains a Special Purpose Entity (SPE) and to facilitate the lenders’ enforcement of remedies upon a future bankruptcy filing, if any.