Arcapita, an Islamic investment firm in Bahrain, emerged from US bankruptcy today under Chapter 11 rules. It is the first of the Gulf companies to do so. This move may help clarify how Western courts deal with Islamic finance, marking the first time a question of an Islamic ruling (fatwa) had been presented to a US bankruptcy judge, according to Reuters.

The exit was enabled by a $350 million Goldman Sachs International loan. Arcapita represents one of several Gulf-based companies forced to restructure billions of dollars of debt after lending dissipated and asset values toppled with the advent of the global credit crisis.

The firm plans to transfer assets into a new holding company, RA Holding Corp., which will dispose of the assets gradually to pay down debts to creditors including Barclays, CIMB, Royal Bank of Scotland, Standard Bank and Standard Chartered. The Central Bank of Bahrain was the largest of the creditors, owed $255.1 million. The plan came into effect on Tuesday.

According to a spokesman speaking to Reuters, “We expect to have a complete exit of the portfolio over the next four to five years. Exits so far have been better than expected, and the reorganization plan allows exactly just that in order to maximize values.”

This case presents an early foray into dealing with Islamic law (shariah law) as applied to finance industry contracts and disputes through Western courts. Shariah is not codified in legal form, making it a tricky concept to cover in the US courts system.

The Arcapita case also presented a difficult example as it filed for bankruptcy protection in March of last year with approximately $7.4 billion of its assets under management spread across the globe, as a $1.1 billion Islamic loan came due. The Arcapita portfolio includes holdings in 30 different investments covering private equity, real estate, infrastructure and a small portfolio of venture capital investments.

[Image via Arcapita official website.]