Before the new bankruptcy law (Royal Decree 53/2019) (the “Bankruptcy Law”) came into effect in Oman, the laws and regulations regulating bankruptcies were limited and simply addressed in laws such as the commercial law (Royal Decree 55/1990 (as amended)) (the “Commercial Law”) and the commercial companies law (Royal Decree 18/2019) (the “Commercial Companies Law”). These laws provided the framework for the bankruptcy of a person and the liquidation of insolvent companies only.
The Bankruptcy Law came into effect on 7 July 2020 and introduced a new framework for bankruptcies in Oman. It overrides Part 5 of the Commercial Law and any other laws that are contrary to it. The Bankruptcy Law includes three procedures for debtors (legal entities or individuals) - restructuring, preventative composition and bankruptcy, which we will consider briefly in this article.
The Bankruptcy Law introduced a new concept of restructuring. The restructuring process aims to assist debtors to overcome their financial difficulties and avoid liquidation by agreeing a restructuring plan.
The restructuring plan process starts following an application from the debtor which is filed with the Ministry of Commerce, Industry and Investment Promotion. The Ministry will then consider whether various requirements for a restructuring plan have been met, including:
the application for the restructuring must be submitted by the debtor within six months of the occurrence of the financial difficulties;
the debtor must have practiced the relevant trade continuously for the two years immediately preceding the application; and
the debtor has not committed any fraud.
Then the application for the restructuring plan is considered by a committee of experts that is formed by the Ministry. The committee will study the debtor’s application and develop a suitable restructuring plan with the debtor to overcome its financial difficulties. At the same time, the committee will try to agree a settlement between the debtor and its creditors. If such a settlement is agreed, the committee will submit the restructuring plan to the court for approval which will make it binding on all parties. The restructuring plan needs to be implemented in a period of five years or less.
II. Preventative Composition:
The second new concept for Oman is preventative composition which is used when the debtor is seeking relief when facing financial difficulties that he may not be able to pay off or satisfy. The purpose of preventative composition is to achieve settlement with the creditors to avoid bankruptcy. Like the restructuring plan, the debtor must have practiced the relevant trade continuously for the two years immediately preceding the application. However, here the application for preventative composition is submitted to the court and, if it is approved by the court, the court will assign a composition trustee who will help the debtor by setting up meetings with creditors, giving advice on how the debtor could settle its debts and provide overall supervision of the preventative composition process. Preventative composition may include extending the period for payment of debts by the debtor and/or reducing the amount of the debts.
The preventative composition required the majority of creditors who have taken part in the preventative composition process to have approved it, provided that such creditors also represent two-thirds of the amount of the debts. Creditors who have not participated in the approval process nor their debts are counted. The preventative composition is then ratified by the court.
The benefit of preventative composition, if it is successful, is that it will suspend all legal proceedings and enforcement procedures by such creditors against the debtor.
Finally, if a restructuring plan or preventative composition doesn’t achieve the desired goal of keeping the business going and avoiding bankruptcy, then an application for bankruptcy should be submitted to the court within 15 days from the date of cessation of payments by the debtor. It must set out the details of the debts and it can be made by either the debtor or its creditors.
The court will then examine the bankruptcy application and appoint a liquidator, who will be responsible for managing and supervising the bankruptcy process. The liquidator is responsible for safeguarding the assets of the debtor.
The liquidator must publish a summary of the bankruptcy judgement in the Official Gazette and creditors must be invited to provide details of any debts they are owed by the debtor. Then the liquidator must resolve the debt claims of the creditors.
Overall the Bankruptcy Law is a positive step that will ensure transparency for both local and foreign investors and will encourage more investment in Oman. The Omani courts are developing the required experience to deal with cases under the Bankruptcy Law. In addition, the experts available to assist the courts in these processes are also developing their skills as, for example, composition trustees and to act on the committee of experts for a restructuring.
Even though the Bankruptcy Law has been in place for over 18 months, few cases have gone through the restructuring and preventative composition processes so it is still difficult to anticipate exactly how the courts and the experts will deal with these procedures.
Article co-authored by Abdullah Al Rawas, Trainee Lawyer at CMS Muscat.