Awal Bank, BSC

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------x
In re: 	: 	Chapter 15
:
AWAL BANK, BSC, 	: 	Case No. 09-15923 (ALG)
:
Debtor in a Foreign Proceeding. 	:
---------------------------------------------------------------x
In re: 	: 	Chapter 11
:
AWAL BANK, BSC, 	:
: 	Case No. 10-15518 (ALG)
Debtor. 	:
---------------------------------------------------------------x
CHARLES RUSSELL, LLP, LONDON, AS 	:
EXTERNAL ADMINISTRATOR OF AWAL 	:
BANK, BSC 	:
:
Plaintiff, 	: 	Adv. Pro. No. 11-01535 (ALG)
:
v. 	:
:
HSBC BANK USA, N.A. 	:
:
Defendant. 	:
---------------------------------------------------------------x
MEMORANDUM OF OPINION
A P P E A R A N C E S:
BROWN RUDNICK LLP
Counsel to Charles Russell, LLP, London, as
External Administrator of Awal Bank, BSC
Seven Times Square
New York, NY 10036
By: 	David J. Molton
Sunni P. Beville
Robert L. Harris
William R. Baldiga
One Financial Center
Boston, MA 02111
By: 	Robert L. Harris
Rebecca L. Fordon
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 1 of 31

Nicolas M. Dunn
PHILLIPS LYTLE LLP
Counsel to HSBC Bank USA, National Association
437 Madison Avenue, 34th Fl.
New York, NY 10022
By: 	William J. Brown
David J. McNamara
Allan L. Hill
-and-
3400 HSBC Center
Buffalo, New York 14203
UNITED STATES TRUSTEE
33 Whitehall Street, 21st Fl.
New York, NY 10004
By: 	Tracy Hope Davis
Susan D. Golden
ALLAN L. GROPPER
UNITED STATES BANKRUPTCY JUDGE
INTRODUCTION
This opinion resolves certain aspects of a dispute between Charles Russell, LLP, London,
as External Administrator (the “External Administrator”) of Awal Bank, BSC (“Awal Bank” or
the “Debtor”), a bank in insolvency proceedings in Bahrain, and HSBC Bank USA, National
Association (together with its affiliates, branches and subsidiaries, “HSBC” or “Defendant”), one
of Awal Bank’s largest creditors. The principal issue for decision arises in connection with the
External Administrator’s adversary proceeding seeking to avoid or invalidate HSBC’s set-off of
$12,996,220.98 of the Debtor’s money two weeks before the opening of insolvency proceedings
in Bahrain. In other proceedings, the External Administrator seeks relief from one of the usual
duties of a chapter 11 debtor—viz. to disclose the details of each creditor’s claim. In the
alternative, the External Administrator seeks authorization to file the amount of each creditor’s
claim under seal. HSBC contends (i) that the requested relief should be denied (ii) that the
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 2 of 31

3
chapter 11 case should be dismissed altogether; and (iii) whether or not the entire chapter 11 case
is dismissed, the adversary proceeding should be dismissed for failure to state a claim on which
relief can be granted. The United States Trustee has also objected to filing the details of each
creditor’s claim under seal.
Several of the matters addressed herein raise issues of first impression under chapter 15,
including (i) the contours of a chapter 11 case brought subsequent to chapter 15 recognition and
(ii) whether the External Administrator can sustain the Complaint against HSBC’s motion to
dismiss and pursue its efforts to avoid or invalidate the set-off. For the reasons set forth hereafter,
(A) the chapter 11 case will not be dismissed; (B) it is appropriate in this case to modify § 521’s
disclosure requirements; and (C) the motion to dismiss the adversary proceeding will be denied
as HSBC has not, on the pleadings and as a matter of law, demonstrated that (X) the External
Administrator’s 	§ 	553(b) 	action 	is 	untimely, 	(Y) 	Article 	4A 	preempts 	the 	External
Administrator’s common law claims or (Z) the so-called discharge for value rule precludes the
relief sought.
BACKGROUND
I. 	The Bahrain Administration
By Resolution No. 38 of 2009, dated July 30, 2009, the Central Bank of Bahrain (the
“CBB”) placed Awal Bank into an administration proceeding. See External Administrator’s
Motion to Approve Debtor’s Schedules, Statement and Form of Operating Agreement at ¶ 11,
Case No. 10-15518 (Dkt. No. 48) (the “Revised Protocol Motion”). A short period later, the CBB
appointed Charles Russell, LLP, an English law firm, to serve as the External Administrator of
Awal Bank. See Id. Since Awal Bank was placed into administration, it has ceased to operate as
a going concern. See Stewart Hey Declaration at ¶ 21, Case No. 09-15923 (Dkt. No. 5). Within
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 3 of 31

4
two years, the External Administrator must complete one of its obligations in the administration
and “submit a petition to a Bahraini court, with the approval of the CBB, either for: (1)
compulsory liquidation of the bank; or (2) termination of the administration and restoration of
the bank to its management and shareholders.” Id. at ¶ 22. The record does not show whether a
decision to reorganize or liquidate Awal Bank has been made.
In the course of the administration in Bahrain, the External Administrator adopted a
protocol for sharing information with creditors, including HSBC. See External Administrator’s
Objection to HSBC’s Motion to Dismiss Chapter 11 at ¶ 15, Case No. 10-15518 (Dkt. No. 58)
(the “Objection to Motion to Dismiss”). Upon execution of a confidentiality agreement, creditors
who have filed a proof of claim are invited to attend quarterly meetings with the External
Administrator and the CBB for updates on the status of the administration of Awal Bank’s assets.
Id. All attendees may question the External Administer and the CBB. Id. There also exists an
informal creditors’ committee (“ICC”) in the administration in Bahrain; HSBC is one of its five
members. Id. It is undisputed that HSBC is one of Awal Bank’s largest creditors, having a claim
of approximately US $ 75 million without considering the set-off at issue in this case, and that
HSBC has been an active participant in the administration in Bahrain, with access to all of the
information available to creditors in that proceeding.
II. 	The Chapter 15 Case
On September 30, 2009, the External Administrator applied for recognition of the
administration in Bahrain as a foreign main proceeding.1 There were no objections and on
October 27, 2009, an order recognizing the administration in Bahrain was entered in the above-
captioned chapter 15 case. See Recognition Order at ¶ 9, Case No. 09-15923 (Dkt. No. 18). The
1 A “foreign main proceeding” is defined as “a foreign proceeding pending in the country where the debtor has the
center of its main interest.” 11 U.S.C. § 1502(4).
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 4 of 31

5
External Administrator is the duly authorized foreign representative of Awal Bank. See Id. at
¶ 12.
III. 	The Chapter 11 Case
On October 21, 2010, the External Administrator filed the above-captioned chapter 11
case. It is not disputed that the purpose of the filing was, to the extent necessary, to establish a
statutory predicate for an action under U.S. law to avoid a set-off that HSBC had taken. On the
day after the chapter 11 filing, the External Administrator sought relief from certain requirements
of § 521 of the Bankruptcy Code, which provides that a debtor in a plenary case under the
Bankruptcy Code must file a list of creditors and certain statements and schedules unless the
court “orders otherwise.” 11 U.S.C. § 521; see External Administrator’s Motion For An Order
Establishing Protocol For Chapter 11 Case at ¶ 5, Case No. 10-15518 (Dkt. No. 5) (the “Initial
Protocol Motion”). At a hearing held on October 26, 2010, the Court declined to consider the
requested 	relief 	until 	additional 	notice 	had 	been 	provided 	to 	creditors. 	The 	External
Administrator subsequently withdrew the Initial Protocol Motion and notified the Court that
further filings would be made. See Notice of Withdrawal, Case No. 10-15518 (Dkt. No. 24).
On January 5, 2011, Awal Bank filed a statement of financial affairs (“SOFA”) and
schedule of assets and liabilities that omitted some of the information typically provided
pursuant to § 521 (Dkt. Nos. 36 and 37). In response to a request from the United States Trustee
to supplement these documents, the External Administrator filed a motion seeking the Court’s
permission to file schedules that, in substance, omit the amount of the claims of individual
creditors. See Revised Protocol Motion at ¶ 3. Amended Schedules that “disclose the existence of
both U.S. and non-U.S. liabilities (including creditor name and address for each),” but do not
“disclose specific creditor-by-creditor claim information, i.e., the scheduled amount of the
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 5 of 31

6
creditors’ claim” were filed on March 4, 2011.2 Id. If the Revised Protocol Motion is denied and
Awal Bank is compelled to provide the amount of each creditor’s claim (the “Creditor Claim
Information”), the External Administrator proposes to file such information under seal because
the Creditor Claim Information was provided by the creditors under a promise of confidentiality
in the administration in Bahrain.
The External Administrator contends that disclosure of the “foreign creditor-by-creditor
claim amounts and foreign financial affairs . . . would directly conflict with the duties and
procedures of the Foreign Main Proceeding.” Id. at ¶ 5. The United States Trustee objected to the
proposal, at least insofar as it sought to file the information under seal, contending that the
External Administrator had failed to establish that the data it seeks to protect is the type of
proprietary, commercial information covered by § 107(b)(1) of the Bankruptcy Code. The United
States Trustee does not appear to object to the External Administrator’s request for relief from
some of the requirements of § 521. HSBC, by contrast, does object to the grant of relief from
§ 521 and the filing of Creditor Claim Information under seal.
IV. 	The Adversary Proceeding against HSBC
On February 24, 2011, the External Administrator commenced an adversary proceeding
against HSBC in order to avoid and recover an allegedly improper set-off. Count I claims that
under § 553(b) of the Bankruptcy Code, Awal Bank is entitled to recover $12,996,220.98 that
HSBC purported to set-off against the $75,071,671.31 debt owed to HSBC or one of its affiliates
by Awal Bank under a credit agreement. See Complaint at ¶¶ 38-41, Case No. 11-01535 (Dkt.
No. 1). The remaining counts assert common law causes of action against HSBC that also seek to
recover the amount of the set-off; these counts are based on theories of (i) unjust enrichment, (ii)
conversion, (iii) monies had and received, and (iv) mistake of fact. Id. at ¶¶ 42-53, 61-71. The
2 The Debtor’s amended schedules are filed as docket no. 67 in the chapter 11 case.
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 6 of 31

7
External Administrator also seeks the imposition of a constructive trust over the funds and a
declaratory judgment that HSBC should immediately return the funds. Id. at ¶¶ 54-60, 72-77.
HSBC has moved to dismiss the adversary proceeding.
V. 	Facts Relating to the Set-off
For purposes of the motion to dismiss, the following facts, pled in the Complaint, are
presumed to be true. Awal Bank and HSBC entered into a Short Term Liquidity Facility
Agreement (the “Credit Agreement”) on May 19, 2008, providing an uncommitted overdraft
facility of approximately $75 million. See Complaint at ¶¶ 25-31. On or about May 28, 2009, the
Credit Agreement was terminated with approximately $75 million outstanding. Id. at ¶¶ 26-31.
On or about June 26, 2009, HSBC served Awal Bank with a notice of default under the Credit
Agreement and demanded payment in the amount of $75,071,671.31. Id. at ¶ 29.
On July 17, 2009, after a derivative contract was closed out with surplus funds owing to
Awal Bank, Royal Bank of Scotland (“RBS”) electronically transferred $12,996,220.98 to Awal
Bank’s deposit account at HSBC (the “Wire Transfer”).3 Id. at ¶¶ 32-34. According to the
Complaint, the Wire Transfer was made in error, as Awal Bank had instructed RBS to transfer
the surplus funds to Awal Bank’s account with the Bank of Bahrain and Kuwait. Id. at ¶ 22. The
External Administrator alleges that HSBC had actual or constructive notice that the Wire
Transfer was sent to HSBC in error, and that RBS notified HSBC of the error on July 20, 2009
and repeatedly thereafter. Id. at ¶ 35.
HSBC contends in its papers that almost immediately upon receipt of the Wire Transfer,
and prior to any discussions with Awal Bank or RBS, it applied the Wire Transfer to the
indebtedness owed by Awal Bank under the Credit Agreement. See HSBC’s Memorandum of
Law at p.2. HSBC claims that it did not learn of Awal Bank’s position—that the Wire Transfer
3 The Wire Transfer appears to have been received by one of HSBC’s New York branches.
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 7 of 31

8
was 	made 	in 	error—until 	after 	the 	funds 	had 	already 	been 	applied. 	Id. 	The 	External
Administrator concedes that it received a “Notice of Application of Funds to Awal Bank” on or
about August 7, 2009, but contends that it is a self-serving document that does not demonstrate
that HSBC set-off the funds before being placed on notice that the Wire Transfer had been
transmitted in error.
ANALYSIS
I. 	The External Administrator’s Motion for Relief from Certain Requirements
of § 521 of the Bankruptcy Code
The External Administrator seeks relief in the pending chapter 11 case from some of the
disclosures required by § 521 of the Bankruptcy Code, specifically, authority to omit the Creditor
Claim Information or, in the alternative, to file such information under seal. 11 U.S.C.
§ 521(a)(1); see Revised Protocol Motion at ¶ 5. The relief sought by the External Administrator
relates to and requires consideration of the nature and purpose of a plenary case filed by a
foreign representative after obtaining recognition in a chapter 15 ancillary proceeding.
Chapter 15 of the Bankruptcy Code, which adopted the substance and most of the text of
the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on
Cross-Border Insolvency (the “Model Law”), provides a comprehensive scheme for recognizing
and giving effect to foreign insolvency proceedings. An administrator in a foreign insolvency
proceeding who wishes to obtain judicial relief in the United States must ordinarily first obtain
an order of recognition from the Bankruptcy Court in a chapter 15 proceeding. 11 U.S.C. §§
1501, 1509(b), 1511(a), 1512, 1528. Once recognition has been granted to a foreign main
proceeding, the foreign representative obtains certain relief as of right, including a stay of actions
against the insolvent entity similar to the automatic stay. 11 U.S.C. § 1520. The foreign
representative can also seek further relief in the chapter 15 case under § 1521 and “additional
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 8 of 31

9
relief” under § 1507. Although many provisions of the Bankruptcy Code can be accessed in a
chapter 15 proceeding, the chapter 15 case remains ancillary to the foreign case, a U.S.
insolvency “estate” is not created, and the foreign representative is relieved from many of the
duties imposed on the estate representative in a chapter 7 or chapter 11 plenary case.
A recognized foreign representative can also file a plenary proceeding under chapter 7 or
11 regarding a debtor that is the subject of a chapter 15 case. 11 U.S.C. § 1511. However, with
one exception, it is unclear how often a foreign representative would choose this option because
of the extent of the relief available under chapter 15. This case involves that exception, however,
as by statute the court cannot authorize a foreign representative, in a chapter 15 ancillary
proceeding, to exercise the power to bring certain avoidance actions under the U.S. Bankruptcy
Code, namely “relief available under sections 522, 544, 545, 547, 548, 550 and 724(a).” 11
U.S.C. § 1521(a)(7).
The External Administrator asserts that it can pursue § 553(b) claims in a chapter 15 case
because § 553(b) is not listed as one of the excluded provisions in § 1521(a)(7). As further
discussed below, there is a question whether the omission of § 553(b) from the enumerated
exceptions in § 1521(a)(7) was a drafting error. The External Administrator appears to have filed
the chapter 11 case as a measure of caution to remove any doubt as to its authority to pursue
avoidance actions under U.S. law. In any event, since a chapter 11 plenary case has been filed
and is pending together with the chapter 15 case, the relationship between the two proceedings
must be established, and the question is raised whether and to what extent the purposes of
chapter 15 justify providing relief from some of the usual requirements of a plenary case.
That brings us to the specific request at issue herein. The External Administrator asserts
that limited disclosure is appropriate in this case because the chapter 11 case remains secondary
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 9 of 31

10
to the main case in Bahrain. It points out that (i) the effects of the chapter 11 case are even more
restricted because Awal Bank’s sole U.S. asset is the potential recovery on its claim against
HSBC; 	(ii) 	a 	need 	exists 	to 	coordinate 	the 	chapter 	11 	and 	chapter 	15 	cases 	with 	the
administration 	in 	Bahrain; 	(iii) 	comity 	and 	deference 	to 	the 	Bahrain 	administration’s
confidentiality protocol and distribution process justify the more limited disclosure; and (iv)
limiting disclosure avoids unnecessary expense, especially in light of the availability of
information in the administration in Bahrain. See Revised Protocol Motion at ¶ 34.
HSBC’s initial position was that the Debtor’s filings were “a parody of the disclosures
required by and commonly filed in Chapter 11 bankruptcy cases” because they contained
“almost no information about the Debtor’s assets and liabilities, and list only one creditor,”
namely, HSBC. HSBC’s Motion to Dismiss Chapter 11 Case (the “Motion to Dismiss”) at ¶ 5.
The External Administrator subsequently filed amended schedules that contain most of the
information normally provided in such documents, except for the Creditor Claim Information.
HSBC nevertheless asserts that there is no basis for the omission of this data and that Awal
Bank’s operating reports also lack certain information normally provided to the United States
Trustee. See Id. at ¶ 8(b)(ii).4
The specific disclosure obligation at issue derives from § 521(a)(1) of the Bankruptcy
Code, which provides, in relevant part:
The debtor shall file (A) a list of creditors; and (B) unless the court
orders otherwise (i) a schedule of assets and liabilities; . . . (iii) a
statement of the debtor's financial affairs . . .
4 It bears noting that the United States Trustee objected to the External Administrator’s motion on the basis that
there was “no showing that the creditor claim information should be protected under Section 107(b) of the
Bankruptcy Code.” See UST Objection (Dkt. No. 55). The United States Trustee has not sought to dismiss the
chapter 11 case on the basis that Awal Bank’s monthly operating reports are deficient.
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 10 of 31

11
11 U.S.C. § 521(a)(1). The list of creditors contains only names and addresses and is used for
notice purposes. 4 Collier on Bankruptcy ¶ 521.06[2][c] (16th ed. 2011). The Creditor Claim
Information is included in the schedules required by § 521(a)(1)(B), a subsection that allows a
court to “order otherwise” with respect to disclosure. See Hamilton v. Lanning, 130 S.Ct. 2464,
2483 n.5 (2010) (Scalia, J., dissenting). Although the statute does not provide any guidance as to
when a court should relieve a party from the disclosure requirements of § 521(a)(1)(B), courts in
domestic cases have utilized this statutory authority to limit § 521(a)(1)’s requirements in a
variety of circumstances. For example, this court often limits disclosure in prepackaged
bankruptcy cases, where the general unsecured creditors are generally unimpaired and where the
creditors affected by the chapter 11 case have already voted. See, e.g., In re Metro-Goldwyn-
Mayer Studios Inc., Case No. 10-15774 (SMB), Order (A) Dispensing with the Requirements of
Filing Schedules and Statements of Financial Affairs, (B) Pending the Waiver of Such
Requirement, Granting Additional Time to File Schedules and Statements of Financial Affairs,
(C) Authorizing Debtors to File Required Monthly Operating Reports on a Consolidated Basis,
and (D) Establishing Certain Notice Procedures, ¶ 2 (Dkt. No. 72) (Bankr. S.D.N.Y. Nov. 8,
2010); In re CIT Group, Case No. 09-16565 (ALG), Order under 11 U.S.C. §§ 105 and 521 and
Fed. R. Bankr. P. 1007 (I) Extending Time for Debtors to File Their Schedules of Assets and
Liabilities 	and 	Statements 	of 	Financial 	Affairs, 	(II) 	Permanently 	Waiving 	Same 	Upon
Confirmation of Debtors’ Prepackaged Plan and (III) Waiving Requirements to File Equity List,
¶¶ 3, 5 (Dkt. No. 49) (Bankr. S.D.N.Y. Nov. 3, 2009) (waiving the requirement to file schedules
and statements, and a list of equity security holders).
Courts in this and other districts have also allowed debtors relief from the disclosure
requirements 	contained 	in 	§ 	521 	in 	other 	circumstances, 	particularly 	in 	the 	context 	of
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 11 of 31

12
§ 521(a)(1)(B)(iv)’s requirement to file “payment advices” or appropriate substitute evidence.
See, e.g., In re Tay-Kwamya, 367 B.R. 422 (Bankr. S.D.N.Y. 2007); In re Weinraub, 351 B.R.
779 (Bankr. S.D. Fla. 2006); In re Ackerman, 374 B.R. 65 (Bankr. W.D.N.Y. 2007). For
example, in the chapter 7 case of In re Ackerman, the court allowed the debtor to refrain from
filing payment advices or substitute evidence, as mandated under 11 U.S.C. § 521(a)(1)(B)(iv).
Ackerman evaluated the equities, balancing the importance of public disclosure in the bankruptcy
context with the “austere consequences” of dismissing the case, and found that good cause
existed to modify the debtor’s obligations under § 521 “to assure the administration of assets for
the benefit of creditors.” Ackerman, 374 B.R. at 66, 68. Although the Court has authority to
excuse the Debtor from its § 521(a)(1)(B) obligations altogether, in this case the Debtor has
requested only limited relief.
Under the circumstances, significant factors weigh in favor of granting the requested
order. Disclosure of the Creditor Claim Information would be disruptive to the administration in
Bahrain because creditors provided that information under an expectation of confidentiality.
Notwithstanding 	the 	filing 	of 	a 	plenary 	proceeding 	under 	chapter 	11, 	the 	principles 	of
cooperation and coordination embedded in chapter 15 are still applicable. Section 1509(b)(3)
specifically directs that after recognition “a court in the United States shall grant comity or
cooperation to the foreign representative.” Even if there is no order of recognition, § 1525
provides that a court in a plenary case in the United States “shall cooperate to the maximum
extent possible with a foreign court or a foreign representative, either directly or through the
trustee.” Section 1528 further provides that when a domestic plenary case is opened subsequent
to recognition of a foreign main proceeding, the effects of the U.S. case are
restricted to the assets of the debtor that are within the territorial
jurisdiction of the United States and, to the extent necessary to
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 12 of 31

13
implement cooperation and coordination under sections 1525,
1526, and 1527, to other assets of the debtor that are within the
jurisdiction of the court under sections 541(a) of this title, and
1334(e) of title 28, to the extent that such other assets are not
subject to the jurisdiction and control of a foreign proceeding that
has been recognized under this chapter.
11 U.S.C. § 1528; see also Leif M. Clark, Ancillary and Other Cross-Border Insolvency Cases
Under Chapter 15 of the Bankruptcy Code, (LexisNexis 2008) at § 12[1][a] (to the extent
possible, the administration of a debtor’s affairs should be centralized in the foreign main
proceeding and other cases should be coordinated with the main case).
Moreover, HSBC has not identified any specific need at this stage of the case for the
disclosure it advocates. As HSBC appears to be the only U.S. creditor of Awal Bank, disclosure
in the chapter 11 case of the confidential Creditor Claim Information would appear to be of no
use to other U.S. parties. As for HSBC, as the External Administrator has pointed out, it enjoys
privileged access to certain confidential information because it is significantly involved in the
administration in Bahrain and serves as a member of the ICC. See Revised Protocol Motion at
¶¶ 15-16.5
It is recognized that the restrictions in § 1521(a)(7)—limiting a 	foreign representative’s
authority to access the specified avoidance provisions in a chapter 15 ancillary proceeding—and
the corresponding grant of authority in § 1523(a)—granting a foreign representative authority to
access chapter 5’s avoidance provisions in a plenary case—are not standard provisions carried
over into chapter 15 from the Model Law. Congress adopted this limitation because of the U.S.
UNCITRAL delegation’s concerns that U.S. avoidance principles should become available to a
foreign representative only in a plenary proceeding where the court could give full consideration
5 The ICC consists of five of the largest creditors in the Foreign Main Proceeding and serves as a sounding board
through which the External Administrator and the Central Bank of Bahrain, the government entity responsible for
regulating the financial services industry in Bahrain, receive creditor feedback regarding various case administration
issues. See Revised Protocol Motion at ¶¶ 11, 15.
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 13 of 31

14
to the relevant choice of law issues. As the Fifth Circuit explained in Fogerty v. Petroquest
Resources, Inc. (In re Condor Ins. Ltd.), 601 F.3d 319 (5th Cir. 2010), quoting a Report of the
UNCITRAL Working Group, “The drafters of Chapter 15, responsive to the concerns raised at
the UNCITRAL debates, confined actions based on U.S. avoidance law to full Chapter 7 and 11
bankruptcy proceedings—where the court would also decide the law to be applied in the
distribution of the estate.” 601 F.3d at 326-27, citing In re Maxwell Commc’n Corp., 93 F.3d
1036 (2d Cir. 1996). Thus, the initial proposal of the External Administrator, that the chapter 11
case be treated in all respects as no different from the chapter 15 ancillary case and that all of the
requirements of a chapter 11 case be dispensed with because of the pendency of a main case in
Bahrain, was inappropriate.
On the other hand, the limited relief that the External Administrator seeks does not affect
the Court’s ability to consider choice of law questions or any other issues that might affect the
interests of creditors in the United States and elsewhere, including HSBC, in connection with the
Complaint. The exact contours of the chapter 11 case need not be determined at this stage.
However, for the reasons stated above, good cause exists to modify the Debtor’s obligations
under § 521(a) and to permit the External Administrator to file the schedules of assets and
liabilities, a SOFA and operating reports without including the Creditor Claim Information.6
6 HSBC also complains about the information contained in the External Administrator’s monthly operating reports.
Monthly operating reports are not required by § 521, but by 11 U.S.C. § 1107(a), which directs, among other things,
that the debtor in possession perform the functions and duties of a chapter 11 trustee under § 1106(a)(1). In turn,
§ 1106(a)(1) references § 704, which requires the trustee for an operating debtor to file "periodic reports and
summaries of the operation of such business, including a statement of receipts and disbursements, and such other
information as the United States Trustee or the court requires." As the United States Trustee appears to have no
objection to the External Administrator’s request to modify the disclosure requirements and the statute clearly
provides this Court with discretion to specify what information must be disclosed, for the purposes of this decision,
we will treat the request for relief as a request for relief from § 1107’s usual requirements. If there are grounds for
any party to request further information as the case progresses, they are free to file an appropriate motion after
conferring with the U.S. Trustee.
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 14 of 31

15
Because relief under § 521(a)(1) is granted, the Court need not consider whether the
information could be sealed pursuant to § 107(b) of the Bankruptcy Code.
II. 	HSBC’s Motion to Dismiss the Chapter 11 Case
HSBC also moves to dismiss Awal Bank’s chapter 11 case altogether, asserting that the
External Administrator acted in bad faith by “a pattern of failing to file even the most basic
disclosure documentation in accordance with the Bankruptcy Code,” and that it appears “to have
neither the intention nor the ability to file a confirmable chapter 11 plan.” Motion to Dismiss at
¶ 1. As the moving party, HSBC has the burden of demonstrating that cause exists for dismissal.
See In re FRGR Managing Member LLC, 419 B.R. 576, 580 (Bankr. S.D.N.Y. 2009).
HSBC relies on § 1112(b) of the Bankruptcy Code, which provides that, subject to certain
exceptions not relevant here:
on request of a party in interest, and after notice and a hearing, the
court shall convert a case under this chapter to a case under chapter
7 or dismiss a case under this chapter, whichever is in the best
interests of creditors and the estate, for cause . . .
Section 1112(b)(4) then sets forth a non-exclusive list of factors constituting “cause” for
dismissal. HSBC suggests that “cause” to dismiss the chapter 11 case exists for at least three of
the enumerated reasons, including that (i) the chapter 11 case is causing a substantial or
continuing loss to or diminution of the estate, and the Debtor is not reasonably likely to be
rehabilitated; (ii) Awal Bank has failed to timely satisfy its filing and reporting requirements; and
(iii) Awal Bank has failed “to file a disclosure statement or to file or confirm a plan” within the
allowed time. 11 U.S.C. §§ 1124(a)(4)(A), (F), and (J). None of these apply at this stage of the
case.
As to the claim that there has been a “substantial or continuing loss to or diminution of
the estate and the absence of a reasonable likelihood of rehabilitation,” the filing costs of the
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 15 of 31

16
chapter 11 case have been minimal relative to the approximate $13 million the External
Administrator is attempting to recover by pursuing its § 553 and common law claims against
HSBC. All other costs are related to HSBC’s motion practice. In any event, it is primarily a
question for the administration in Bahrain whether the costs of pursuing HSBC are worthwhile.
HSBC has made several arguments why a reasonable likelihood of rehabilitation does not
exist, but, at the time the chapter 11 case was filed, the External Administrator apparently had
time remaining under Bahrain law to determine whether Awal Bank should be liquidated or
reorganized. A chapter 11 debtor may confirm a liquidating plan if reorganization is not feasible.
11 U.S.C. § 1129(a)(11). HSBC asserts that the Debtor has “previously stated it has no intention
of filing a Chapter 11 plan” and has refused to commit to file such a plan, but the filing of a plan
is a matter to be considered later in the case, and the Debtor will be excused from confirming a
plan only by showing cause and after notice and a hearing. See 11 U.S.C. § 1112(b); Bankruptcy
Rule 1017(a). At this stage of the case, it would be inappropriate for the Court to make a finding
of an “absence of a reasonable likelihood of rehabilitation.”
HSBC next contends that the chapter 11 case should be dismissed because Awal Bank
has not satisfied all of the requirements of § 521. As discussed above, the Revised Protocol
Motion is granted, and this ground is now moot.
Finally, HSBC makes the incredible argument that “cause” exists to dismiss the chapter
11 case because Awal Bank has failed to “file a disclosure statement, or to file or confirm a plan,
within the time affixed by this title or by order of the court.” See Motion to Dismiss at ¶ 8, citing
11 U.S.C. § 1112(b)(4)(J). No order has set a plan deadline, and although the initial exclusivity
period for the Debtor to file a chapter 11 plan under § 1121(b) of the Bankruptcy Code was
scheduled to expire on February 18, 2011, on February 17, 2011, this Court extended the
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 16 of 31

17
exclusivity period to August 17, 2011. (Dkt. No. 50). Since the prospect of filing a plan or
disclosure statement appears to depend entirely on the success of the case against HSBC, it is
absurd for HSBC (the target defending against the case, as is its right) to contend that the delay it
has occasioned should somehow cause a forfeiture of the cause of action.7
In any event, the External Administrator states in his opposition to HSBC’s motion that it
“would seek Court approval and confirmation of a plan that would–per Sections 1525, 1526 and
1527 as incorporated within Section 1529 and as applicable to chapter 11 cases filed under to
[sic] Section 1528–coordinate, inter alia, distribution of any realized United States assets in a
manner in accordance with the provisions of chapter 11 and 15 and the Foreign Main Proceeding
and that would, upon approval by this Court, enable any realized United States assets to be
administered by the External Administrators in the Foreign Main Proceeding.” See Objection to
Motion to Dismiss at ¶ 35. It is hard to parse this language, but in all events it is premature to
speculate on a distribution scheme wholly contingent on a recovery against a well-represented
defendant.
HSBC argues that there is “absolutely no authority from this Court or under the
Bankruptcy Code or applicable law to distribute Chapter 11 assets to foreign creditors who do
not have U.S. allowed claims” or to modify any of the provisions of chapter 11 in order to
accommodate the fact that this chapter 11 case was filed by the External Administrator of a
recognized foreign proceeding. Motion to Dismiss at ¶¶ 14-15. In fact, there was such authority
under 11 U.S.C. § 304, the predecessor to chapter 15.8 In Matter of Axona Int’l Credit &
Commerce Ltd., 88 B.R. 597 (Bankr. S.D.N.Y. 1988), aff’d, 115 B.R. 442 (S.D.N.Y. 1990),
7 On July 25, 2011, the External Administrator filed a motion seeking a further extension of the exclusivity period
for filing a plan and obtaining acceptances. (Dkt. No. 93). The External Administrator contends that it is not
practicable to prepare a chapter 11 plan until the Debtor’s set-off claim against HSBC has been determined. A
hearing is currently scheduled on the External Administrator’s motion for August 11, 2011.
8 Section 304 was repealed when chapter 15 was adopted.
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 17 of 31

18
appeal dismissed, 924 F.2d 31 (2d Cir. 1991), a plenary proceeding, after being used to recover a
preference, was dismissed in favor of an ancillary case and the proceeds remitted to the foreign
jurisdiction for distribution there. It is premature to consider whether Axona should be followed
in light of the adoption of chapter 15, or whether the principle of universal cross-filing, which is
recognized in other cross-border insolvency legislation, should be utilized in this case.9 It is also
premature to speculate on the terms of a distribution in Bahrain. See In re Int’l Banking Corp.
B.S.C., 439 B.R. 614, 629 (Bankr. S.D.N.Y. 2010) (court refused to release funds before court in
Bahrain had established how creditors would be treated in a distribution there). In any case,
cause does not exist to dismiss the chapter 11 proceeding.
III. 	HSBC’s Motion to Dismiss the Adversary Proceeding
A. Section 553 Issues
HSBC has also moved to dismiss the adversary proceeding. Its motion is based on two
contentions: (i) that § 553(b) is inapplicable because the relevant set-off occurred outside the 90-
day statutory look-back period provided in that subsection; and (ii) that the common law claims
in the Complaint are pre-empted by the Uniform Commercial Code or defeated by the so-called
“discharge for value” rule. As with any motion to dismiss, all of the well-pled allegations of the
Complaint and all reasonable inferences that may be drawn therefrom must be accepted as true.
See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). A Complaint need only set forth “a short
plain statement of the claim showing that the pleader is entitled to relief” so that the defendant is
given fair notice of the plaintiff’s claim and the basis therefor. Bell Atlantic Corp. v. Twombly,
9 Foreign creditors have an absolute right to file claims in U.S. proceedings. 11 U.S.C. §§ 1513, 1514. The principle
that claims of all creditors in a foreign proceeding can and should be filed by the foreign administrator in a plenary
case pending in another jurisdiction has been advocated. See Jay Lawrence Westbrook, Universal Priorities, 33 T EX.
I NT’ L L. J. 27, 30 (1998), noting the use of such principle in the European Insolvency Regulation. See Art. 32,
European Union: Convention on Insolvency Proceedings, Nov. 23, 1996, 35 I.L.M. 1223. In In re Griffin Trading
Co., 270 B.R. 905 (N.D. Ill. 2001), aff’g 270 B.R. 883 (Bankr. N.D. Ill. 2001), the foreign administrator did not
timely seek authority to file such a “class” claim, and his belated effort to do so was rejected.
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 18 of 31

19
550 U.S. 544, 555 (2007). Detailed factual allegations are unnecessary, and a Complaint that
states a plausible claim for relief will survive a motion to dismiss. See Iqbal, 129 S. Ct. at 1949.
1. 	Is the External Administrator’s § 553(b) Claim Untimely?
HSBC contends that the Complaint should be dismissed as untimely because the chapter
11 petition date is the only appropriate reference date for § 553(b)’s look-back period, and the
chapter 11 petition was filed long after that period had expired. Section 553(b) of the Bankruptcy
Code provides that:
if a creditor offsets a mutual debt owing to the debtor against a
claim against the debtor on or within 90 days before the date of the
filing of the petition, then the trustee may recover from such
creditor the amount so offset to the extent that any insufficiency on
the date of such setoff is less than the insufficiency on the later
of—(A) 90 days before the date of the filing of the petition; and
(B) the first date during the 90 days immediately preceding the
date of the filing of the petition on which there is an insufficiency.
11 U.S.C. § 553(b)(1) (emphasis added). HSBC acknowledges that the petition under chapter 15
was filed within 90 days of the set-off. 10 It also concedes that, as amended in 2010, 11 U.S.C.
§ 101(42) defines the term “petition” as a petition under chapter 15 as well as a petition under the
other chapters of the Code.11 However, HSBC reasons that “the petition” in § 553(b) must refer
to the chapter 11 petition date because avoidance relief is only available in a chapter 11 case.
The External Administrator has two responses. First, it argues that § 1527(a)(7), which
provides that relief under most U.S. avoidance provisions cannot be granted in a chapter 15 case,
10 The parties dispute whether the set-off occurred on July 17, 2009 or on another date “prior to August 7, 2009.”
Although this may be relevant to the question whether HSBC had notice that the Wire Transfer was made in error, it
is seemingly irrelevant to the question of the reference date for the look-back period. There is no dispute that if the
chapter 15 petition date is used, the set-off occurred within the 90-day look-back period. See HSBC Memorandum of
Law at 6.
11 Section 101(42) was amended by the Bankruptcy Technical Corrections Act of 2010 (the “2010 Act”) to reflect
the enactment of chapter 15 and to correct the prior reference in the statute, which was § 304, to § 1504. See Pub. L.
No. 111-327, 124 Stat. 3557 (2010). The External Administrator contends that because the 2010 Act made only
“technical corrections,” there is no issue that the new law should be applied retroactively. Plaintiff’s Opposition to
HSBC Bank USA’s Motion to Dismiss the Complaint at p. 8, n. 4; see Brown v Thompson, 374 F.3d 253, 259 (4th
Cir. 2004). HSBC has not suggested that the 2010 Act lacks retroactive applicability.
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 19 of 31

20
does not list § 553(b), and that the Court has authority to grant relief under § 553(b) in a chapter
15 case.12 Second, the External Administrator contends that the chapter 15 filing date would be,
in any event, the appropriate date for the commencement of the look-back period for an
avoidance action commenced within a related chapter 11 case.
2. 	Can a Cause of Action Predicated on § 553(b) Be Brought in a Chapter 15
Case?
The External Administrator contends that an avoidance proceeding under § 553(b) can be
brought in a chapter 15 case without opening a plenary chapter 7 or chapter 11 proceeding. This
position is based on the “plain wording” of § 1521(a)(7); as quoted above, that section permits
the court to grant the foreign representative “any additional relief that may be available to a
trustee, except for relief available under sections 522, 544, 545, 547, 548, 550 and 724(a).”
Although most of the avoidance provisions are included, two such provisions are not—§ 553 and
§ 549.
There is no reported authority explaining why § 553(b) was omitted from § 1521(a)(7).
The legislative history simply states, “This limited grant of standing in section 1523 does not
create or establish any legal right of avoidance nor does it create or imply any legal rules with
respect to the choice of applicable law as to the avoidance of any transfer or obligation. The
court will determine the nature and extent of any such action and what national law may be
applicable to such action.” Although this passage speaks broadly of U.S. “avoidance law” as
being within the exclusion, and does not distinguish between the various avoidance provisions of
the Bankruptcy Code, there is no clear indication that the omission of § 553(b) was a drafting
12 In full, § 1521(a)(7) provides that “(a) Upon recognition of a foreign proceeding, whether main or nonmain, where
necessary to effectuate the purpose of this chapter and to protect the assets of the debtor or the interests of the
creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including . . . (7)
granting any additional relief that may be available to a trustee, except for relief available under sections 522, 544,
545, 547, 548, 550, and 724(a).”
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 20 of 31

21
error, as HSBC contends. It would be hard to argue that the drafters simply forgot that § 553(b)
is similar to an avoidance provision, as § 553(b) is listed in § 1523(a), which provides that a
foreign administrator, after recognition, does have standing to initiate certain enumerated actions,
including those under § 553(b).13 Moreover, § 549, which permits an estate representative to
avoid a post-petition transfer, is also omitted from § 1521(a)(7). It cannot be argued that
omission of § 549 was a drafting error, as § 1520(a)(2) expressly provides that it applies in a
chapter 15 case. See In re Loy, 432 B.R. 551 (E.D. Va. 2010) (discussing the avoidance of an
unauthorized, post-chapter 15-petition transfer).
The plain meaning of the statutory language must ordinarily govern when they do not
lead to an absurd result. See Lamie v. United States Trustee, 540 U.S. at 538, 542. A
determination that a recognized foreign representative can be afforded the power in a chapter 15
ancillary case to avoid a preferential set-off, but not to avoid most other prejudicial transfers,
such as a fraudulent conveyance or a preference, does not lead to an absurd result. Indeed, § 553
is a different provision than §§ 547 and 548. Section 553 provides for the recovery of property,
not just the avoidance of a transfer. See the distinction made in § 502(d) of the Bankruptcy Code,
where it is stated that property is “recoverable” under § 553, but “avoidable” under §§ 547 and
548. Further, § 553 recognizes, in the first instance, a limited right of set-off that is, in turn,
based on applicable non-bankruptcy law. See Official Comm. Of Unsecured Creds. v. Mfr. And
Traders Trust Co. (In re Bennett Funding Group, Inc.), 146 F.3d 136, 138-39 (2d Cir. 1998).
Since § 553 requires the court to analyze the applicable non-bankruptcy law before dealing with
a set-off, one of the concerns of the U.S. UNCITRAL delegation—that U.S. avoidance law not
be applied routinely without consideration of choice of law issues—is mitigated. In addition,
courts in the United States have discretion to refuse to recognize certain prepetition set-offs,
13 Section 1523(a) is further discussed below.
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 21 of 31

22
based on applicable law. See In re Bennett Funding Group, Inc., 146 F.3d at 140 (“allowance of
a setoff is a decision that lies within the sound discretion of the bankruptcy court”); see also U.S.
v. Norton, 717 F.2d 767, 772 (3d Cir. 1983) (application of § 553 lies within the “broad equitable
discretion of courts in recognizing setoff rights defined by the common law”); In re Lehman
Bros. Holdings Inc., 404 B.R. 752, 757 (Bankr. S.D.N.Y. 2009). By contrast, it cannot be said
that a court has discretion to avoid a preference without a clear statutory basis.14
Based on the foregoing, relief pursuant to § 553(b) is not prohibited by § 1521(a)(7). The
chapter 15 case was concededly filed within 90 days of the set-off. Accordingly, HSBC’s motion
to dismiss the adversary proceeding, insofar as the Complaint seeks a declaratory judgment as to
the availability of § 553(b) relief in a chapter 15 case, is denied.
3. 	Can the Chapter 15 Filing Date Be Used in a Subsequent Chapter 11
Case?
Despite concluding above that a proceeding under § 553(b) can be brought in a chapter
15 ancillary proceeding without the commencement of a separate plenary case under the
Bankruptcy 	Code, 	the 	Court 	nevertheless 	addresses 	the 	External 	Administrator’s 	second
contention: that the chapter 15 filing date should be used in as the reference date in a § 553(b)
action brought in a subsequently filed chapter 11 case. In contrast, HSBC contends that the
External Administrator’s § 553(b) action is untimely because the chapter 11 petition date is the
only possible reference date and the chapter 11 petition was filed more than 90 days after the set-
off at issue.
14 At this point, there is no need to determine the precise relief that the External Administrator would be entitled to,
taking into consideration the fact that § 550 is included as one of the provisions that a foreign representative cannot
access without commencing a plenary case under chapter 7 or chapter 11. Even if § 550 were not available but was
deemed necessary in order for the External Administrator to be able to recover a set-off under § 553(b), the External
Administrator might still be able to obtain effective relief. For example, if the set-off were declared unlawful under
U.S. law, the External Administrator might be able to deduct the amount HSBC seized from any distribution it
becomes entitled to in the main case in Bahrain, or take other action in Bahrain to similar effect. This form of relief
would be consistent with U.S. law; under § 502(d) of the Bankruptcy Code, a claim is disallowed until the transferee
repays an avoided transfer.
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 22 of 31

23
As noted above, Bankruptcy Code § 101(42) defines “petition” as a “petition filed under
section 301, 302, 303, or 1504 of this title, as the case may be, commencing a case under this
title.” 11 U.S.C. § 101(42). Thus, “petition” as used in § 553(b) and quoted above, includes the
chapter 15 petition date as the relevant date for the start of the look-back period. Nevertheless, as
HSBC sees it, (i) § 553(b) refers to “the” petition and not “a” petition, and (ii) the chapter 11
petition date is “the” petition date because it is only in the chapter 11 case that the § 553(b)
proceeding can be brought.15
The 	construction 	of 	the 	statute 	urged 	by 	HSBC 	puts 	the 	powers 	of 	a 	foreign
representative in a procedural straightjacket that is inconsistent with the statute’s language and
purpose. A foreign representative can open a plenary case after obtaining an order of recognition
by filing “a” petition, §§ 1511(a)(2), 1511(b), but it is not a new case. Rather, the it is merely one
in which the debtor takes on new duties and responsibilities as the debtor in a chapter 7 case or
the debtor in possession in a chapter 11 case. HSBC argues that the External Administrator
cannot properly be relieved of any responsibilities as a chapter 11 debtor because, “the Debtors
made the choice to cross the threshold into a case under another title and submit itself to the full
bankruptcy system.” HSBC’s Sur-Reply at p. 7.
However, as determined above, the External Administrator can be relieved of certain
chapter 11 responsibilities. HSBC is correct that a foreign representative cannot mix and match
its powers or its duties, and the plenary proceeding would seem to take priority in many respects.
For example, while the chapter 11 case is pending, there would seem no reason for the foreign
representative to seek to exercise powers in the chapter 15 case that can be accessed as a matter
of right in the chapter 11 case. Nevertheless, the precedence of a plenary proceeding does not
15 Again, this assumes that a § 553(b) proceeding could not be brought in a chapter 15 ancillary case and that the
foreign representative is required to commence a plenary case to access that power.
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 23 of 31

24
rule out use of the chapter 15 petition date as the relevant look-back date for the External
Administrator’s § 553(b) action. Indeed, the opening of a plenary proceeding after recognition in
a chapter 15 case is very much like conversion of a case from one chapter to another, or at least
the “functional equivalent” of a conversion. See In re Premier General Holdings, Ltd., 427 B.R.
592, 602 (Bankr. W.D. Tex. 2010). To the extent the chapter 11 case were viewed as a converted
case, § 348 of the Bankruptcy Code would be directly applicable, providing that, with exceptions
not relevant here, “conversion of a case from a case under one chapter of this title to a case under
another chapter of this title . . . does not effect a change in the date of the filing of the petition,
the commencement of the case, or the order for relief.” 11 U.S.C. § 348. The purpose of that
provision is to preserve an earlier date for starting the look-back period for avoidance purposes.
See Vogel v. Russell Transfer, Inc., 852, F.2d 797, 798-99 (4th Cir. 1988).
Admittedly, the filing of a new plenary petition is not a “conversion” because the chapter
15 case remains open, and § 348 does not apply literally. However, the principle of preserving a
look-back filing date for avoidance purposes is also respected where multiple proceedings
regarding the same debtor have been filed. In Premier General, the question was whether to
dismiss an involuntary petition after the filing of a voluntary petition by the debtor who was the
subject of the involuntary case. The Court held that it would not be necessary to litigate the
propriety of the involuntary petition, that the voluntary filing would be treated as consent to the
involuntary, that the cases would be consolidated, and that the look-back period in the
consolidated cases would be calculated from the date the involuntary petition was filed, “thereby
maximizing the look-back period for purposes of chapter 5 avoidance actions, and minimizing
the possibility of wrongful transactions . . .” 427 B.R. at 600.16
16 There are relatively few cases that have grappled with similar issues, but several decisions are helpful. For
example, in In the Matter of Descorp, Inc., Civil A. No. 91-3554, 1992 WL 29833 (E.D. Penn. Feb. 12, 1992), over
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 24 of 31

25
The Court in Premier General Holdings found that its power to preserve a filing date for
look-back purposes was inherent in a court’s ability to consolidate cases under Bankruptcy Rule
1015(a), which provides, “If two or more petitions by, regarding, or against the same debtor are
pending in the same court, the court may order consolidation of the cases.” Consolidation under
Rule 1015(a) is not purely administrative and, like substantive consolidation, “affects the
substantive rights of the creditors of different estates.” 1983 Advisory Committee Note to Rule
1015; see Matter of Evans Temple Church of God In Christ and Community Center, Inc., 55 B.R.
976, 982 (Bankr. N.D. Ohio 1986) (consolidation pursuant to Rule 1015 made it appropriate to
measure assets and liabilities identically for purposes of the consolidated proceeding).17
The Court does not here prejudge the outcome of a motion to consolidate should the
External Administrator file one. However, the 2010 Advisory Committee Note to Rule 1015
the objection of the petitioning creditors, the District Court affirmed the dismissal of an involuntary petition filed 19
days prior to the debtor’s voluntary petition. The objecting creditors’ sole concern in Descorp was “the preservation
of the earlier filing date” in order to maximize the look-back period for purposes of chapter 5 avoidance actions. Id.
at *1. Unlike the instant matter, however, the petitioning creditors in Descorp were unable to point to a specific
transaction they expected to challenge if the earlier petition date were used. The District Court affirmed the
dismissal on the basis that: “(1) the creditors have failed to show any prejudice, (2) the bankruptcy court’s order
expressly allows for further filing of motions if prejudice is discovered, (3) the voluntary action has been converted
to Chapter 7 [the same chapter pursuant to which the involuntary case had been brought], and (4) the debtor has
agreed to use the earlier filing date of November 28, 1990 and to consolidate the cases.” Id. at *4. It cited several
cases under the Bankruptcy Act in which the right of creditors to recover preferences based on an earlier filed
involuntary petition had been preserved. See Int’l Silver Co. v. New York Jewelry Co., 233 F. 945 (6th Cir. 1916); In
re Anderson Motor Co., 18 F.2d 1001 (N.D. Tex. 1927); see also In re Lamb, 40 B.R. 689, 691 (Bankr. E.D. Tenn.
1984) (voluntary case filed after involuntary case allowed to proceed but only in a way that protected the rights of
the petitioning creditors).
17 Although consolidation can affect creditors’ rights, where the debtors are the same, the estates differ only in
changes in property during a gap period between the cases and consolidation should not “significantly or adversely
affect the interests of creditors.” In re Premier General Holdings, Ltd., 427 B.R. at 601. HSBC contends that use of
the chapter 15 petition date as the relevant look-back date “would create severe mechanical statutory problems if
actually employed,” because it would allow the External Administrator to recover a setoff that occurred in the 90
days prior to the chapter 15 petition date but not if the setoff had occurred in the gap period between the chapter 15
and chapter 11 filing dates. See HSBC’s Memorandum of Law at p. 9. HSBC ignores the fact that the External
Administrator would be able to recover such funds pursuant to § 549, which allows a trustee to avoid a post-petition
transfer of property of the estate and applies in a chapter 15 case. See In re Loy, 432 B.R. 551 (E.D. Va. 2010).
Moreover, the courts have held that action in the United States in derogation of a pending foreign insolvency case is
void and of no effect. See Cunard S.S. Co. v. Salen Reefer Srvcs. AB, 773 F.2d 452 (2d Cir. 1985) (pre-chapter 15
case; attachment void in light of earlier insolvency filing in Sweden); In re Atlas Shipping A/S, 404 B.R. 726 (Bankr.
S.D.N.Y. 2009) (Chapter 15 case; attachment subsequent to Danish filing treated as void). Any set-off during
HSBC’s “gap period” would have taken place subsequent to the filing in Bahrain and should be considered void
under U.S. law.
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 25 of 31

26
makes it clear that, as the Rule was amended in 2010, “the court’s authority to consolidate cases
when more than one petition is filed includes the authority to consolidate cases when one or
more of the petitions is filed under chapter 15.” Consolidation of the cases and use of the chapter
15 petition date as the reference date for a § 553 avoidance action would carry out the purpose of
avoidance actions, viz. to ensure that the goal of equality of distribution will be achieved, Beiger
v. IRS, 496 U.S. 53, 54 (1990), as well as one of the purposes of chapter 15, which is the
“protection and maximization of the value of the debtor’s assets.” 11 U.S.C. § 1501(a)(4).
Use of the chapter 15 petition date also gives greater effect to § 1523(a) of the
Bankruptcy Code, which provides that, “Upon recognition of a foreign proceeding, the foreign
representative has standing in a case concerning the debtor pending under another chapter of this
title to initiate actions under sections 522, 544, 545, 547, 548, 550, 553, and 724(a).” By
affording standing to the foreign representative, § 1523(a) gives the foreign representative the
power and authority of a trustee under § 553 as well as the other avoidance provisions of the
Bankruptcy 	Code. 	Although 	it 	is 	not 	contended 	that 	§ 	1523(a) 	provides 	the 	External
Administrator with rights that do not accrue under other provisions of the law,18 one of the
limited but important purposes of § 1523(a) is to place the foreign representative in the shoes of
a chapter 7 or chapter 11 trustee for the purpose of pursuing the enumerated avoidance claims.
The standing of a foreign representative to use U.S. avoidance law, which is expressly
dependent on recognition and filing a plenary case thereafter, would be impeded if the chapter 15
petition date were not the operative reference date because the process of obtaining chapter 15
recognition can take substantial time. See, e.g., In re Loy, 432 B.R. 551 (E.D. Va. 2010) (order
18 The legislative history of § 1523(a) states, “This limited grant of standing in section 1523 does not create or
establish any legal right of avoidance nor does it create or imply any legal rules with respect to the choice of
applicable law as to the avoidance of any transfer or obligation. The court will determine the nature and extent of
any such action and what national law may be applicable to such action.”
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 26 of 31

27
granting recognition of the foreign main proceeding entered almost two months after the petition
was filed); In re British Am. Ins. Co., Ltd., 425 B.R. 884 (Bankr. S.D. Fla. 2010) (recognition
granted more than five months after petition was filed). Since the statute appears to require an
order of recognition before the foreign representative can file a plenary voluntary case, use of the
date of a subsequently filed chapter 7 or 11 petition as the reference date for avoidance purposes
would necessarily shorten the look-back period for proceedings based on U.S. law. In some
cases, such as In re British Am. Ins. Co., Ltd., it would render a nullity any right to use U.S. law
to avoid transactions in the nature of a preference, and it would also “incent and encourage”
potential targets of an avoidance action to delay the chapter 15 recognition process in an attempt
to run out a look-back period before a plenary petition could be filed. See Plaintiff’s Opposition
to 	HSBC’s 	Motion 	to 	Dismiss 	the 	Complaint 	at 	p. 	18. 	It 	would 	also 	limit 	a 	foreign
representative’s right to take discovery under § 1521(a)(4), because every day spent investigating
a potential cause of action would be a another day of the look-back period slipping away.
For the reasons set forth above, even if it is assumed that a § 553(b) action can only be
filed in a plenary case, the motion to dismiss the Complaint as untimely is denied, and the
External Administrator has leave to move to consolidate the chapter 15 and chapter 11 cases.
B. Common Law Issues
1. 	Article 4A of the UCC
As noted above, the External Administrator asserts claims in the Complaint based on
allegations of (i) unjust enrichment, (ii) conversion, (iii) monies had and received, and (iv)
mistake of fact; and seeks to impose a constructive trust on the purportedly set-off funds or have
the Court issue a declaratory judgment that HSBC should return the funds to the External
Administrator. HSBC asserts that these common law claims are governed by Article 4A of the
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 27 of 31

28
Uniform Commercial Code (“UCC”) because they are premised on disputes arising from a wire
transfer.19 HSBC further contends that, under § 4A-209(b)(2) of the UCC, the Wire Transfer was
completed when HSBC accepted it and exercised its right of set-off, which it claims occurred on
July 17, 2009. 20 HSBC argues that these general provisions conclusively cut off the common law
rights of the External Administrator to challenge any aspect of the Wire Transfer, and requests
the Court dismiss the common law claims in the Complaint.
UCC Article 4A was designed to provide clear rules for parties to follow with respect to a
wire transfer, referred to as an electronic funds “transfer.” See Banco de la Provincia de Buenos
Aires v. BayBank Boston N.A., 985 F.Supp. 364, 367 (S.D.N.Y. 1997). It sets out “a detailed
scheme for analyzing the rights, duties and liabilities of banks and their customers in connection
with the authorization and verification of payment orders. Analysis of a funds transfer under
these sections results in a determination of whether or not the funds transfer was ‘authorized,’
and provides a very specific allocation of loss.” See Hunter v. Citibank, N.A., Case No. 09-2079,
2010 WL 2509933 (N.D. Cal. Feb 3. 2010). However, Article 4A of the UCC displaces common
law claims only to the extent that such common law claims are inconsistent with the UCC
provisions. As the Court stated in Sheerbonnet, Ltd. v. American Express Bank, Ltd, 951 F. Supp.
403, 407-8 (S.D.N.Y. 1996), quoting N.Y. U.C.C. § 4A-102 Official Comments, the “exclusivity
of Article 4-A is deliberately restricted to ‘any situation covered by particular provisions of the
Article.’ Conversely, situations not covered are not the exclusive province of the Article.” Where
common law or equitable principles are not inconsistent with specific provisions of Article 4A,
19 The parties agree that New York law applies to the instant dispute and refer to Article 4A as adopted in New
York.
20 § 4A-209(b) provides that acceptance of a payment order by a bank such as HSBC occurs upon the “earliest of the
following times: (1) when the bank (i) pays the beneficiary as stated in Section 4A-405(a) or 4A-405(b), or (ii)
notifies the beneficiary of receipt of the order or that the account of the beneficiary has been credited . . .; (2) when
the bank receives payment of the entire amount of the sender's order pursuant to Section 4A-403(a)(1) or 4A-
403(a)(2) . . .”
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 28 of 31

29
they are not displaced by Article 4A. Sheerbonnet, Ltd., 951 F. Supp. at 410; see also Ma v.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 597 F.3d 84, 89-90 (2d Cir. 2010) (claims that “are
not about the mechanics of how a funds transfer was conducted may fall outside” the Article 4A
regime); Patco Const. Co., Inc. v. People’s United Bank, Case No. 09-503, 2011 WL 2174507 at
*35 (D. Me. May 27, 2011) (common law causes of action are only “preempted when (i) the
circumstances giving rise to the common law claims are specifically covered by the provisions of
Article 4A or (ii) the common law claims would create rights, duties, or liabilities inconsistent
with the provisions of that article.”)
Although Article 4A deals with a transfer of funds to an unintended beneficiary, see UCC
§ 4A-205(a), it does not appear to expressly address the transfer of funds to an intended
beneficiary but to an account at the wrong bank. Moreover, the common law claims in the
Complaint are not facially inconsistent with the provisions of Article 4A. As the Complaint has
framed the matter, the question is whether HSBC learned of RBS’ mistake prior to its asserted
set-off of the funds against Awal Bank’s debt. The question of notice is at the heart of the matter
because Article 4A allows a sender to cancel a previous payment order as long as notice is
received by the recipient “at a time and in a manner affording the receiving bank a reasonable
opportunity to act on the communication before the bank accepts the payment order.” § 4A-
211(b).21 Thus, if HSBC set-off the Wire Transfer before learning of RBS’ mistake, the
Complaint appears to concede that the payment order was accepted for purposes of the UCC and
that the External Administrator’s common law claims are preempted by Article 4A. If, however,
HSBC had notice that the payment order had been cancelled before it accepted the payment and
offset the funds against Awal Bank’s indebtedness, then the payment order could not be accepted
21 § 4A-211(b) provides that “a communication by the sender cancelling or amending a payment order is effective to
cancel or amend the order if notice of the communication is received at a time and in a manner affording the
receiving bank a reasonable opportunity to act on the communication before the bank accepts the payment order.”
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 29 of 31

30
and the External Administrator’s common law claims would not be preempted. See § 4A-
211(e).22
Because we must accept the factual allegations set forth in the External Administrator’s
Complaint as true for purposes of the motion to dismiss, we must accept the well-pled allegation
of the Complaint that HSBC had notice of cancellation of the payment order before the set-off.
HSBC 	denies 	this, 	but 	factual 	disputes 	cannot 	be 	resolved 	at 	this 	point. 	The 	External
Administrator has stated a plausible claim for relief, which is consistent with Article 4A of the
UCC.
a. 	The “Discharge for Value” Rule
HSBC also argues that the so-called “discharge for value” rule precludes the relief sought
by the External Administrator. The discharge for value rule is a common law principle that can
be summarized as:
A creditor of another or one having a lien on another’s property
who has received from a third person any benefit in discharge of
the debt or lien, is under no duty to make restitution therefor,
although the discharge was given by mistake of the transferor as to
his interests or duties, if the transferee made no misrepresentation
and did not have notice of the transferor’s mistake.
Banque Worms v. BankAmerica Int’l, 77 N.Y.2d 362, 367, 570 N.E.2d 189, 568 N.Y.S.2d 541
(1991), quoting § 14(a) of the Restatement (First) of Restitution. As the rule has been adopted in
New York, a creditor can retain erroneously received funds if it accepted such funds “in good
faith in the ordinary course of business and for a valuable consideration.” Id. at 372. Assuming
that the doctrine applies here, the External Administrator contends that HSBC could not have
accepted and set-off the funds in good faith if it was on notice that RBS had made the payment in
error. As discussed, it is hotly contested whether HSBC had knowledge of the mistake prior to its
22 § 4A-211(e) provides that “A canceled payment order cannot be accepted.”
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 30 of 31

31
set-off, and the External Administrator has alleged that HSBC set-off the transferred funds only
after learning that the transferor—RBS—had erroneously transmitted the funds. Obviously, there
is a question of fact raised.
In any event, the discharge for value rule is an affirmative defense to be asserted by
answer, and a plaintiff “does not bear the burden of raising and refuting this defense in its
opening pleadings.” See T.D. Bank, N.A. v. JP Morgan Chase Bank, N.A., No. 10-CV-2843,
2010 WL 4038826 at *6, n.8 (E.D.N.Y. Oct. 14, 2010). HSBC may raise the defense in due
course. On this motion, the External Administrator has alleged sufficient facts in its Complaint to
state a plausible claim for relief, and the motion to dismiss the common law counts is denied.
CONCLUSION
For the reasons set forth above, the External Administrator’s motion to file the Debtor’s
schedules of assets and liabilities, a SOFA and operating reports without the Creditor Claim
Information is granted. HSBC’s motions to dismiss the chapter 11 case and the adversary
proceeding against it are denied. The External Administrator should settle orders on five days’
notice.
Dated: New York, New York
August 4, 2011
/s/ Allan L. Gropper 	_
UNITED STATES BANKRUPTCY JUDGE
10-15518-alg Doc 97 Filed 08/05/11 Entered 08/05/11 10:04:11 Main Document
Pg 31 of 31