Vol 14 (2017) - Issue 4

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Bankruptcy Court Rejects Extraterritorial Application of US Avoidance Statute (Ampal-American Israel Corp. v Goldfarb Seligman & Co. (In re Ampal-American Israel Corp.), 562 BR 601 (Bankr. SDNY 2017))

Introduction
The avoidance powers of the US Bankruptcy Code (the 'Bankruptcy Code'), including the provision that permits avoidance of preferential transfers, do not apply extraterritorially, according to a recent ruling from the United States Bankruptcy Court for the Southern District of New York (the 'Bankruptcy Court'). In Ampal-American Israel Corp. v Goldfarb Seligman & Co. (In re Ampal-American Israel Corp.), the Bankruptcy Court held that a transfer from a US debtor headquartered in Israel to an Israeli transferee, effectuated by shifting funds between the parties’ accounts at a Tel Aviv bank, was not a domestic transfer and could not be avoided under Bankruptcy Code section 547. Ampal-American joins a hodge-podge of factually driven jurisprudence concerning the circumstances under which US Bankruptcy Courts will authorise extraterritorial application of Bankruptcy Code avoidance powers. Given the divergent rulings from various courts, the law on this issue remains largely unsettled.

Background
Ampal-American Israel Corp. ('Ampal') was a holding company organised under New York law, with subsidiaries located in Israel. Ampal’s senior management all worked in Israel. Its stock was listed and publicly traded on the NASDAQ Capital Market Exchange and the Tel Aviv Stock Exchange (the 'TASE'), and three series of the company’s debentures were traded exclusively on the TASE. Ampal engaged an Israeli law firm, Goldfarb Seligman & Co. ('Goldfarb') to provide legal services
in connection with various corporate and securities matters. Goldfarb issued a series of invoices to Ampal for work it had performed. Ampal and Goldfarb both had bank accounts at Bank Hapaolim in Tel Aviv, and at Ampal’s instruction, Bank Hapaolim transferred 344,322.64 New Israel Shekels ('NIS') from Ampal’s account into Goldfarb’s account, in partial payment of sums owed to Goldfarb. Within ninety days after this transfer (the 'Transfer'), Ampal filed a petition under chapter 11 of the Bankruptcy Code.