Bankruptcy Court concludes that Payment made by Israel-Based US Debtor to Israeli Law Firm not a US “Domestic” Transfer, and thus Outside the Reach of Bankruptcy Trustee

The World in U.S. Courts: Spring 2017 - Bankruptcy | January.09.2017

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In re: Ampal-American Israel Corp., US bankruptcy Court for the Southern District of New York, January 9, 2017

A trustee in bankruptcy sought to recover a payment made to an Israeli law firm as an “avoidable” preference under § 547(b) of the Bankruptcy code.  The Court initially determined that the provision of the Bankruptcy Code permitting such actions did not have extraterritorial effect.  It then moved to the second step in the extraterritoriality analysis, identifying the “focus” of the statute to be “the initial transfer that depletes” the property that would become part of the bankruptcy estate.  The “initial transfer” in question was made by a US transferor headquartered in Israel to the Israeli law firm, and the Court found that transfer not to be US domestic.  The trustee was thus found not to have any right to pursue recovery of the payment.

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