Israeli Lawyer Payments Out of U.S. Trustee’s Reach

Bloomberg Law’s® Bankruptcy Law News publishes case summaries of the most recent important bankruptcy law decisions, tracks major commercial bankruptcies, and reports on developments in bankruptcy...

By Daniel Gill

An Israel-based company’s payments to its Israeli law firm, made in Israel, can’t be recovered by a Chapter 7 bankruptcy trustee in the U.S., according to the U.S. Bankruptcy Court for the Southern District of New York ( Spizz v. Goldfarb Seligman & Co. (In re Ampal-American Israel Corp.) , 2017 BL 5568, Bankr. S.D.N.Y., No. 12-13689 (SMB), 1/9/17 ).

Section 547(b) of the Bankruptcy Code lets Chapter 7 trustees sue to recover payments made on pre-existing debts within 90 days of declaring bankruptcy, but Congress didn’t intend the statute to apply outside the U.S., Judge Stuart M. Berns’s opinion said.

The court followed a line of cases which held that trustees’ lawsuits to recover transfers didn’t apply to transfers made outside of U.S. territorial jurisdiction..

Here, although Ampal-American Israel Corp. did some business in the U.S. and at one time traded stock on NASDAQ, its senior management was based in Israel, where it also maintained its books and records, the court said.

In June 2012, the company paid its Israeli attorneys, Goldfarb Seligman & Co., more than 344,000 New Israeli Shekels (about $89,000 U.S.), which the firm applied against its outstanding bills owed by the company, the court said.

Less than 90 days later, the company filed in the U.S. for relief under Chapter 11 of the Bankruptcy Code. Chapter 11 allows companies (or individuals) to enjoy protections from creditors while they seek to reorganize their debt or liquidate pursuant to a plan which must be approved by the bankruptcy court.

The case was later converted to Chapter 7, on May 2, 2013. In Chapter 7 bankruptcy, a debtor company’s assets are liquidated by a trustee, and the proceeds are distributed to creditors.

Alex Spizz, the Chapter 7 trustee, was represented by Tarter Krinsky & Drogin LLP, New York. Smith, Gambrell & Russell, LLP represented Goldfarb Seligman & Co.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Bankruptcy Law News on Bloomberg Law