Bahrain's New Execution Law: A Milestone in Modernising Judgment Enforcement

Introduction

The efficient execution of court judgments is a corner stone of justice and the rule of law in any legal system. In the effort of recognising the need for reform in this critical area, Bahrain introduced a new execution law in 2022, marking a significant step towards addressing the challenges that have long-plagued the execution of civil and commercial judgments in the kingdom, regulated by the execution chapter in the Civil and Commercial Procedures Law (Legislative Decree No 12 of 1971).

This article explores the background of the new law, the obstacles it seeks to overcome, and the transformative changes it introduces to enhance the efficiency and accountability of the execution process.

The need for change: challenges under the previous system

For over five decades, the execution of judgments in Bahrain was governed by the provisions of Legislative Decree No 12 of 1971 on the issuance of the Civil and Commercial Procedures Law. While this legislation served its purpose in executing the judgments for many years, it gradually became apparent that the system was not equipped to handle the complexities and demands of modern-day judgment execution. The old system was troubled by numerous obstacles, both legislative and application-related, that hindered the timely and effective execution of court decisions or in many cases the execution courts and the Ministiry of Justice and Islamic Affairs and Waqf had to introduce several guidelines or administrative decisions to fill the gaps of the previous law.

A primary legislative obstacle was the issue of executing the judgments and the imposing automated attachments on against banks and solvent companies that were willing to pay the full amount by a simple notification. The law lacked provisions for solving the situation of executing judgments against companies with no assets registered in their name – a situation that stacked up the files in the execution court with no hope of resource for creditors. Additionally, the seizure debtor's assets, regardless of their value compared to the claim amount, often led to disproportionate and inefficient execution measures.

Application-related challenges further compounded the difficulties faced by creditors seeking to execute judgments. The insufficient number of execution court staff, compared to the ever-increasing number of cases, resulted in delays and backlogs. Debtors found ways to evade execution through instalment groups, while the lack of prior notice before taking coercive measures, such as account seizure, left the ones who wanted to pay with little opportunity to comply voluntarily.

Moreover, the limited execution options available in the electronic system restricted the court's ability to adapt to unique circumstances and to take execution measures on assets that were not addressed in the law such as cryptocurrencies.

Paving the way for reform

Recognising the need for change, Bahraini execution courts and the Ministiry of Justice and Islamic Affairs and Waqf took several preparatory steps before introducing the new execution law. These measures aimed to lay the groundwork for a more efficient and effective execution system, capable of addressing the shortcomings of the previous law and regulations.

One of the key initiatives was the establishment of electronic linkages between the execution court and other relevant entities, such as the Central Bank of Bahrain (CBB), the Ministry of Industry, Commerce and Tourism, and the Land Registration Department. These connections facilitated the seamless exchange of information and streamlined the execution process, reducing delays and improving co-ordination among all concerned parties.

Before the implementation of the electronic linkages, the execution process in Bahrain was less efficient. The court relied on sending physical letters to various entities, often resulting in significant delays. For instance, when the court needed to impose an attachment on bank accounts, it would send a letter to the CBB. Upon receiving the letter, the CBB would then send separate letters to each licensed bank in the country, instructing them to impose the attachment on the specified accounts.

Once the banks received the attachment order from the CBB, they would proceed to enforce it and provide the results back to the CBB. However, the CBB had to wait for all the banks to respond before preparing a comprehensive report composed of the banks' responses. This report would then be sent back to the court. The entire process, from the court sending the initial letter to receiving the final report from the CBB, could take several months. The reliance on physical letters and the need for the CBB to co-ordinate with multiple banks contributed to the lengthy timeline.

In contrast, with the introduction of electronic linkages between the execution court and relevant entities, the process has been streamlined. Now, the court can electronically send attachment orders to the CBB, which can then swiftly forward the orders to all licensed banks simultaneously. The banks can impose the attachments and report back to the CBB electronically, allowing the CBB to promptly compile the results and send them back to the court. This electronic process has reduced the time required to impose attachments from several months to just minutes, and the court can receive the results within a matter of hours.

Additionally, the execution court and the Ministiry of Justice and Islamic Affairs and Waqf sought to leverage the expertise and resources of the private sector in certain aspects of the execution process. For example, the collaboration with Mazad Company for conducting public auctions demonstrated a willingness to explore innovative solutions and engage external partners to enhance efficiency which later became an integral part of the new law.

Furthermore, execution court judges issued guidelines regarding the execution of judgments against solvent financial institutions and companies. These guidelines were not legal regulations or policies but rather administrative orders from the judges to protect certain rights that the law did not take into consideration. The aim was to provide clarity and consistency in the treatment of such cases, ensuring that creditors' rights were protected while maintaining the stability of the financial system and the smooth operation of the affected companies.

One example of these administrative orders relates to the previous attachment process. Under the old system, a general attachment would be imposed on all the cars owned by a solvent insurance company, even for a minimal amount that the company would pay once notified. However, the attachment would sometimes remain in place for up to a week after payment, preventing the insurance company from carrying out its daily operations related to motor claims, which often involve transferring the ownership of car salvages.

The various initiatives such as establishing electronic linkages, issuing guidelines for the execution of judgments against solvent financial institutions, and implementing administrative orders to protect rights not fully addressed by the law, paved the way for the new execution law in Bahrain. The new law has adopted and built upon these initiatives, incorporating them into a comprehensive legal framework that enhances the efficiency and effectiveness of the execution system.

A new era of execution: key features of the new law

The new execution law, which came into effect on 16 March 2022, introduces a range of transformative changes designed to address the challenges of the past and steer in a new era of efficient and accountable judgment execution. The key features of the law encompass various aspects of the Execution process, from the involvement of the private sector to the expansion of assets exempt from seizure, and from financial disclosure requirements to special procedures for commercial entities, as explained in more detail for each feature.

Private sector involvement

One of the most significant changes introduced by the new law is the ability to delegate certain supportive tasks in the execution process to the private sector. This move not only alleviates the burden on the court and the Ministiry of Justice and Islamic Affairs and Waqf but also taps into the expertise and resources of private entities, fostering a more collaborative and efficient approach to execution. Licensed private execution agents and their employees are granted the status of public servants in the application of the Penal Code provisions, ensuring that they are held to high standards of integrity and accountability.

The law addressed the private executioners in several articles only. However, it referred the details of their engagement with the execution to the administrative decisions that should be issued by the Minister of Justice and Islamic Affairs and Waqf, the minister issued the administrative decisions number three and four for the year 2022 which regulated the rights and duties of the private executioners.

Since the introduction of the law and decisions the Ministiry of Justice and Islamic Affairs and Waqf has been entrusted with issuing the authorisations to the private executioners as well as providing the necessary training programs through the Judicial and Legal Studies Institute.

Expansion of exempt assets

The new law expands the scope of assets that are exempt from seizure or execution, aiming to strike a balance between the rights of creditors and the need to protect certain essential assets of the debtor. Government support, social assistance and subsidies are among the assets now shielded from execution actions. Additionally, the law specifies a minimum amount that must be preserved in the bank accounts of individuals, considering this amount as the minimum necessary for the debtor to maintain their livelihood.

The Minister of Justice and Islamic Affairs and Waqf has determined this minimum amount to be BHD400. Consequently, if an attachment is imposed on an individual's bank account, the bank is required to maintain a balance of BHD400 in the account and only attach and transfer to the court any funds exceeding this threshold. This provision ensures that debtors retain access to a basic level of financial resources, allowing them to cover essential expenses and avoid undue hardship.

The expansion of exempt assets and the introduction of a minimum protected balance in bank accounts reflect a more nuanced understanding of the potential impact of execution actions on debtors' livelihoods. By preserving certain basic necessities and ensuring a minimum level of financial stability, the new law seeks to balance the legitimate interests of creditors with the need to protect vulnerable debtors from falling into destitution due to execution measures.

Financial disclosure system

To enhance transparency and accountability, the new law introduces a financial disclosure system for individuals. Debtors are required to disclose their assets within seven days of being notified of any execution action, providing a comprehensive picture of their financial situation. The debtor is obligated to continue disclosing any changes in their financial circumstances until the execution is completed. By mandating such disclosures, the law seeks to prevent debtors from concealing assets and ensures that creditors have access to the information necessary to pursue effective execution.

This system aims to shift the burden of identifying the debtor's assets from the creditor to the debtor. Previously, creditors were responsible for investigating and locating the assets of debtors, which could be a time-consuming and challenging process. Creditors often had to rely on their own resources and investigative abilities to uncover the debtor's assets, leading to delays and potential inefficiencies in the execution process.

Under the new law, the onus is placed on the debtor to proactively disclose their assets and financial situation. This shift in responsibility streamlines the execution process by ensuring that creditors have timely access to the information they need to make informed decisions and take appropriate action. By requiring debtors to be transparent about their assets and financial circumstances, the law reduces the likelihood of assets being hidden or transferred to avoid execution.

Coercive fines

Another notable feature of the new law is the introduction of coercive fines as a means to compel compliance with court orders. If a debtor fails to comply with a court order within ten days of notification, the creditor may request the execution court judge to impose coercive fines. The judge is empowered to increase these fines as necessary to ensure compliance, providing a powerful tool to incentivise debtors to fulfil their obligations.

This provision addresses a situation that existed under the old law, whereby companies would not comply with non-monetary judgments, such as an order obliging a company to grant a terminated employee their certificate of experience. Such orders were hindered by the fact that there were no consequences for non-compliance.

Creditor empowerment

The new law empowers creditors to guide the execution court judge about any assets owned by the debtor, whether in their possession or held by third parties. This provision recognises that creditors may have valuable information about the debtor's assets that can aid in the execution process. The judge is granted the authority to order the debtor's relatives, agents, employees, or business associates to disclose information about the debtor's assets, thereby expanding the reach of the execution apparatus and increasing the likelihood of successful recovery.

Amendments to travel ban provisions

Under the new law, the provisions regarding travel bans have been amended to strike a balance between the rights of creditors and debtors. In cases where there is a risk that the debtor may flee the country to evade execution and their visible assets are insufficient to cover the debts, the execution court judge can issue a travel ban. However, the new law limits the duration of the travel ban to a period not exceeding three months, which is renewable up to three times.

This change addresses a situation that existed under the previous law, where travel bans could be imposed indefinitely. This often led to insolvent expatriates being unable to return to their home countries, even if they could prove their insolvency. The indefinite nature of travel bans under the old law placed a disproportionate burden on debtors and restricted their freedom of movement without providing a clear path to resolution.

By limiting the duration of travel bans and allowing for renewals up to a maximum of three times, the new law seeks to balance the interests of both creditors and debtors. Creditors are given a reasonable period to investigate the debtor's assets and prove their solvency, while debtors are protected from indefinite restrictions on their freedom of movement.

Credit report annotation

To protect potential future creditors and prevent further indebtedness, the new law mandates the annotation of the debtor's credit report if their assets are insufficient to satisfy the debt. The execution court judge must order an annotation on the debtor's credit report for a period of seven years, providing a clear signal to potential lenders about the debtor's financial history and risk profile.

This measure aims to promote responsible lending practices and mitigate the risk of debtors accumulating unsustainable levels of debt.

Surveillance system

The introduction of the surveillance system is another feature of the new law, designed to monitor transactions related to the debtor's assets.

In cases where the debtor's assets are insufficient to cover the debt, the execution court judge must circulate a notice to relevant authorities, such as the Survey and Land Registration Bureau, the CBB, and the Commercial Registry. These entities are required to immediately report any transactions involving the debtor's assets, enabling the court to track and potentially seize such assets to satisfy the outstanding debt.

Special procedures for commercial entities

Recognising the unique challenges associated with executing judgments against commercial entities, the new law establishes special procedures for commercial companies and financial institutions.

Commercial companies are afforded a 21-day grace period for settlement, after which they must provide full disclosure of their assets. If no action is taken within this timeframe or if the assets are not sufficient to pay the debt, bankruptcy proceedings may be initiated.

However, for financial institutions licensed under the CBB, the matter is referred to the CBB for appropriate legal action, ensuring that the execution process aligns with the specific regulations and requirements of the financial sector.

Criminal penalties

To further reinforce the importance of compliance and deter any attempts to obstruct or undermine the execution process, the new law introduces criminal penalties for individuals who engage in such behaviour.

Intentional concealment or smuggling of assets, providing false information, or obstructing execution proceedings can result in imprisonment and substantial fines. These penalties extend to legal entities if the offenses are committed in their name or for their benefit, emphasising the collective responsibility of organisations to uphold the integrity of the execution system.

Conclusion

The new execution law in Bahrain marks a significant step forward in modernising and streamlining the process of executing civil and commercial judgments. By addressing long-standing challenges and introducing comprehensive reforms, the law aims to restore confidence in the courts of execution and create a more stable legal environment.

The key features of the law, such as involving the private sector, expanding exempt assets, mandating financial disclosures, imposing coercive fines, and establishing special procedures for commercial entities, reflect a balanced approach to protecting the rights of both creditors and debtors. The introduction of criminal penalties for obstructing execution proceedings underscores the importance of compliance and respect for the rule of law.

As the new law took effect two years ago, we have observed both positive aspects and some shortcomings in its content and application. However, a two-year period is not sufficient to fully assess the law's impact and effectiveness. What has become evident during this time is the determination and commitment of the Supreme Judicial Council, Ministry of Justice, Islamic Affairs and Waqf, execution courts, and lawyers to contribute to the transformation and improvement of the judgment execution process.

The commitment and determination displayed by the key stakeholders in the legal system provide a promising outlook for the future of judgment execution in Bahrain. With ongoing collaboration, evaluation, and improvement, the new execution law has the potential to serve as a catalyst for positive change and a model for other jurisdictions seeking to modernise their execution mechanisms.