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In re Israel-British Bank Limited

decided: May 25, 1976.

IN THE MATTER OF ISRAEL-BRITISH BANK (LONDON) LIMITED, BANKRUPT. ISRAEL-BRITISH BANK (LONDON) LIMITED, APPELLANT,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, AS SUCCESSOR IN INTEREST TO FRANKLIN NATIONAL BANK, AND BANK OF THE COMMONWEALTH, APPELLEES



Appeal from an order of the United States District Court for the Southern District of New York, Morris E. Lasker, Judge, dismissing a voluntary bankruptcy petition by a foreign banking corporation not authorized to do business in the United States, on the ground that it was a "banking corporation" and, hence, ineligible to file a voluntary petition for bankruptcy under § 4a of the Bankruptcy Act, 11 U.S.C. § 22(a).

Friendly, Mulligan and Gurfein, Circuit Judges.

Author: Gurfein

GURFEIN, Circuit Judge:

The Israel-British Bank (London) Ltd. ("IBB") was a British bank engaged in the banking business in London. It did no banking business in the United States, nor was it licensed in any state to do such business. It did borrow Eurodollars and U.S. dollars from American banks, including appellees, among others. It also maintained deposits in United States banks.

On July 11, 1974, a loan of Eurodollars made to it by the Franklin National Bank ("Franklin"), the principal and interest amounting to approximately $2,100,000, became due and was not paid. On July 15, 1974, a loan of U.S. dollars made to it by the Bank of the Commonwealth ("Commonwealth"), a Michigan bank, in the amount of $500,000 plus interest, became due and was not paid.

On July 22, 1974, Commonwealth started an action against IBB in the Southern District of New York to recover its loan with interest and obtained an order of attachment in the sum of $515,385.42 plus probable interest. The order of attachment was served on a number of banks holding deposits of IBB and attachments were made.

On July 26, 1974, Franklin followed suit and obtained an order of attachment which was served on a number of banks in New York. Commonwealth made personal service on IBB in London on August 6, 1974, and obtained a final default judgment for $519,923.90, which was entered in the Southern District on September 11, 1974. Franklin itself is now being liquidated by appellee Federal Deposit Insurance Corporation.

In the meantime, while these matters were proceeding in the federal court, IBB, being unable to pay its debts, voluntarily filed a debtor's petition for the winding up of its affairs, pursuant to Section 222 of the English Companies Act, 11 & 12 Geo. 6, c. 38 (1948), with the High Court, Chancery Division, of the United Kingdom.*fn1 On August 6, 1974, a receiving order was made by that court constituting Arthur Thomas Cheek, Senior Official Receiver, as Receiver and Provisional Liquidator of the property of petitioner.

On September 23, 1974, before Franklin could obtain a judgment, and before Commonwealth could compel payment of the default judgment it had obtained, IBB filed a voluntary petition in bankruptcy in the Southern District of New York. It was adjudicated a bankrupt on the same day. The appellees promptly filed motions to vacate the adjudication and to dismiss the voluntary petition on the ground that the Bankruptcy Court lacked jurisdiction over the subject matter.

While the motions were sub judice before Bankruptcy Judge Galgay, the High Court in England issued an order dated October 9, 1974 authorizing the appointment of counsel in New York "to take such steps and to institute such proceedings including the filing of a bankruptcy petition against the company as they may advise and as the said Official Receiver may authorize them to take to insure that the assets of the said company situate in the United States of America become available for the benefit of creditors general."

We take the bankruptcy proceeding here to be in aid of the order of the High Court that the assets in the United States become available to the creditors on the basis of equality. If the assets involved had been situated in the United Kingdom, the High Court could have restrained and set aside the attachment and judgment as having been made within six months of the petition for winding up. See Companies Act, 11 & 12 Geo. 6, c. 38, § 320(1) (1948). But the High Court, of course, has no extraterritorial jurisdiction beyond the United Kingdom.

If there is jurisdiction to sustain the American adjudication in bankruptcy of IBB, the American trustee will be in a position to bring a proceeding for avoidance of liens obtained by attachment or judgment within four months of the filing of the petition if the bankrupt was insolvent at the time. Bankruptcy Act § 67a(1), 11 U.S.C. § 107(a)(1). If there is no jurisdiction to entertain a voluntary bankruptcy petition for IBB, the liens will be good, and appellees will fare better than United States creditors -- among others.

Section 4a of the Bankruptcy Act, 11 U.S.C. § 22(a), on which appellees' motion to vacate and dismiss was grounded, provides as follows:

"Any person, except a municipal, railroad, insurance, or banking corporation or a building and loan association, shall be entitled to the benefits ...


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