In a first-of-its-kind ruling, a New York bankruptcy judge bowed to the confidentiality concerns of Awal Bank BSC, granting the Bahraini financial institution permission to keep its creditors secret in its U.S. Chapter 11 bankruptcy case.
Judge Allan L. Gropper rejected HSBC Bank's request to throw out Awal's Chapter 11 case on the grounds that it hadn't complied with disclosure rules that require that creditors be listed. The judge found that the secrecy rules that govern Awal's insolvency administration in Bahrain should prevail in the Chapter 11 case that it filed in the U.S.
"Disclosure of the creditor claim information would be disruptive to the administration in Bahrain because creditors provided that information under an expectation of confidentiality," Gropper wrote in a decision filed Thursday in the U.S. Bankruptcy Court in Manhattan. Awal named some creditors in its early filings but didn't specify how much it owed them.
Awal's Chapter 11 filing is aimed specifically at trying to recoup about $13 million Awal says it mistakenly wired to HSBC before it was pushed into administration in Bahrain. HSBC says it is owed roughly $75 million by Awal and says it is going to hang on to the $13 million in partial payment. Joined by federal bankruptcy watchdogs, HSBC protested Awal's bid to dispense with standard Chapter 11 reporting requirements. The Office of the U.S. Trustee, an arm of the Justice Department that monitors the bankruptcy courts, said the list of Awal creditors is not the "type of proprietary, commercial information" that the bankruptcy laws allow to be shielded from public view.
Gropper said there is precedent in the U.S. for allowing companies in Chapter 11 to skip the requirement that creditors be listed. In "prepackaged" cases in which general unsecured creditors are promised payment in full, and other creditors have already voted before the Chapter 11 petition is filed, for example, limited disclosure is permitted, the judge said. At the time it filed for Chapter 11 protection, Awal had already filed for Chapter 15 bankruptcy in the U.S. Gropper said that even though Awal had invoked the protection of Chapter 11, "the principles of cooperation and coordination embedded in Chapter 15 are still applicable." He authorized Awal to attempt to consolidate its two cases.