Arcapita Bank BSC, an Islamic- compliant fund manager overseeing about $7 billion in investments, won permission to pay employees and business partners after making changes to comply with the demands of creditors.
U.S. Bankruptcy Judge Sean Lane in Manhattan today approved Arcapita’s requests to make payments it said are essential to running its business in bankruptcy. After negotiating some changes to the company’s cash management prior to today’s hearing, a committee of creditors had sought Lane’s oversight to change the way Arcapita pays its employees, business partners, and insurance.
Creditors and Arcapita had resolved all their disputes before the hearing began, lawyers told Lane today. Arcapita agreed to measures including withdrawing its application to hire Ernst and Young LLP as an adviser, and giving creditors 10 days of notice before it pays business partners.
“We don’t need a preview,” Lane told lawyers for Arcapita’s creditors, who had asked to brief him on their underlying dispute over how the bankrupt company uses its cash, saying the issues could arise again in coming weeks.
Creditors said in court papers that because Arcapita is a foreign company with private equity stakes in portfolio companies, it’s different than most bankruptcies and there’s a need to safeguard cash for creditors by making sure it doesn’t go to fund entities in countries outside the Manhattan bankruptcy court’s jurisdiction.
“A protocol governing decision-making is appropriate and necessary,” lawyers for creditors wrote. They said a request to pay vendors as much as $2 million was based on payments that they had examined and found to be necessary, and sought a court order entitling them to information about any changes to payment terms and weekly updates about the amounts paid.
“The Committee has now ‘scrubbed’ the payments made to date; it should have the right to similarly ‘scrub’ the amount, terms, and conditions of all future Critical/Foreign Vendor payments before they are made,” creditors said.
They also sought to bar interest-free loans and school and tuition fees to employees and require Arcapita to seek their permission before making any payments over $100,000 related to employees. Creditors sought more control over the company’s insurance payments, saying they should be asked for consent before any new policies are bought.
Creditors also seek to challenge payments made to Arcapita’s bankruptcy counsel, Gibson Dunn & Crutcher LLP. The law firm had received $1.65 million from the company in advance of its bankruptcy, and some of the payments, received within 90 days before its bankruptcy, may be clawed back for creditors under bankruptcy law, creditors said.
Separately, Arcapita filed a proposed budget on May 4 for May, and projected the company would spend $2.7 million on staff expenses and have an operating cash flow of $3.5 million. Including restructuring costs and other items, the company would lose $5.7 million on a consolidated basis for the month, according to court papers.
The creditors committee includes Euroville Sarl, one of Arcapita’s largest creditors with $88.8 million of a $1.1 billion syndicated loan, National Bank of Bahrain (NBB) BSC, Commerzbank AG, VR Global Partners LP, Barclays Bank Plc, Central Bank of Bahrain, and Arcsukuk (2011-1) Limited.
Arcapita, formerly known as First Islamic Investment Bank, was forced to seek bankruptcy after hedge funds, including Euroville, derailed restructuring talks on its $1.1 billion loan due in March, the company’s bankruptcy attorney Michael Rosenthal told Lane on the company’s first day in bankruptcy.
Arcapita, founded in 1996 and based in Manama, Bahrain, listed assets of $3.06 billion and liabilities of $2.55 billion in its Chapter 11 petition in Manhattan in March. Arcapita Investment Holdings Ltd., already in U.S. bankruptcy, also has filed a bankruptcy in the Cayman Islands.
The company’s investments include Irish power utility Viridian Group Ltd. and U.S.-based Falcon Gas Storage Co.
To contact the reporter on this story: Tiffany Kary in New York at firstname.lastname@example.org