Mashreqbank v The International Banking Corporation

This post reviews documents submitted in the case brought by Mashreqbank against TIBC in the Supreme Court of New York State (Case Index #601616/2009). This case has been stayed following TIBC's filing of a petition under Chapter 15 (Ancillary and Other Cross-Border Cases) of Title 11 (Bankruptcy) of the USC. Chapter 15 provides for USA recognition of insolvency or reorganization legal proceedings in other countries.  When that recognition is given then all legal proceedings in the USA are stopped pending the outcome of the foreign case.

As a foreword, there's no substitute for reading the original documents. So I recommend that you go to the NY Supreme Court website. Use the above Case Index Number to search for the case records. Note there are two cases with this Case Index Number. One in Nassau County and one in New York County. The latter is the TIBC case. Click on this one. On the next page look for the button for e-filed documents. It appears in the lower right hand. This earlier post has some instructions on how to navigate the NYSC website.

Here's a summary:

1. On 5 May Mashreq and TIBC entered into a split value FX deal. On 5 May Mashreq was to pay US$75 million to TIBC's account at HSBC NY. On 11 May TIBC would pay Mashreq SAR282.150 million to Mashreq's account with the National Commercial Bank Saudi Arabia. 
2. You will notice this is the exact same FX rate (3.762) that Mashreq applied in its transaction with AHAB. 
3. Mashreq made its payment. TIBC did not. 
4. On 11 May (from the documents in Exhibit B (Document 4-2), TIBC tried to transfer its remaining balance at Mashreq NY US$6.15 million to its account at Bank of America New York City. Mashreq canceled the transfer and offset that amount against the US$75 million. 
5. Thus, its claim is now US$68.85 million.
   

Looking at the other exhibits, specifically F and G (Documents 4-6 and 4-7), account information supplied respectively by HSBC New York and BofA New York on TIBC's accounts with them, we see that:

1. The US$75million received from Mashreq on 5 May 2009 was transferred to TIBC's account at BofA on 6 May. 
2. After various debits and credits during the month, at the end of the month TIBC had some US$57 million in its automatic investment account at BofA. An auto investment account is an account linked to the main clearing account. Each day after all transactions have been processed, the bank automatically debits the clearing account (above some agreed minimum balance to be retained and in agreed multiples) and transfers the funds to an interest bearing overnight deposit account. Each morning the funds are returned to the clearing account so that the bank can use them for its payments. 
3. At the end of May, TIBC had an approximate US$2.35 million credit balance at HSBC New York. This resulted from a credit of US$8.97 million on 20 May which partially covered a persistent overdraft of US$6.62 million in the account. Mashreq tried to seize the entire amount of the credit but HSBC had offset it against the OD. The parties agreed to recognize the Court ordered freeze on the US$2.35 million credit balance in Mashreq's favor and deal with the US$6.62 million later.  That is, whether HSBC had a right of offset against the OD on its books.
4. What precisely happened with these funds after the NY Supreme Court recognized the Bahrain legal proceedings under Chapter 15 is not clear to me.  Are the funds still in New York? Are they frozen in favor of Mashreq? Or frozen in favor of all creditors of TIBC?
   

Exhibit A (Document 4-1) provides a list of FX transactions undertaken between Mashreq and TIBC from January 2009 through 5 May 2009. 

1. There are 21. 
2. Only one was not a split value transaction. 
3. The countervalue (Saudi Riyal) amounts are not shown in this list so it's not possible to determine what the interest rates were on the loans that Mashreq was granting TIBC through this mechanism.