Foreign Investment law, Bankruptcy Law, Private Public Partnership guidelines, relaxed NOC requirements are all great steps towards economic reforms. Bankruptcy law, which came into effect from July 7 in Oman, is an important step during the current financial crisis due to the pandemic and low oil prices. Jose Chacko, Partner, Crowe Oman explains further.
Bankruptcy is a proceeding under law that grants partial or complete relief from the payment of your debts. Is it good or bad?
Bankruptcy law, promulgated by Royal Decree (53/2019), came into effect from July 7, 2020, in Oman. This is an important enactment during this time of financial crisis due to the pandemic and low oil prices.
Economic slowdown or total breakdowns are happening all over the world. Business failures are inevitable, and the law will promote a more robust legal framework for the entrepreneurs in distress. By legal and legislative support, the interests of all parties will be safeguarded in an amicable manner.
A Bankruptcy law is in force in many other GCC countries. United Arab Emirates enacted the Bankruptcy law in September 2016 and it came into effect subsequently. Later in 2018, Bahrain and Saudi Arabia enacted their Bankruptcy laws respectively. The new law gives clear and definite measures to help businesses in distress, especially preventive and restructuring possibilities to continue their business ventures. This will be of great assurance to the investors, especially foreign investors.
Instead of going into a complete wipe out, this progressive enactment will give business owners an opportunity for restructuring with the debtors, settlement of creditors in a civil manner and overall a simplified liquidation process, if required.
A key feature of the Bankruptcy Law is ‘Restructuring’. With Restructuring, the parties have to work together for pre-preventive measures to settle the dues by restructuring their business and help to continue operations by encouraging investments and entrepreneurship. The better option will always be business continuity instead of business termination.
The core strength of this law
Bankruptcy proceedings no longer necessarily end up in liquidation of the businesses, as the situation before. The major objective is now to restructure the debts of an insolvent debtor with a chance to continue the business. Here also a trustee will be appointed by the competent court to oversee the affairs of the debtor as in the case of liquidation. But the procedures would certainly differ from that of liquidation. Normally, in bankruptcy proceedings, it will end up either in liquidation or restructuring. The appointed trustee will prepare the state of affairs of the debtor and see the possibilities of restructure after reviewing the resources of the debtor. If the restructure possibilities are not there, court will declare the debtor as bankrupt.
• According to the structure of your business unit, wherein liabilities are limited or unlimited, some of your personal properties will be taken away to pay your creditors.
• Probably your bankruptcy status will be noted by banks and financial institutions while evaluating your credit worthiness for further facilities.
• Once bankruptcy is noted, it will be difficult to get new credit facilities and the status may continue for subsequent years.
• Your insurance costs may go up.
• Your business will continue as a going concern by avoiding liquidation.
• Bankruptcy filing will protect you from your creditors taking over your assets.
• This will stop many of the creditor’s rights such as evictions, utility shutoffs etc
• Finally, this will also be a lesson in survival without further borrowing.