U.S. Bankruptcy Court Approves Sharia-Compliant Chapter 11 Reorganization

As reported by Reuters and Nasdaq, on June 11, a New York federal bankruptcy judge approved what appears to be the first-ever Sharia-compliant Chapter 11 bankruptcy reorganization. The reorganization plan is for Arcapita Bank PLC, a Bahrain investment firm which offers Sharia-compliant investments to wealthy families, institutions and sovereign wealth funds in the Gulf region. The confirmed plan includes a Sharia-compliant loan and exit financing of up to $525 million that is to be extended to the company by Goldman Sachs. The entire reorganization process complied with Sharia law.  After confirmation of the plan, however, another problem arose. According to Reuters, Central Bank of Bahrain rules require Arcapita to obtain a fatwa from a supervisory board of Islamic law experts before undertaking new financing. Last Monday, Hani Alsohaibi, who had invested money with Arcapita, filed a motion asking the bankruptcy court to reject the debtor in possession loan to Arcapita from Goldman Sachs because only one member of the Sharia supervisory board had signed the fatwa setting the conditions for the loan.