A New York bankruptcy court has rejected a petition for limited Chapter 11 bankruptcy protection by Bahrain-based Awal Bank, a subsidiary of Saudi Arabia’s embattled Saad Group owned by Saudi billionaire Maan al-Sanea. The court’s decision offers temporary relief to creditors who stood to be left high and dry if the court had ruled in favor of Awal’s request, which would have allowed the troubled bank to keep information confidential and would have exempted it from creating a U.S. creditors committee
U.S. Bankruptcy Judge Allan Gropper however kept the door open for Awal to repetition the court provided it the bank agreed to establish such a committee. Groper told David Molton of Brown Rudnick LLP, the lawyers for Awal’s Bahrain Central Bank appointed administrator, Charles Russel LLP, that the committee was needed as a watchdog because US courts do not appoint administrators.
Groper suggested the request be resubmitted by Nov. 1, the deadline for the U.S. Trustee, which oversees U.S. bankruptcies, to seek candidates for a creditors committee. Alisdair Haythornthwaite of Bell Pottinger Middle East (UAE), speaking on behalf of Charles Russel said the administrator intended to follow the judge’s advice and reapply for Chapter 11 protection. Awal had argued that a U.S. creditors committee would duplicate proceedings in the Cayman Islands and the Middle East involving the bank’s largest creditors.
Awal Bank’s request for Chapter 11 came little more than a year after it had filed for Chapter 15 bankruptcy in the same court. Chapter 15 bankruptcy seeks to protect companies from U.S. litigation while they reorganize in a non-U.S. court. Molton told the court that Awal Bank needed Chapter 11 protection to help it recover what it called “avoidable” transfers out of the estate prior to bankruptcy.
Defaults on loans last year by Awal Bank as well as Saudi conglomerate, Ahmad Hamad Al-Gosaibi & Brothers Co. set off a bitter legal battle on three continents between the two groups that are related by al Sanea’s marriage to a daughter of the Ghosaibi family. Gosaibi has accused Al-Sanea in court filings on three continents of siphoning off $10 billion from his in-laws.
Awal’s Chapter 11 court filing suggested that it would it file a reorganization plan or opt for liquidation in Bahrain rather than the United States. Even though the court papers kept reorganization on the table, the Chapter 11 filing suggests that liquidation is the more likely option. According to its court filing, Awal has assets valued at most at $100 million and liabilities of more than $1 billion. Under Bahrain law, the administrator has until the summer of next year to decide whether to liquidate Awal or return it to its owners.
Assuming that the bankruptcy filing was made with the consent of the Bahrain Central Bank, the filing suggests that Bahrain has decided that Awal is beyond salvation and should be liquidated. In its filing, Awal asserts that after payment of the administrators and other immediate expenses, it will not be able to compensate its unsecured creditors, who number somewhere between 60 and 100 and include: Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, AlGosaibi Money Exchange, Bank of Montreal, Bayerische Hypo-und Vereinsbank, Bayerische Landesbank, Boubyan Bank, Calyon Corporate and Investment Bank, Commercial Bank of Kuwait, Commercial Bank of Qatar, Commerzbank, Commonwealth Bank of Australia, Fortis Bank, Gulf International Bank, HSBC, HSH Nordbank AG, JP Morgan, Kuwait Finance House and The International Banking Corporation.
Al-Gosaibi is seeking to recover $9.2 billion in lawsuits in the Cayman Islands against al-Sanea and Awal subsidiaries. The lawsuits were stayed after al-Sanea challenged the Cayman court’s jurisdiction, and an appeal of that decision is set to be heard in November. In July, New York State Supreme Judge Hon. Richard B. Lowe dismissed a lawsuit Al-Gosaibi had filed against Awal and al- Sanea, on grounds of that court being an improper forum. Court proceedings involving Awal are also ongoing in Bahrain, Kuwait, Saudi Arabia, Switzerland and Britain.