Can foreign transfers of a U.S. debtor be avoided under the Bankruptcy Code’s avoidance provisions? While the Bankruptcy Court for the Southern District of New York recently found that the answer is no, that court, as well as other bankruptcy courts, remain split on the answer.
In In re Ampal-Am. Israel Corp., 562 B.R. 601 (Bankr. S.D.N.Y. 2017), a chapter 7 trustee (the “Trustee”) filed an avoidance action, seeking to avoid and recover a single prepetition transfer made by the debtor to an Israeli law firm (the “Firm”). The transfer in question was the payment of legal fees to the Firm within 90 days of the debtor’s bankruptcy filing. The services at issue were rendered entirely in Israel and the debtor, although incorporated under New York law, had its operations, offices, and books located in Israel.
Since there was no dispute that the Trustee proved a prima facie case for avoidance under section 547 of the Bankruptcy Code, the only question before the court was whether the presumption against extraterritoriality bars the Trustee from avoiding the transfer. This presumption provides that absent a clear intent to the contrary, legislation of Congress is meant to apply only within the territorial jurisdiction of the U.S.
As other courts before it, the court employed a two-step test to examine whether the presumption against extraterritoriality foreclosed the claim: first, does the statute give a clear, affirmative indication that it applies extraterritorially; and second, if it does not, whether the conduct “relevant to the statute’s focus” occurred in the U.S. If the court’s answer to the second question is in the affirmative, then the application of the statute would be viewed as domestic, “even if other conduct occurred abroad.”
Ampal answered both steps in the negative. First, the court found that section 547 of the Bankruptcy Code does...
