Arcapita and creditors fight it out (By IFN)

See: http://redmoney.newsweaver.co.uk/yrtus38ft3vh38rwoni3wx?email=true&a=6&p=23902025&t=21202235

GLOBAL: Bahrain’s Arcapita Bank, which has filed for bankruptcy protection in the US, has received the court’s permission to pay staff and business partners after making changes acceding to creditors’ demands.

In a case closely watched as much as for the prolific rise and dramatic fall of Arcapita as for how Shariah compliant investment structures will be treated under US bankruptcy laws, the Islamic investment bank faces an uphill task as its creditors appear prepared to tussle with it every step of the way.



So far, its creditor committee, which includes hedge funds Euroville Sarl and VR Global Partners, the National Bank of Bahrain, Commerzbank, Barclays Bank and the Central Bank of Bahrain, has sought US bankruptcy judge Sean Lane’s oversight to change the way Arcapita pays its employees, business partners and insurance. The requests include the barring of financing and school as well as tuition fees to Arcapita’s employees and requiring the bank to seek creditor’s permission before paying staff anything more than US$100,000, while the creditors also seek more control over the bank’s insurance payments.

Arcapita has also agreed to its creditors’ dispute against hiring Ernst & Young as an advisor, in addition to settling on providing creditors 10 days’ notice before it pays its business partners.

Creditors also argued that there is a need to safeguard Arcapita’s cash for them, as the bank is a foreign entity with private equity stakes in portfolio companies; giving rise to the need to ensure that the bank does not fund entities in countries outside the bankruptcy court’s jurisdiction.

Other challenges from creditors include payments made to Gibson Dunn & Crutcher, Arcapita’s bankruptcy counsel; which received US$1.65 million from the bank ahead of its bankruptcy. The creditors argued that under bankruptcy law, some of the payments may be returned to pay them back.

Meanwhile, Arcapita has also filed a proposed budget for the month of May, projecting that it will spend US$2.7 million on staff expenses and have an operating cash flow of US$3.5 million. It also said that it will lose US$5.7 million on a consolidated basis for the month, including in restructuring costs.