In Re: Arcapita Bank B.S.C.

Background

Bahrain Islamic Bank (“BisB”) asked the court to stay, meaning temporarily pause, enforcement of an order entered by the United States Bankruptcy Court for the Southern District of New York. That order held BisB in civil contempt. BisB also asked the court to stay its appeal of that contempt order until the United States Court of Appeals for the Second Circuit decided a separate pending appeal.

The Official Committee of Unsecured Creditors of Arcapita Bank B.S.C.(C) opposed the motion. BisB argued that it was likely to succeed because it had challenged the bankruptcy court’s jurisdiction over it and argued that the underlying adversary proceeding belonged in Bahrain. BisB also argued that it had reasonably believed that it was not subject to United States court jurisdiction, that a setoff was permitted by Bahraini law, and that it had relied on legal advice.

The court’s analysis

The court applied four factors for deciding whether to issue a stay: whether the moving party was likely to succeed on the merits, whether it would suffer irreparable harm without a stay, whether a stay would substantially harm other parties, and where the public interest lay.

First, the court concluded that BisB had not shown a strong likelihood of success. It stated that jurisdictional issues did not affect whether the bankruptcy automatic stay applied, which was the basis for the contempt order. The court also concluded that BisB had not shown an objectively reasonable belief that its setoff did not violate the automatic stay.

Second, the court concluded that BisB had not shown irreparable harm. BisB claimed that, without a stay, it would incur substantial fees and expenses in further proceedings implementing the contempt order. The court stated that monetary losses from continued litigation generally do not constitute irreparable harm and connected this factor to BisB’s minimal likelihood of success.

Third, the court found that BisB had not established that the creditors’ committee would avoid substantial harm if a stay were granted. The committee had already been involved in litigation for a decade at a cost of millions of dollars, and the court found that allowing the litigation to continue during a stay could increase those costs.

Fourth, the court held that the public interest favored the prompt and sound administration of bankruptcy proceedings and the finality of litigation.

Ruling

Judge Lewis A. Kaplan denied BisB’s motion to stay in its entirety. The opinion addressed the request for a stay and did not decide the separate Second Circuit appeal.