Prior to the recent passing of the Omani Royal Decree No 53/2019 (the "Bankruptcy Law"), Oman law contained limited legislation governing the area of bankruptcy. The Commercial Law issued by the Royal Decree No 55/1990 and the Commercial Companies Law issued by the Royal Decree No 4/1974 and their related amendments continued to provide the framework for the bankruptcy of traders and liquidation of insolvent companies, until the passing of this new Bankruptcy Law.
This new law, which will come into effect from July 1st 2020, sees the formation of new progressive rules and regulations. These provisions will apply to traders with the aim of improving the methods and measures that are to be taken following a bankruptcy.
The key three provisions that have been introduced include the restructuring procedure, preventive composition, and bankruptcy.
A significant new provision introduced by the Bankruptcy Law includes the concept of restructuring. This is a brand new mechanism proposed for the traders in financial difficulties. Restructuring involves proceedings that may assist the trader debtor to overcome a financial and administrative disorder, by way of settling the debtor’s debts via a restructuring plan. This is overseen by a restructuring committee, which is formed of experts that are registered on the Roll and are defined to include a sufficient number of persons, offices, and companies specalised in the restructuring field. The experts will be sought by the Competent Department at the Ministry of Commerce & Industry and required to examine petitions for restructuring and the handling of the petitioner’s assets.
This method is aimed to help prevent traders from going into liquidation, by way of creating a settlement of the traders’ debts with its creditors. The procedure enforces strict and fast deadlines and requirements for the petition to be accepted and can only be submitted where it is found that the debtor has not committed any act of fraud and has practiced the business continuously during the two years before the filing of the petition.
2. Preventive Composition
The second method includes Preventive Composition, whereby the trade debtor may apply for in situations when there is a disruption in the debtor’s financial situation, which is likely to lead into an interruption of the payment of the debtor’s debts. This method can be sought with the aim to achieve a settlement with creditors to avoid bankruptcy. Unlike the method of bankruptcy, creditors are unable to apply for a petition of Preventive Composition.
During the time of Preventive Composition, the trader can continue to administer the property and undertake acts in the everyday course of business. A composition trustee will be appointed by the court, who must help oversee the Preventive Composition process, such as the gathering of creditors and the publishing of the summary.
Where a Preventive Composition application succeeds, the Judge will require a majority vote of consent by the creditors, in which their approval must accumulate to two-third of the verified debts. For a secured creditor, they may not vote unless they give up their rights as secured creditors. In situations where the company has issued bonds or sukuks and the outstanding amount of bonds exceeds more than one-third of the total outstanding debts, the composition will require further approval from the general assembly of the holders of the bonds or sukuks.
The third method includes filing for bankruptcy. Any trader who may have stopped payment of his commercial debts due to the interruption of his commercial business may submit a petition in bankruptcy. For a petition to be submitted, it must be made within fifteen days from the date of cessation of payments and must include the reasons for the cessation and the appropriate documents, including statements of property and expenses. The Court may also prompt the decision of bankruptcy for a trader. Where a submission for bankruptcy is made, the trader company requires the approval of the majority of its shareholders.
Bankruptcy claims are examined by the Court, who will in turn, take precautionary measures against assets of the trader debtors to preserve the assets of the trader. The Court will also appoint a liquidator, who will be the official receiver to oversee the insolvency proceedings. They will be in control of overseeing the management of assets of the debtor trader.
The liquidator will also be in charge of publishing a summary of settlement in the Commercial Register and the invitation of creditors. They must ensure that the bankrupt person cannot manage or dispose of any property, pay any debts or retrieve any amounts that are owed to him.
With the new Law, there is now enforcement of penalties for rejected petitions by the Court. In circumstances where the Court believes the trader has deliberately claimed bankruptcy, the petitioner can be found sentenced to a financial penalty. The Law also enforces an imprisonment sentence, where they are found acting in bad faith, through methods of concealment, inducement or neglects to include a creditor.
The new Bankruptcy Law continues to promote investment in Oman, by helping to ensure transparency to both foreign and local investors. The New law will impact the working of companies by providing a base to seek a remedy in circumstances of bankruptcy, helping to provide more suitable conditions for companies to grow. The new Law also enables debtors the opportunity to rehabilitate by being given the chance to pay all due amounts and expenses owed to creditors.
Article authored by Mundhir AlBarwani
, Partner andRalph Hejaily
, Head of Corporate Practice.