Islamic Finance Insolvencies under Secular Bankruptcy Laws: A Case Study of Arcapita Bank under US Chapter 11

Abstract

Like many other financial institutions, Bahrain-based Arcapita Bank operating in the United States was hit hard by the Eurozone crisis that followed the global financial crisis. Unable to restructure its $1.1 billion debt obligations due in March 2013, the bank decided to file for Chapter 11 protection in the US Bankruptcy Court. This case study introduces Arcapita and its operations, explains the US Chapter 11 and its important aspects like debtor in possession (DIP) financing, highlights the most significant epi- sodes of the Arcapita case, and concludes with important lessons embedded in the proceedings. The case as a precedent as well as Chapter 11 as the basis for a corporate insolvency law in Islamic finance is also discussed.