Judge's Extension Sets Up Showdown Between Awal Bank, HSBC

A bankruptcy judge granted Bahrain's Awal Bank BSC a two-week extension to control its bankruptcy case, setting up a showdown with its only U.S. creditor, HSBC Bank USA, which is seeking to have the Chapter 11 case thrown out, Dow Jones Daily Bankruptcy Review reported. The extension Judge Allan L. Gropper of the U.S. Bankruptcy Court in Manhattan approved Thursday will allow Awal to make its argument to maintain control of its bankruptcy until August at the same hearing that HSBC Holdings PLC's U.S. unit will ask the judge to dismiss the case. That hearing is set for March 1. Awal, a Bahraini bank mired in a multinational legal battle, filed for Chapter 11 in New York last October for the specific purpose of attempting to wrest back an errant $13 million wire transfer sent to HSBC. In court papers filed last week, Awal said it intends to soon file a lawsuit against HSBC that demands repayment of the wire transfer that should have been sent to another bank. HSBC has been holding those funds as a setoff against debts Awal owes to it. Awal filed its Chapter 11 case more than a year after seeking Chapter 15 protection to gain recognition of its foreign insolvency proceeding in U.S. courts because Chapter 15 didn't give the bank the power to claw back payments made to creditors in the U.S. Bahraini authorities placed Awal in administration in July 2009. Awal has said it needs more time to complete its Chapter 11 case in the U.S. because the proceedings are complicated and unprecedented. According to court papers, Awal's Chapter 11 case is the first to be initiated as part of an earlier Chapter 15 filing. Awal's attorneys are therefore faced with "addressing these complex circumstances without the benefit of guidance from case law or other controlling precedent," the bank said in court papers. But HSBC has said Awal's actions are making a "parody" of the U.S. bankruptcy system and is asking that the case be dismissed before Awal can pursue its claims against HSBC. The case should be tossed because Awal "has evidenced a pattern of failing to file even the most basic disclosure documentation in accordance with the Bankruptcy Code and appears to have neither the intention nor the ability to file a confirmable Chapter 11 plan," HSBC said in papers filed earlier this month. When Awal filed for Chapter 11, it said it had $5.5 billion in assets and $2.75 billion in liabilities as of July 31, 2009, but provided few other specifics on its finances. After initially saying it wouldn't submit other financial details typically required in Chapter 11, it did file the required papers, but those documents didn't specify the bank's total assets and debt and listed just one asset, a possible claim against its only U.S. creditor, HSBC. Awal has said offering specifics such as amounts owed to individual creditors is barred under laws in its home country.