Awal Bank Asks US Court For Deadline Extension

Charles Russell LLP, the Bahrain-appointed administrator of Awal Bank BSC, a subsidiary of Saudi Arabia’s embattled Saad Group owned by Saudi billionaire Maan al-Sanea, has asked a U.S. court for an extension of the deadline to file schedules of assets and liabilities and a statement of financial affairs in the bank’s application for Chapter 11 bankruptcy protection.

The request follows rejection last week by the New York court of Awal Bank’s initial application for limited Chapter 11 because the troubled bank was asking to be allowed to keep information confidential and to be exempted from the need to create a U.S. creditors committee. At the same time, U.S. Bankruptcy Judge Allan Gropper kept the door open for Awal to repetition the court provided it the bank agreed to establish such a committee. Gropper said he would allow more time to assess the information provided give creditors the opportunity for creditors to make representations.

In the request for an extension, Charles Russell said it needed additional time to canvass creditors’ views and would only once it had done so decide whether it wished to further pursue Chapter 11 protection. The Office of the United States Trustee indicated that it had no objection to Charles Russell request for an extension of the deadline.

Awal initially applied last month for Chapter 11 protection saying that it would help the bank recover “avoidable” transfers out of its estate prior to the bankruptcy. The Chapter 11 filing came little more than a year after Awal 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.

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 Al-Ghosaibi family. Al-Gosaibi has accused Al-Sanea in court filings on three continents of siphoning off $10 billion from his in-laws.

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.

Awal’s original 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.

New York Court Rejects Awal Bank Petition for Chapter 11 Bankruptcy

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.

Saad-owned Bahrain Bank Files for Bankruptcy

In a move that is likely to leave creditors high and dry, Awal Bank BSC, a Bahrain-based subsidiary of Saudi Arabia’s embattled Saad group, has filed for Chapter 11 bankruptcy in a New York bankruptcy court. The filing comes little more than a year after the bank sought US court protection from US creditors and is in line with recommendations made in a report by Ernst & Young.

According to its court filing, Awal Bank has assets valued at most at $100 million and liabilities of more than $1 billion. Bahrain’s central bank last summer appointed an administrator for Awal Bank, owned by Saudi billionaire Maan al-Sanea, after it had defaulted on loans in a sequence of defaults that has sparked a bitter legal battle across continents between Al Sanea’s Saad Group and Saudi conglomerate Ahmad Hamad Al-Gosaibi & Brothers Co. Under Bahrain law, the Bahrain central Bank-appointed administrator has until the summer of next year to decide whether to liquidate Awal bank 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 Bank is beyond salvation and should be liquidated. In its filing, Awal Bank 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.

Iran Plays in the Background

Concern mounted in the weeks prior to Israeli strikes against Gaza that Iran was stepping up efforts to exploit tension in Palestine. That concern coupled with fear that a Hamas victory in Gaza would strengthen Islamist forces across the Middle East has driven a wedge between Arab public opinion demanding assistance to the Palestinians and Arab governments' inability to effectively respond to the crisis. Some analysts believe Iran earlier this month was stoking Shiites to embarrass Arab governments by demonstrating already before the Israeli strikes against the Israeli blockade of Gaza.

In what seemed to be a coordinated move, Shiites demonstrated on December 19 in Beirut, Bahrain and Qatif, a predominantly Shiite area in eastern Saudi Arabia, where Shiites have more often defied a ban on public protests. With Hizbollah organizing the rally in Beirut, the Iranian connection was obvious. In Bahrain, the gathering of some 3,000 people ended in clashes with police, Three police officers were injured. Days earlier Bahrain arrested 15 people accused of planning to set off a series of bombs on Bahrain's national day. Saudijeans quotes the website Rasid as saying that several hundred demonstrators in Qatif waved posters of Hizbollah leader Hassan Nasarallah and chanted anti-Israeli and anti-US slogans. Police did not intervene but arrested tens of participants several days later. When protesters gathered again on Monday in Qatif in the wake of the Israeli strikes, police fired rubber bullets to break up the protest. Saudi Interior Ministry spokesman Mansour al-Turki, denied that Monday's demonstration took place. "Street protests are banned in the Kingdom and security forces will intervene to enforce the ban," Reuters quoted Al-Turki as saying. Saudijeans said several petitions to allow for demonstrations in solidarity with the Palestinians were rejected by the Interior Ministry, which fears that lifting the ban on public protests could set a precedent for demonstrations in demand of more rights in Saudi Arabia itself.

Reflecting Saudi concerns immediately after the demonstrations in Beirut, Bahrain and Qatif, Tariq Alhomayed, editor in chief of Saudi-owned Asharq Al Awsat wrote: "If the West fears the missiles that Iran claims it is developing, then we fear the Iranian bombs that are planted among us! The simplest example of this lies in last Friday's demonstrations in Bahrain. (Hamas political leader) Khalid Meshal repeatedly called for Arab demonstrations and received no response. Yet, when Hassan Nasrallah made similar calls for demonstrations in support the people of Gaza, even some Bahrainis took to the streets. Furthermore, the Bahraini protestors went so far as to pelt security officers with stones. What happened in Bahrain cannot be described as anything but a demonstration of power by the high-commissioner of Iran in our region, Hassan Nasrallah! It is so odd that the King of Bahrain [Hamad Bin Isa Al Khalifah] instituted reforms in his country and relinquished some powers for the sake of his country and people, whilst some people [in Bahrain] are surrendering their decisions and freedom, not to mention their country's constitution, for the sake of the high-commissioner of the Wilayat Al Faqih," Iran's model of political guardianship of the clergy.

Gaza: A Godsend for Islamists

Israel's Yediot Ahronot newspaper reports that the humanitarian aid allowed into Gaza this week despite Palestinian rocket attacks served as one of several measures to give Hamas a false sense of security so that an already authorized attack would catch the Palestinian Islamists off guard. Today's air strikes, apparently designed to at least weaken Hamas to the degree that it no longer can complicate or obstruct talks with the Palestinian Authority, inevitably beg comparison with Israel's 2006 attack on Hezbollah in Lebanon.

That attack failed to achieve its target, the destruction of an Islamist group and the liberation of Israeli soldiers held prisoner. If anything, Hezbollah emerged politically stronger, having fought the first Arab war with Israel in which Israeli military superiority was dented and Israel failed to achieve its objective. Granted Gaza is not Lebanon, and Hamas is not Hezbollah. Hamas took a serious beating on the first day of what Israel promises could be a prolonged offensive, a drubbing that appears to be far more punishing than pain inflicted on Hezbollah in the initial days of the war. Hezbollah constitutes far more of a military power than Hamas does.

Israel will certainly have drawn military conclusions from its 2006 experience and taken those into account when its National Security Council last Wednesday unanimously authorized the attacks on Gaza. The devastating effect of the attacks indicates that Israel's effort to deceive Hamas about its plans including statements to the media suggesting that Israel was still discussing and had yet to decide on military moves appears to have succeeded. Hamas police officers were killed as they attended their graduation in Gaza's main policy academy. Yediot quotes Israeli sources as saying that Hamas officials who had gone into hiding reappeared before today's air strikes and resumed normal operations.

Drawing a distinction with the Lebanon war, Israeli sources insist that today's attacks serve more limited objectives and are designed to stop the firing of rockets from Gaza into Israel and not the destruction of Hamas or the liberation of Gilad Shalit, the Israeli soldier being held by Hamas since 2006. It would, however, not be the first time that a war has involved Israel expanding its goals as fighting continued. Israel's initial objective in the 1982 war fell far short of expulsion of the PLO from Lebanon or occupation of Beirut but ended with Yasser Arafat and his cohorts setting sail for Tunisia and Israeli troops in control of the Lebanese capital. That is not to say that Israel is likely to expel Hamas. It is however a confrontation that could follow the pattern of Israeli Arab-confrontations since the 1967 Middle East war up to the 2006 Lebanon war: a battle that Israel wins militarily, but looses politically.

That is all the more true in a world where western nations are grappling with the fact that Islamists in the Arab and Muslim world are popular because they are seen as agents of reform and change. They do well in those countries where free and fair elections are held – Turkey or Jordan for example – and would do very well if more authoritarian countries such as Egypt would let the ballot decide. Islamist popularity makes Western support for often politically and morally bankrupt governments more risky and costly. Israel's attacks on Gaza, certainly if they continue for some time with this intensity, could raise that risk and cost.

Within hours of today's Israeli bombing, clashes on the West Bank between Palestinian youths and Israeli troops erupted reminiscent of the second Intifada. At a demonstration of the Muslim Brotherhood-affiliated Islamic Action Front (IAF) in the Jordanian capital Amman, an IAF leader warned that Arab leaders who deal with Israel were criminal, a less than veiled reference to Jordanian King Abdullah and Egyptian President Hosni Mubarak. It was in Cairo after talks with Mubarak that Israeli Foreign Minister Tzipi Livni warned with reference to Hamas that "enough is enough." The Israeli attacks must put UAE Foreign Minister Sheikh Abdallah Bin Zayid Al Nahyan, who this week paid a rare official Arab visit to the West Bank, in an embarrassing position. The visit, although to the Palestinian Authority, constitutes a de facto recognition of Israel as the minister and his delegation would have had to pass Israeli passport control. The UAE does not recognize Israel and does not even acknowledge it on maps of the region printed in the country.

Various Arab countries are likely to privately take a much milder view of Israel's attempt to cut Hamas down to size than is evident from their public condemnations. Egyptian Foreign Minister Ahmed Aboul Gheit earlier today said Egypt had long warned Hamas that Israel would respond to rocket attacks in this manner, and that those who did not heed the warning "should bear the responsibility." Arab governments have privately sought to discourage Western contacts with moderate Islamists whom they view as their most serious challenger. Moderate Islamists to them constitute a political challenge given their public appeal, militant Jihadists are a security problem that can be harshly dealt with by security forces. This is all the more true in an economically depressed world where lower oil prices make it more difficult to create jobs and give legions of unemployed or underemployed youths at least an economic stake in the status quo. Public anger at the Israeli strikes coupled with Arab impotence is likely to fuel the vicious circle in which anger and frustration in the absence of a free media and freedom of expression can only be channeled through one outlet in the Arab world: the mosque.

Although unrelated to the violence in Gaza, the risks were highlighted when Bahrain Interior Minister Sheikh Rashid bin Abdullah Al Khalifa today accused Bahrain opposition leaders in London of having masterminded Bahrainis arrested earlier this month on charges of planning bomb attacks in the Gulf kingdom. He said the group had travelled this summer to Syria for military training under the guise of visiting religious shrines. Khalifa said Bahrain would have to introduce stiffer punishments in terrorism cases and toughen current legislation. Arsonists set fire to an electricity substation on one of Bahrain’s busiest streets hours before the arrest of the 14 was announced. Bahraini police have repeatedly clashed with Shiite villagers in recent weeks wanting to commemorate victims of unrest in the 1980s and 1990s.