Insolvency 2019 Second Edition

Last Updated November 20, 2019

Oman

Law and Practice

Authors



Al Busaidy, Mansoor Jamal & Co. (AMJ) was established 40 years ago and is a full-service law firm of international quality. It is described as a rarity in the Middle East being an independent, national firm, widely considered one of the strongest advisers in the market. AMJ has been involved in innovative, "first of a kind" deals and landmark projects in Oman. The firm has one of the largest, most diverse practices in Oman, comprising a 38-strong resident team of lawyers comprising eight partners, special counsel, experienced solicitors, barristers, Arab law specialists and Omani advocates, backed by a 35-strong support team. The eight-lawyer team dedicated to the Insolvency and Restructuring practice allows AMJ to advise on a wide variety of transactions as well as ensuring that client’s needs are not compromised due to a lack of resources.

As businesses have grown and expanded in Oman over the years so too has the restructuring market. Notwithstanding the introduction of the original insolvency law in the form of Chapter 5 of the Commercial Law of Oman (RD 55/1990), the Omani courts have been reluctant to declare companies bankrupt in the absence of recovery proceedings being filed and creditors exercising the rights made available to them by the Civil and Commercial Procedures Law of Oman (RD 69/2002) for the enforcement of their judgments against the debtors’ known assets.

There are no publicly available official sources on the number of restructurings undertaken in Oman with respect to insolvency or liquidations. Whilst the official gazette of Oman lists the dissolutions of companies, restructurings whether by way of mergers/acquisitions, acquisitions and takeovers, de-mergers (spin off/split up/split off), reduction of capital, JV, buy back of securities, are not recorded except when required by law for notification purposes.

Whilst no publicly available sources exist on the number of insolvencies or restructurings that may have taken place in a particular sector in Oman, much depends on where Oman is in the economic cycle. Given that Oman has been undergoing a significant development over the last 40 years, whenever an economic downturn has occurred the first sector impacted is the oil and gas sector, followed by the construction sector, which has then had a knock-on effect on other industries (eg, steel, cement, etc) and the financial services sector. 

The principal change in the credit markets has been the introduction of Islamic finance, the establishment of fully-fledged Islamic banks and Islamic windows within conventional banks. This alternative source of credit/funding has allowed borrowers to switch over from conventional financing arrangements to Islamic financing options for restructuring their debts.

Recent statutory and regulatory developments which are likely to affect restructurings include the issuance of:

  • a Commercial Companies Law (RD 18/2019) (CCL);
  • a number of decisions issued by the Capital Market Authority (CMA), which may affect restructurings and re-organisations, including but not limited to the Takeover Code (CMA Decision No.2/2019, and the Real Estate Investment Trusts Regulation (CMA Decision No. KH/2/2018) (the “REIT Regulation”)
  • a new Foreign Capital Investment Law (RD 50/2019) (FCIL);
  • a Law Establishing the Public Authority for Privatisation and Partnership (RD 54/2019);
  • a Criminal Law (RD 7/2018); and
  • a new Bankruptcy Law (RD 53/2019) (the “Bankruptcy Law”), to come into force a year from its promulgation (7th of July 2020).

Amendments have been made to the Income Tax Law (RD 28/2009) by RD 9/2017 (ITL), by introducing a number of substantial changes.

A Ministry of Finance Decision No 14/2019 exempted revenues from bonds and sukuk issued by the Government from the application of the withholding tax. Additionally, the CMA, on the 15 May 2019, announced that, on the basis of a royal directive, withholding tax applicable to dividends and interest on foreign borrowings would be suspended for a period of three years, effective from 6 May 2019.

Changes in financing and refinancing noted above have resulted in a shift from domestic conventional borrowing to Islamic financing. Additionally, greater emphasis has been placed on secured or with-recourse financing. Financing institutions have also been willing to convert part of their debt to equity and to seek participation in the management of their borrowers by taking directorships. Companies have been willing to convert debt into equity and/or merge with other companies for economies of scale and greater operational efficiencies. Listed companies have converted to non-listed companies and undergone the process of de-listing. The debt-trading market has yet to develop given that any such debt trading would occur amongst licensed banks and with the transfer, assignment or novation of all rights and obligations.

In addition to the recent legislation applicable to financial restructurings, reorganisations, liquidations and insolvencies referred to in 1.1 State of the Restructuring Market, the Civil Transactions Law (RD 29/2013) (the CTL), the Insurance Companies Law (RD 12/1979) (the ICL), the Banking Law (RD 114/2000), and the Capital Market Authority Law (RD 80/1988) (CMAL) will apply.

The CCL

The CCL regulates the incorporation, transformation, merger, operation, liquidation and winding-up of commercial companies and exhaustively regulates the different types of businesses and corporate entities that may be established in Oman. Additionally, for limited liability companies and closed joint stock companies, the CCL provides for the increase and reduction of share capital, the buy-back of shares, the issuance of different-classes of shares, issuance of bonds and sukuk, the super-majority voting required for the approval of certain transactions as well as matters entered into by the company which may result in its restructuring, the sale of the business and assets while the company is being liquidated. The CCL also, in detail, provides for the liability of the officers of the company in case of their failure to act when required to do so.

The CMAL and the CMA Decisions

Pursuant to the CMAL, the CMA has extensive powers to regulate companies listed on the MSM, in particular, to any matters that will result in a change in the company’s structure through merger, acquisition, de-listing, etc. Whilst shareholder meetings are required for the approval of any such arrangements, the CMA representatives are required to attend the meetings. The CMA is empowered to review and approve any securities’ offering documents, whether by way of a public offering or private placement.

The Takeover Code aims to regulate take-over and acquisition transactions exceeding 25% of the issued shares of public joint stock companies and a controlling percentage in the company. The Takeover Code contains the terms and conditions to be adhered to by the persons involved in take-over and acquisition transactions and provides for robust standards of integrity, transparency and fairness for all participants.

The REIT Regulation provides a framework for the registration and operation of real estate investment funds in the Sultanate of Oman. The REIT Regulation allows for real estate developers, whilst not being able to develop real estates through corporate vehicles and who may otherwise be experiencing financial distress, to establish a real estate investment fund for it to own, develop, finance and operate its retail real estate portfolio, whilst listed on the MSM. The REIT Regulation provides for the circumstances in which the fund can be liquidated and the rules applicable to it, in addition to the general laws relating to liquidation and insolvencies.

The FCIL

The FCIL provides for the establishment of a formal foreign capital investment committee with the authority to approve 100% foreign ownership of an Omani company without the need for a Council of Ministers’ approval required under the now-abrogated foreign capital investment law (RD 102/1994). This may allow greater access by foreign investors to Omani financially-distressed companies.

The ICL

The ICL governs the formation, operation and liquidation of insurance companies and branches of foreign insurance companies in Oman. Since its amendment in 2014, the ICL requires all insurance companies (excluding branches) to be established as public joint stock companies, and provides for a minimum share capital of OMR-10 million. A specialised department within the CMA is the primary regulator of the insurance sector in Oman.

The Banking Law

The Banking Law provides for the licensing and regulation of all banking companies engaged in banking business in Oman. In particular, the Banking Law provides for the regulatory powers of the Central Bank of Oman (CBO), which it may exercise through the issuance of circulars. The CBO deals with capital adequacy and lending ratios, bank deposit insurance schemes, approval of directors/officers of the banking company, approval of mergers and acquisitions, approval of investment by banks in non-bank entities, financial disclosure and reporting, the acquisition of assets and settlement of debt, shareholding restrictions and change of control matters, sale of business assets, foreign lending and borrowings and the raising of additional capital.

The CBO has further issued regulations pursuant to the Banking Law providing for the resolution, liquidation administration of banks in Oman.

The Bankruptcy Law

The Bankruptcy Law is the primary legislation on insolvencies applicable to all Merchants (defined by the Commercial Law to include companies, partnerships and individuals who are engaged in any commercial activity in accordance with the Commercial Law), subject to the specific insolvency provisions of the Banking Law and ICL applicable to CBO licensed companies and insurance companies. The Bankruptcy Law provides for the restructuring of obligations, preventive compositions and bankruptcy procedures to apply to insolvent Merchants.

The Criminal Law

The Criminal Law provides penalties for fraudulent declarations of bankruptcy and other criminal acts committed during the course of insolvency proceedings.

As noted in 2.1 Overview of Laws and Statutory Regimes, the CCL, the Banking Law and the ICL provide for companies to whom such laws apply to maintain minimum levels of capital. Failure to do so requires the concerned companies to take action to achieve compliance. The CCL requires the board of a joint stock company to take action to improve the company’s financial condition, where the issued share capital of the company has decreased by 25% or more, and to bring the company back to profitability. Where the company’s issued share capital has been reduced by 50% or more, the shareholders are required to convene a meeting within 30 days and take remedial steps for the restoration of the lost capital. Additionally, the CCL provides that if the capital of a commercial company is not restored to its minimum level within the specified time period and/or if the company is insolvent, then it must be placed under liquidation. In circumstances where shareholders fail to initiate the liquidation proceedings as required under the CCL, the court will order its dissolution.

A voluntary restructuring would need to be initiated for the financially-troubled Merchant by the authorised managers, chairman, chief officer executive, boards of directors or partners, in their capacity as officers of the company.

A voluntary restructuring or declaration of bankruptcy may be initiated by any Merchant whose business has been served with a claim seeking an order for bankruptcy. Failure to pay a debt (except for debts originating from fines, taxes, government fees or social insurance contributions) constitutes evidence of the disturbance of business unless proven otherwise. Authorised representatives of a company cannot file a bankruptcy claim without the approval of a majority of the shareholders, depending on the type of commercial company in question. A Merchant may not declare its bankruptcy in the absence of an application to the courts for approval.

Bankruptcy may also be declared on the application of a financially-troubled Merchant’s creditors to the court following acceptance by the court of such application or by the court suo motu. Bankruptcy can be established only by virtue of a court order.

Receivership can either be voluntary (by the parties' agreement on appointing a person to manage the business of the debtor), or involuntary (because the parties fail to reach agreement). The creditor may apply to the court for the appointment of a receiver. The CTL applies to all receiverships due to the absence of any special laws expressly recognising such process.

Pursuant to Article 40 of the CCL, the Bankruptcy Law and the ICL (see 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership), a company that has lost its capital, or it no longer has the minimum capital required in accordance with the applicable law, must take remedial measures or may file for bankruptcy. Alternatively, the company’s creditors may make such a request to the court, or the court may declare the company's bankruptcy suo motu. With respect to the liability of directors/managers of the company, Articles 206 and 269 of the CCL provide for the directors' liability in respect of their errors and failure to act in accordance with the law which may include errors and violations committed leading up the insolvency of the company. Article 193 of the Bankruptcy Law provide that directors/managers may be held liable by the court for any grave errors committed by them prior to the declaration of insolvency. Such "grave errors" may include failure to act in the best interests of the company by delaying the filing of proceedings.

The CCL allows liquidation proceedings to be initiated. Examples include a company's failure to conduct its activities following the date of its establishment or following the suspension of such activities for more than two years, expiry of the term on the purpose for which the company was incorporated for, or the insolvency of the company. Additionally, liquidation may be initiated following a court order issued at the request of an interested party (eg, a creditor of the company) or the relevant regulatory authority. There are no alternative proceedings which may serve to avoid commencing the mandatory liquidation process.

A creditor may pursuant to Article 40 of the CCL issue involuntary proceedings against the debtor.

Pursuant to Article 40 of the CCL, competent authorities may file liquidation proceedings against a Merchant pursuant to the applicable law by which the competent authority is given regulatory powers.

The Omani courts do not have the authority to initiate any liquidation, or on the appointment of receivers of a debtor's business suo motu. The courts may, however, decide on the initiation of bankruptcy proceedings.

Insolvency is defined by the Bankruptcy Law to mean financial impairment of the merchant resulting in its inability to pay its debts. The debtor's failure to pay its debts as they fall due is taken as evidence of insolvency unless proven otherwise. The existence of insolvency is a pre-requisite for the filing of bankruptcy proceedings.

The CTL allows for the filing of insolvency proceedings to restrict the debtor from disposing its assets, if the debtor's due obligations exceed the value of his/her assets.

With regard to the appointment of receivers, there is no definition for "insolvency" in the CTL.

The CCL provides for the commencement of liquidation proceedings in case of a company’s failure to discharge its debts.

Banks and other companies licensed by the CBO are excluded from the scope of application of the Bankruptcy Law as they are subject to specific rules contained within the Banking Law and the CBO Circulars and Regulations. The CBO has recently issued Circular No BM-1160 on the Bank Resolution Framework for Oman (the "Decision").

In accordance with the Bankruptcy Law, any licensed bank may either voluntarily liquidate itself upon an application to the CBO's Board of Governors (the "CBO Board of Governors"). Should the CBO Board of Governors accept the Bank's application, it shall specify the conditions to be complied with by the applicant bank to ensure an orderly liquidation of its business. Additionally, the CBO Board of Governors may appoint a liquidator for the liquidation of the applicant's banking business and operations to ensure compliance with the Banking Law and for the protection of the Bank's customers and creditors.

The Banking Law also provides that the CBO Board of Governors has the right to, inter-alia, order the liquidation of a licensed bank where the Bank is unable to comply with the instructions and directives of the CBO Board of Governors, or the Bank breaches the Banking Law or the regulations issued by the CBO or any other laws, or if the circumstances indicate that such breach will occur.

In addition, the CBO has issued the Bank Resolution Framework, passed on the 1 April 2019 (the "Framework"). This is to prevent banks/financial institutions from failing financially through the triggering of corrective actions should, inter-alia, the capital conservation buffers be drawn-down, or if the bank faces a lack in liquidity or weakness in the quality of its assets. If recovery fails, the bank may employ the Framework's resolution procedures to ensure an orderly exit without excessive market disruption and, to the extent possible, without the financial support from the government being necessary.

The ICL regulates the liquidation and bankruptcy of insurance companies. The ICL provides that the liquidation of life insurance companies must occur in accordance with the ICL. However, general insurance companies may be liquidated in accordance with the CCL or declared insolvent in accordance with the Bankruptcy Law. Notwithstanding the aforementioned, the insurance regulator may order the liquidation of a general insurance company in accordance with the ICL. 

The National Payment Systems Law (RD 8/2018) (NPSL) provides that providers of payment system services must be licensed by the CBO and such entities will not be governed by the Bankruptcy Law. Pursuant to the NPSL the CBO may, if it deems that the operator of payment services system is in an unsafe or unsecured state, suspend or liquidate the business of the operator. Further, the NPSL provides that the CBO shall issue regulations governing the liquidation of the operators of the payment services system and the disposal of the proceeds of such liquidation. Such regulations are yet to be issued by the CBO.

The state-owned Muscat Clearing and Depository Company SAOC (MCDC) is exclusively responsible for the settlement of securities. Pursuant to Article 25 of RD 82/1998, establishing the MCDC, the MCDC may not suspend or liquidate its business without the approval of the CMA. Other than the requirement for the CMA approval, liquidation and bankruptcy/restructuring of the MCDC would remain subject to the CCL and the Bankruptcy Law, respectively.

Unless the law provides for otherwise as in the case of the banking, insurance and the CMAL, all other sectors will remain subject to the CCL and Bankruptcy Law for their liquidation or bankruptcy/or restructuring.

There is no specific law which governs informal/consensual restructuring frameworks. Frameworks such as the "INSOL Principles" are not typically used as a reference for the purpose of reaching an informal/consensual agreement on restructuring or the workout of disputes. There is, however, no legal or regulatory restriction on referring to such frameworks.

There is a general law on amicable settlement and conciliation (RD 98/2005) which provides for the establishment of conciliatory committees affiliated with the Ministry of Justice to which the parties may, at their own discretion, refer their civil or commercial disputes in order to attempt reaching an amicable settlement prior to referral of the dispute to the competent court. The amicable settlement may include an informal/consensual restructuring of debt or workout of disputes. In general, market participants prefer to resort to these committees prior to referral to disputes to the courts.

The Bankruptcy Law in the form of Chapter 1 (Restructuring), Articles 6 to 23, provides for a non-binding process through which the debtor may initiate a restructuring plan through the filing of a petition with Department of Scrutiny and Monitoring of Commercial Establishments at the MOCI (the “Competent Department”).

As a general rule, market participants generally prefer to attempt resolving disputes amicably. The filing of court claims is only used as a last resort.

The attitude of lenders, regarding the support of borrower companies, varies from one lender-to-lender and depends on the importance and credibility of the relevant borrower and the gravity of the borrower’s financial difficulty. Whilst certain lenders insist on applying the terms of their agreements strictly, others may support their borrowers experiencing financial difficulties. There is no general market trend in this regard in the banking sector.

There is insufficient data available which may assist in identifying what factors arising from the applicable laws that may influence the viability, desirability and choice of informal/consensual out-of-court restructuring and workout strategies.

There is no mandatory requirement for consensual restructuring negotiations prior to the commencement of a formal "statutory process" in our jurisdiction.

Consensual restructuring and workouts are entered into with the mutual consent of the parties. Banks may enter into standstill agreements and credit agreement default waivers pursuant to which they agree not to take any enforcement action for a period of time pending possible settlement solutions being identified, put in place and implemented.

Additionally, as noted in 3.1 Restructuring Market Participants, the debtor may initiate a restructuring process through the filing of a restructuring petition with the Competent Department designated for such purpose at the MOCI, provided that it has carried out its business continuously for the last two years, it has not been placed under liquidation and no bankruptcy order has been passed against it no later than six months from the date it ran into difficulties with the submission of the documents set out in Article 8.

During an informal and consensual workout/restructuring process, the debtor may agree to the establishment of the steering committee with the involvement of the lender representatives and/or persons selected from the list of bankruptcy experts maintained by the MOCI, undertake not to incur further debts, make key commercial decisions with regards to expenditure beyond agreed thresholds, undertake further business expansion and make settlements with other creditors, subject to the approval of the lenders with whom the consensual workout/restructuring process is undergoing. Where the consensual restructuring is being undertaken pursuant to Chapter 1 (Restructuring) of the Bankruptcy Law, the Competent Department who may hold mediation sessions on the petition, may propose arrangements to assist in completing the restructuring process for the parties consideration.

Creditor committees/representatives may be appointed with the consent of the lender and borrowers. The committee may comprise of lender representatives and representatives of the borrower. Additionally, Article 5 of the Bankruptcy Law provides for the establishment of a schedule of bankruptcy experts to comprise of individuals, firms and companies specialising in the spare of restructuring, management of assets and bankruptcy, receivers’ evaluation experts and others if required. Creditors may select experts from amongst the above list. The law currently provides for no formal documentation for appointment of the committees, however, Article 5 of the Bankruptcy Law states that the Minister of Justice shall, in co-ordination with the Minister of the MOCI, issue Executive Regulations setting out the rules for the selection of experts, the manner in which they must perform their functions and their interrogation and the criteria for fixing their remuneration. Such appointments may be made pursuant to contractual agreements or in the form of resolutions signed by the concerned parties, or as may be provided for by the MOCI Executive Regulations. These documents may provide for the terms of reference subject to which the steering committee members and the company’s management shall operate.

The lenders and the borrowers may need to agree whether or not any fees or remuneration are to be made payable to the committee or creditor representatives and if so, by whom. The agreements between the parties may also provide for indemnities for the benefit of the steering committee members and/or lender representatives. The MOCI Executive Regulations will provide for the criteria to be made applicable for determining the remuneration payable to the experts appointed to serve on any steering committee that the creditors and the debtor may informally agree to constitute between themselves. The Executive Regulations may act as a useful guide for the constitution and conduct of the steering committees appointed for informal consensual restructuring process.

Typically, the committee members will be appointed from amongst the lender's selective representatives and those of the management of the company given that such persons will be employed by the lenders and the borrower, all of whom have interest in the outcome of the restructuring. The lenders and the borrower may agree to the engagement of representatives from amongst the list of experts compiled by the Competent Department.

Creditors, committees and other stakeholders may ask for all financial information pertaining to the company including but not limited to:

  • the reasons for the restructuring;
  • its total indebtedness;
  • its operating expenditure;
  • the volume of business being undertaken by it;
  • information relating to its creditors and debtors;
  • particulars of financing arrangements in place;
  • provision of audited and unaudited financial statement of accounts;
  • a statement of movable assets/real estate with their approximate value;
  • its tax status/liabilities;
  • any ongoing litigation in which it is engaged; and
  • such other information as may be of assistance to the creditors and the steering committee in arriving at their decisions with regards to the restructuring.

Omani law provides for preferential treatment to be given to creditors who have been granted security interest by a borrower over its assets. Security interests may take the form of commercial mortgages or charges, legal mortgages and share pledges. Priority will be given provided that security interests have been registered with the relevant authorities and were created when the borrower was not insolvent or within a period specified by law leading up to the date on which it was declared bankrupt. Shareholders will continue to enjoy the same rights as provided for by their articles of association, ie, preferential shareholders and ordinary shareholders. Competing unsecured creditors claim will rank pari pasu as amongst themselves and above the claims of the shareholders. The secured creditors will take priority over all creditors other than statutory creditors. The rights of the above parties will not be affected by any standstill or default waiver agreements unless otherwise provided for by contract.

New money may be introduced to a borrower through an increase in the issued share capital of the company, a private placement with one or more investors, or through a rights issue. The new shares offered may have preferential rights as may be approved by the company shareholders at an extraordinary general meeting. The company may also raise new debt from existing or new creditors on terms and conditions as may be negotiated or agreed to between the new lenders, the pre-existing lenders and the borrower. These arrangements may also include the grant of preferential rights to the incoming new lenders.

The laws of Oman do not impose any specific duties on creditors in terms of how they conduct themselves amongst themselves or with the company. The company, in its dealings with its lenders, will be required to act in good faith and where company’s capital is eroded up to 25%, the board of directors of the company are required to take immediate steps to address the financial difficulties experienced by the company. Where the erosion of capital has occurred beyond 50%, the company is required to convene shareholder meetings to determine what course of action is needed to overcome the company’s financial difficulties. Under such circumstances, the board of directors of a public joint stock company will need to ensure that appropriate disclosures are made to the Capital Market Authority, no misstatements are made and the interests of all shareholders are considered.

For an out-of-court consensual financial restructuring or workout to be accomplished, the consent of all creditors, including the minority creditors, is required. Even if the majority creditors agree the consensual restructuring, this would not be binding on minority creditors unless they consent to it. If the restructuring were to involve a reduction in the share capital of a company, notification is required to be published in the daily press, as provided by the law, and third-party creditors are given an opportunity to object.

Through this process, minority creditors may either seek to receive a settlement of their claims or provide their consent to any such reduction. If, as part of the restructuring, the borrower undertakes any increase in the issued share capital or is proposing to convert its debt, in part or in its entirety, to equity then provided that any such action is approved by the shareholders at an extra ordinary general meeting of the company (for a joint stock company there is a requirement of a quorum of 75% of issued share capital and 75% of the issued share capital to vote in favour of the resolution), any such action would be binding on the company and shareholders. The minority shareholders may only challenge the resolution if they can demonstrate that it was passed with the view of benefiting a particular shareholder or a group of shareholders at the expense of others.

The imposition of a bankruptcy reorganisation plan may be made by a court once a borrower has been declared bankrupt despite objections being raised by certain classes of creditors. In the absence of bankruptcy proceedings being filed against a borrower it may not be possible for the company to enter into informal consensual restructuring/workout with its creditors which may be binding on minority creditors.

No cram-down mechanisms are provided, outside of the filing of bankruptcy proceedings, for consensual financial restructuring to be effected and binding on all creditors of the borrower (inclusive of minority creditors). For this to be possible, a statutory process will need to be provided for).

The lender may take security in the form of:

  • Legal mortgage: the legal mortgage may be registered over real estate rights and interests (freehold, leasehold and usufruct rights), with the Ministry of Housing.
  • Commercial mortgage: the commercial mortgage may be registered with the Ministry of Commerce and Industry, as security for the benefit of the lenders over the borrowers’ movable commercial assets such as plant, machinery, equipment, bank accounts, intangible property, intellectual property rights and accounts.
  • Share pledge: share pledges may be registered over the shares in a joint stock company with the MCDC.

A creditor with security may enforce the same through court proceedings during a restructuring or in the case of the borrower's insolvency. Enforcement proceedings may only occur through court action, unless a borrower voluntarily agrees to the sale of secured assets, the proceeds of which may then be applied towards the discharge of the secured creditor’s claims. In such a case, to avoid a challenge against the sale of the assets being seen to be at less than a fair market value, otherwise detrimental to the interest of other unsecured and or statutory creditors, the secured creditor should ensure that the sale takes place subject to a formal, independent valuation of assets.

Any enforcement following the judgement of the court for the sale of the secured assets is conducted by way of public auction. The sale of pledged shares will occur through a broker on the securities market. The creditor will receive the sale proceeds from the sale of the secured assets, less any costs and expenses incurred in connection with the sale and after deducting any monies payable to statutory preferential creditors of the borrower.        

If the debtor is the subject of bankruptcy proceedings, then in any restructuring process occurring pursuant to the Bankruptcy Law, all secured creditors not agreeing to the restructuring plan, shall have the right to continue to enforce their security interests in the manner described above. Secured creditors who have approved the restructuring plan shall not be permitted to enforce their security interest whilst the restructuring plan is being implemented.        

Under the Bankruptcy Law, secured creditors may not join the group of creditors required to be formed by the Bankruptcy Law (the "Group"). The Bankruptcy Law provides that mortgagee creditors, with preferential security interests over the insolvent debtor’s assets, may file or continue with their proceedings against the bankruptcy administrator (the "Administrator") for enforcement of their security interest granted by the borrower, provided that they notify the court-appointed bankruptcy judge in charge of supervising the debtor’s bankruptcy of their intended enforcement. The issuance of a judgment declaring a debtor bankrupt shall result in all monetary debts owed by the debtor becoming immediately due and payable, whether secured or not. The Bankruptcy Law provides for the enforcement and sale of mortgaged assets in accordance with the terms and conditions of the mortgage agreements within no more than one year from the date of declaration of the debtor’s bankruptcy, otherwise the Administrator may exercise enforcement rights for sale of the mortgaged assets.

Where security interests have been granted or received subject to the terms and conditions of intercreditor agreements or covenants entered into by creditors the exercise of rights and remedies with respect to the security granted will remain subject to the intercreditor agreement/covenants.

With respect to any voluntary process (eg, any consensual/informal restructuring/workout, but not voluntary liquidation), secured creditors have the right to file a claim to suspend or terminate such process if they deem it harmful to their interests, particularly where their approval of such process had not been sought by the debtor.

As for involuntary processes, secured creditors can exercise the following:

  • With respect to formal restructuring process, Article 20 of the Bankruptcy Law provides that any interested party, including secured creditors, may file a claim before the court with respect to any restructuring plan during its implementation. In any event, the formal restructuring plan will only be binding on the creditors who have signed up to the plan. Creditors who have not signed such plan will maintain their enforcement right in respect of the security held by them and they may request a termination or suspension of the restructuring plan if it is harmful to their interests.
  • Regarding the bankruptcy process, secured creditors may not, by law, participate in the Group unless they waive their secured rights, or they are deemed unsecured creditors with respect to their claims. A secured creditor (or any other interested party) may lodge an objection in response to the bankruptcy judgement within 15 days from the date of publication of the notification of the bankruptcy in the official gazette in accordance with Article 82 of the Bankruptcy Law. Notwithstanding the above, the secured creditor may continue to proceed with any enforcement action taken against the insolvent debtor or the Administrator, for enforcement of their security interests.
  • With respect to any voluntary or statutory liquidation process, the secured creditors have no rights to disrupt or block any such liquidation proceedings. The creditor may, on discovering that the liquidation of the company is being sought petition the court to take charge of the liquidation process and appoint a liquidator of its own choice.

The law does not provide for any automatic or discretionary stays or deferrals of the enforcement of secured creditor rights, remedies or liens in formal proceedings. The Bankruptcy law allows secured creditors to continue with any proceedings for the enforcement of the secured assets.

In the case of a consensual restructuring where, on the application of the creditor and debtor, the court approves the sale of the secured asset, the parties may proceed to dispose of the assets as sanctioned by the court. In the absence of a consensual restructuring, enforcement of a security interest litigated through the court may take between 18 to 36 months, depending upon whether or not the court appoints an expert to investigate the claims and one or more of the parties exercise their right of appeal.

The enforcement of commercial mortgages and pledges can be fast tracked under Articles 225 to 228 of the Commercial Law.

Foreign creditors, absent a local business presence, may appoint a local security agent to accept and hold the registered security interest on their behalf.

As noted in 4.2 Rights and Remedies, secured creditors will have the right to obtain and enforce a judgement from the courts. The same right applies to any restructuring proceedings to which a secured creditor is not a party to.

The insolvency law of Oman recognises three classes of creditors, as follows:

  • statutory creditors;
  • secured creditors; and
  • unsecured creditors.

Statutory creditors take precedence over secured and unsecured creditors. Secured creditors will have rights with respect to their security. Unsecured creditors will rank pari passu amongst themselves, sharing any remaining proceeds available in the bankruptcy on a pro-rata basis, following settlement of the claims of the secured creditors. Amongst the statutory creditors, the debtor’s unpaid taxes for the last two years, commencing from the date of the bankruptcy, shall take priority over other statutory debts such as the liquidation fees and costs, debtor’s labour costs and the maintenance costs determined for the benefit of the insolvent debtor (natural person) and their dependents.

The rights of trade creditors who have not agreed to the restructuring plan shall remain whole and enforceable. The rights of the creditors who have accepted the restructuring plan shall be determined in accordance with the terms of the plan.

Unsecured creditors will continue to retain their rights of recovery against the debtor in accordance with the terms and conditions subject to which the credit was made available to the debtor. For the unsecured creditor to become bound by the terms of any consensual restructuring process, they would need to accept the same. They may not disrupt any formal voluntary or involuntary process or to defer a liquidation, other than to ask the court to appoint a liquidator of its choice. 

As mentioned in 4.2 Rights and Remedies, any creditor (or any other interested party) has the right to lodge an objection within 15 days from the date of publication of the bankruptcy in the official gazette, in accordance with Article 82 of the Bankruptcy Law. Upon the declaration of bankruptcy, unsecured creditors will, upon submitting their claims and such claims being verified, become members of the Group. They may not continue with any ongoing proceedings filed against the debtor prior to their being declared bankrupt. 

Pre-judgement attachments may be obtained by creditors against a debtor’s assets through summary proceedings filed before the Primary Commercial Court.

See 4.3 Typical Timelines. If the debtor has no known assets, enforcement of judgement by the creditor may take longer, ie, until such time as the debtor acquires assets against which a judgement may be enforced or when the bankruptcy proceedings against the debtor cease.

Landlords have priority with respect to the payment of unpaid rent for a period of 12 months preceding the date of issuance of an order declaring the debtor insolvent and for a further period of one year if the Administrator continues to occupy the leased premises. The landlord will continue to retain a lien over the movable assets available in the leased premises, notwithstanding these having been sold by the insolvent lessees to a third party within the suspect period leading up to the declaration of bankruptcy.

There are no special procedures or impediments that apply to foreign creditors.

The waterfall of claims is as follows:

  • statutory creditors, including two years of unpaid taxes, insolvency fees, costs and expenses associated with the proceedings, the debtor’s employees costs and the maintenance costs allocated for the debtor (natural person) and its dependents;
  • secured debts; and
  • unsecured debts.

With respect to a voluntary restructuring, the priority of claims will be determined by the terms of the restructuring agreement. In case of insolvency proceedings, see 5.8 Statutory Waterfall of Claims for the priority of payments.

If the insolvent debtor has been permitted with the approval of the Bankruptcy Judge to engage in a new business and new money has been raised for the new business, the creditors of such funding shall have priority over any funds generated by the new business activities (Article 117 of the Bankruptcy Law).

For priority over secured creditor claims, see 5.8 Statutory Waterfall of Claims.

Chapter 2 (Protective Composition), Articles 24 to 68 of the Bankruptcy Law provide for the statutory process, procedures and mechanism for a debtor to arrive at a financial restructuring/reorganisation plan similar to the scheme of arrangement in the UK, or Chapter 11 reorganisation in the USA. In accordance with Articles 24 and 26 of the Bankruptcy Law, a Merchant, being any company, other than a unincorporated joint venture/or a natural person who has run into financial difficulties may file an application for protective composition provided that the Merchant has committed no fraud or a fault that is outside of the conduct of an ordinary business debtor and provided that such Merchant has continued to conduct his business for two years prior to the date of filing of application. An application may only be filed in the case of partnerships, with a majority vote of the partners, in the case of a joint stock company by its extra-ordinary general meeting, in the case of a limited liability company by its general meeting, and the proprietor of a sole proprietorship concern. Protective composition will not be available for a company in liquidation or a company that is already undergoing a process of protective composition.

The application for protective composition must provide reasons for financial failure, the proposals for composition and the guarantees to be made available for its execution. The application must contain all the information and documents set out in Article 28 of the Bankruptcy Law inclusive of corporate registration documents, shareholder/partner resolutions, where applicable, audited financial statement of accounts for the last two years and a statement of the company’s assets and liabilities. When considering the application for protective composition, the Primary Commercial Court may take preventive measures to safeguard the company’s funds pending a final decision on the application and take all necessary steps to obtain a better understanding of the financial status of the debtor and the reasons for its failure before deciding on the application for protective composition at a closed door hearing.

The Court may proceed to reject the application for protective composition where the debtor has failed to provide information and documents required under Article 28 of the Bankruptcy Law, it has previously been convicted of insolvency offences or of an offence of forgery, theft, deception, dishonesty or embezzlement of public funds unless rehabilitated and/or it has abandoned its business. In case of rejection of the application, the Court may fine the applicant a minimum sum of OMR500 and the maximum, sum of OMR1000 if it is of the view that the applicant has intentionally mislead into believing that his business running into financial difficulties or such financial difficulties were created by it intentionally.

Upon the adjudication of protective composition, the Court will appoint a judge (“Judge In Charge”) to supervise the protective composition and one or more composition secretaries (“Composition Secretary”) to initiate and assist in completing the procedures for protective composition. The applicant’s failure to deposit the cash amount required for completion of the procedure for composition may result in the cancellation of the protective composition process.

The Composition Secretary will be responsible for recording and minuting all activities relating to the protective composition procedures. The Composition Secretary must record commencement of the protective composition procedures in the Commercial Register at the MOCI with an invitation extended to the creditors for a meeting to be notified through the daily press or by such other means as may be determined by the judge appointed to supervise the protective composition.

Following the commencement of the protective composition procedures, the Judge-In Charge must attest the financial statements of the debtor and within 24 hours from the time of being notified of the passing of the order by the Primary Court, to prepare an inventory of the property of the debtor in their presence or the presence of their lawful representatives. Following the passing of the order directing commencement of the preventive composition procedures:

  • all litigation and enforcement actions against the debtor will be suspended (Article 40);
  • the debtor may continue to manage its funds and enter into transactions in the ordinary course of business under the supervision of the Composition Secretary;
  • the debtor will not be permitted to enter into any further preventive composition or to create any security interest or to sell any assets other than as may be required in the ordinary course of business, without the prior approval of the Judge In Charge; and
  • the debtor’s debts will not mature for payment in advance of their due dates and all payments due in respect of the same by way of an interest will continue to accrue.

Within 15 days (in the case of Omani nationals) and 30 days (in the case of a foreign creditor) of publication of the notification of the commencement of preventive composition procedure, secured and unsecured creditors are required to deliver, to the Composition Secretary, original documents with accompanying supporting statements relating to the debts due and payable to them and the security, if any, held in respect of the same with a confirmation of the amounts due and payable to them in rials.

Within 40 days from the date of issuance of the protective composition order, the Composition Secretary must prepare and submit to the Secretariat of the Court a schedule of all the creditors, the amounts due to them and the collateral held by them with the supporting evidence and to provide its confirmation of whether or not the debt should be accepted or rejected. The time period may be extended with the approval of the Judge In Charge. Within three days from the date of submission of the above schedule to the Court Secretariat, the Composition Secretary must publish a statement of the schedule of debt in two widely circulated newspapers approved by the Judge In Charge. The debtor and/or the creditors may, within a period of ten days from the date of publication of the schedule of debts, dispute the debts included before the Court Secretariat.

Creditors who have not submitted original documents in support of their debt within the specified time period or creditors whose debts have not been accepted, finally or provisionally, may not participate in the procedure for protective composition.

Ten days after the date of publication of the schedule of debts by the Composition Secretary, the Judge in Charge must prepare a final list of the undisputed debts. They must confirm the amounts accepted and those rejected by them on a statement relating to the debt and then to decide on the disputed debts within 30 days from the date of the original ten-day period for contesting the schedule of debts. The Secretariat to the Court must notify the creditors of the date of the meeting, at least three days prior to the meeting, at which they may be heard with regard to their disputed debts. The Judge In-Charge following their review of the schedule of debts, and their determination of the disputed debts, must invite creditors to attend a meeting on a date designated by the Judge In Charge to deliberate on the proposals for protective composition (Articles 49 and 50 of the Bankruptcy Law). 

At least five days prior to the proposed meeting date, the Composition Secretary must deposit with the Secretariat of the Court a report on the debtor’s financial condition, the reasons for its failure with a statement of all creditors entitled to participate in the protective composition procedure. The Composition Secretary must set out in the report its opinion on the conditions proposed by the debtor for the preventive composition. All interested parties may request and examine the Composition Secretary’s report. Any appeal filed against the rejection of a debt will not stay the preventive composition procedure, although the Judge adjudicating on the appeal may direct the appellant’s claim be accepted temporarily in an amount fixed by them until a final decision is taken.

The creditors and the debtor, either in person or as may be represented by an authorised representative, shall attend the creditors’ meeting presided over by the Judge In Charge to deliberate on the proposed conditions of the preventive composition. At this meeting, the secured creditors may not exercise any voting rights in respect of the protective composition unless they waive such securities in advance. The unsecured creditors will have the right to vote on the protective composition even if a part of their debt has been settled.

For the protective composition to be approved, the majority of the unsecured creditors whose debts have been accepted finally or provisionally must approve the composition provided that they are the creditors of at least two thirds of the value of the unsecured debts. Where protective composition is being sought by a company that has issued bonds or other instruments the value of which exceeds one-third of the company’s indebtedness, the composition may not be made unless general meeting of the Group of owners of such bonds or instruments approve the same. Once approved, the preventive composition must be signed by the creditors voting in favour of the same, failing which the composition is null and void. If the quorum required at the first meeting is not present, then the meeting may be postponed for a period of ten days.

Creditors who have attended the first meeting and signed the composition record need not attend the second meeting and their approval given at the first meeting shall remain valid at the second meeting, unless they attend the second meeting and withdraw their earlier approval. The minutes of the creditors’ meeting must be signed by the Judge In Charge, the Composition Secretary and the debtor and creditors present. Any creditor who has the right to attend the creditors’ meeting may, within ten days from the date of signing of the composition meeting minutes, inform the Judge In Charge of their objection to the composition and its reasoning for the same. Within seven days from the expiry of the ten day period, the Judge In Charge must send the official record of the protective composition to the Court responsible for ratifying the same.

This record must be accompanied by a report prepared by the Judge In Charge confirming the financial condition of the debtor, the reasons for the failure of its business, the composition conditions, the objections raised and the reasoning for the same. Any decision taken by the Court responsible for ratifying the composition may not be appealed. In case of non-ratification, the debtor may request a reconsideration of the order issued by the Court within 15 days of the rejection of the composition.

The protective composition may result in the debtor being:

  • given a grace period for payment of his debts;
  • exonerated from payment of a part of the debt; or
  • directed to repay their debts within a period not exceeding five years from the date of ratification of the composition, if the debtor’s financial condition improves within such time. An improvement will only be deemed to have occurred if the debtor’s assets exceed their debts by at least 10%.Subject to the conditions on which the composition is ordered, the time frame given for the discharge of the debt may extend up to five years.

The final ratification order will become effective from the date of its issuance and it will be published in the official gazette within 15 days from the date of its issuance with particulars of the debtor and the Court ratifying the composition order. Within ten days from completion of the implementation of the protective composition conditions the Composition Secretary will terminate the composition. Such request for termination must be published in the official gazette within 15 days from the date of the request being made. The order for termination of the procedures shall be issued within 30 days from the date of publication of the request.

All cases and enforcement actions ongoing against a company shall stand suspended upon the passing of an order for commencement of the protective composition.

The company may continue to manage its funds and conduct its ordinary business notwithstanding the protective composition. It may not, however, enter into another composition, mortgage its assets or dispose of any property unless required to do so in the ordinary course of business, without the approval of the Judge In Charge.

The incumbent management will continue to manage the company under the supervision of the composition secretary and subject to the approval, where required in accordance with the law, of the Judge In Charge.

The debtor company may be permitted to borrow money in the ordinary course of business provided that it does not create any security in favour of the new creditor or otherwise dispose of its assets outside the ordinary course of business, without the approval of the Judge In Charge.

The Bankruptcy Law recognises three distinct classes of creditors; statutory, secured and non-secured creditors. Each class of creditors is required to provide the particulars of their debts and supporting evidence to the Composition Secretary for verification purposes.

The protective composition process does not require the different classes of creditors to be organised and represented by creditor committees. Each of the unsecured creditors, either in person or through their authorised representatives, may attend and vote at the creditor's meetings.

The Composition Secretary must prepare and submit to the Secretariat of the Court a schedule of all the creditors, the amounts due to them and the collateral held by them with supporting evidence and confirm whether or not the debt should be accepted or rejected. The Composition Secretary must publish the schedule of debts in two widely circulated newspapers approved by the Judge In Charge. The Composition Secretary must, prior to a meeting at which the Judge In Charge has to determine the creditors’ disputed claims, deposit with the Secretariat of the Court a report on the debtor’s financial condition, the reasons for its failure with a statement of all creditors entitled to participate in the protective composition procedure. The Composition Secretary will also need to set out in its report its opinion on the conditions proposed by the debtor for the preventive composition. All interested parties may request and examine the Composition Secretary’s report.

It is not possible for the claims of the dissenting creditors or dissenting class of creditors to be modified without their consent.

Once the preventive composition has commenced and/or has been ratified by the Court, creditors can trade their debt through a transfer or assignment of their rights. Any transfer and assignment with the supporting documents would need to be communicated the Composition Secretary and the debtor. Where necessary, the Composition Secretary may bring this to the notice of the Judge in Charge for substitution of the original creditor. The Composition Secretary and the Judge in Charge may require the original authenticated document confirming the transfer/assignment of the debt.

A restructuring procedure may be used to reorganise a corporate group, subject to the applicable laws.

If the company is undergoing restructuring pursuant to Articles 24 to 67 (Preventive Composition) of the Bankruptcy Law, restrictions may be applicable with respect to a company selling any of its assets outside of the ordinary course of its business, without the approval of the Judge In Charge.

Assuming that the sale or the transaction is not prohibited (see 6.7 Restrictions on a Company's Use of or Sale of Its Assets), the authorised representatives of the company, ie, its managers/directors may be permitted to execute the sale and purchase transactions.

Any purchaser acquiring the assets in accordance with the applicable conditions provided for by the Bankruptcy Law shall acquire good title in the sale executed during the restructuring process. 

The Bankruptcy Law does not regulate credit bids. See 6.7 Restrictions on a Company's Use of or Sale of Its Assets.

It is not possible to pre-negotiate sales or other disposals prior to the restructuring process. Any transactions to be entered into following the commencement of the protective composition procedures will need to occur subject to the conditions provided for by the relevant articles provided for the Bankruptcy Law. 

It is not possible to release security claims prior to the restructuring process. The secured creditors will maintain their rights and claims with respect to their secured debts and the security provided in respect of the same.

The new money will only take priority with respect to new businesses undertaken. It is not permissible for the company to grant security over the existing assets of the company. 

If the concerned statutory bodies provided for by law are to be engaged for the purposes of determining the value of claims of those with an economic interest in the company, this can only occur through the initiation of the protective composition procedures under Articles 24 to 67 of the Bankruptcy Law.

The reorganisation plan or agreement will be subject to the standards of overall “fairness” between the interested parties and any final agreement will be subject to the approval of the Judge In Charge and ratification by the Court responsible for adjudicating on the proposed of preventive composition.

The statutory office holder may reject or disclaim contracts giving rise to any indebtedness during the preventive composition procedures through the Composition Secretary, the Judge In Charge and the Court responsible for ratification of the preventive composition order. 

Non-debtor parties may be released from liabilities arising from transactions entered into in the ordinary course of business. The occurrence of any liabilities or discharge of any obligations outside of the ordinary course of business would, in our opinion, require the approval of the Judge In Charge.

Whilst the section of the Bankruptcy Law dealing with preventive composition does not provide for express rights of set off, off set, or netting in a proceeding, Article 40 provides that, following an order permitting the preventive composition, all cases and enforcement procedures are suspended.

If the debtor fails to comply with the terms and conditions of the preventive composition order, the court may at the request of any creditor to whom the conditions of the protective composition apply, terminate the protective composition and allow the creditors to recover any unpaid amounts due and payable to them from the guarantors of the debtor’s obligations and the debtor itself. If a creditor is in breach of the composition terms and conditions, through proceedings filed before the courts, specific performance may be sought and or compensation be recovered by the debtor.

The Bankruptcy Law allows for any person to recover from the insolvency articles or items proved to be owned by it or those that may be entitled to recover upon declaration of insolvency. The Judge In Charge may direct the return of the article and his refusal to do so may be challenged before the court of law. Subject to the approval of the Judge In Charge, the equity owner may receive and retain its property. However, it may not be possible in either of the above circumstances for other property to be given on account of the ownership interest.

The different types of statutory insolvency and liquidation proceedings consist of:

  • Voluntary liquidation: the shareholders may, by resolution, liquidate the company for any of the reasons set out in Article 40 of the CCL or as may be provided for by the company’s constitutive contract.
  • Involuntary liquidation: any interested party or a concerned authority may file an application in the Omani courts for the liquidation of the company in accordance with Article 40 of the CCL or as otherwise provided for by law. In respect of voluntary liquidation, the liquidator will be appointed by the shareholders and for an involuntary liquidation the liquidator will be appointed by the court. The liquidator will be registered on the commercial register at the MOCI as the person responsible for management and operation of the company throughout the liquidation process. The liquidator may continue to retain the services of any person previously engaged by the company. The liquidator, after taking charge of the company and advertising the liquidation in the official gazette, should invite the creditors of the company to submit their claims with the supporting documents to them for their verification of the debts. The liquidator will receive and classify the claims of the secured and unsecured creditors. If the liquidator rejects any debts, they must notify the creditor and the creditor may challenge the same before the concerned courts. If the liquidation proceedings continue for more than one year, the liquidator shall, on an annual basis, submit a report showing the progress of the liquidation process to the company's shareholders. Following the completion of the liquidation process and the disposal of assets, discharge of the company liabilities, preparation of the audit of the company’s activities during the liquidation phase and the approval of such report by the shareholders (voluntary liquidation) or the Omani courts (involuntary liquidation), the company shall be dissolved and this dissolution will be recorded on the Commercial Register.
  • Bankruptcy: proceedings may be commenced by a merchant directly or by their creditors pursuant to the Bankruptcy Law through the filing of proceedings before primary commercial court.

A bankruptcy claim will be adjudicated on an urgent basis and the court order accepting it shall be immediately enforceable, even if challenged (unless the court order itself provides otherwise). The court shall, in the judgement declaring bankruptcy, appoint the Administrator and a Bankruptcy Judge. The court shall, in its judgment, order the sealing of the warehouses of the insolvent debtor, their offices, stores, books, papers and movable assets for the purpose of preparing an inventory of their assets. The assets shall be delivered to the Administrator at the end of that process. With respect to the bankruptcy of companies which take the form of partnerships (either general or limited), the judgement ordering bankruptcy of a general or limited partnership company shall result in the bankruptcy of all the partners. 

Following declaration of bankruptcy, the Administrator or the secretary of the union of creditors (the "Union of Creditors"), appointed by the court shall invite creditor claims, determine the validity of such claims and dispose of the bankrupt’s assets through a public auction in the presence of the Bankruptcy Judge. The bankruptcy process may be closed earlier due to insufficiency or non-availability of funds or assets in the name of the bankrupt which may cover the bankruptcy costs and pay its debts. The creditors will remain at liberty to pursue individual claims against the insolvent debtor. The bankruptcy process could also terminate upon a verification of the debts and it transpiring that the debts are not acceptable, or if all debts are owed to a single creditor, or if a settlement has been reached between the creditor(s) and the insolvent debtor. In these circumstances the bankruptcy shall be terminated by the Bankruptcy Judge only after examining a report from the Administrator or the secretary of the Union of Creditors (as the case may be) confirming that one or more of the events referred to above and listed in the Bankruptcy Law justify terminating the bankruptcy process. Following this termination, the rights of the bankrupted debtor shall be restored to them.

Upon being declared bankrupt, the debtor:

  • shall have protection against the filing of claims/enforcement proceedings against it;
  • on completion of the bankruptcy proceedings it shall have no further claims brought against it; and
  • the bankruptcy administration process will be supervised by a judge appointed by the court.

The debtor (if a natural person) will, following declaration of bankruptcy lose its civil rights until such time as the rights are reinstated in accordance with the law (Article 227 to 238 of the Bankruptcy Law).

The liquidator and the Administrator in-bankruptcy proceeding, will each assume responsibility for receiving, investigating, examining and verifying the claims against the debtor through supporting evidence and documents submitted by the creditors. The liquidator and the Administrator may engage the services of third-party experts to assist them in the verification exercise. A similar approach will be adopted with respect to any contingent claims.

Voluntary and involuntary liquidation proceedings may be commenced with the passing of shareholder resolutions and court orders respectively. Following issuance of such resolutions/court order, the key milestone thereafter would be:

  • registration of the liquidator on the Commercial Register;
  • the creditors being invited to submit their claims;
  • verification of the debtor’s indebtedness;
  • disposal of assets, collection of proceeds;
  • distributions to be made to statutory creditors, the secured creditors from the security provided, thereafter the unsecured creditors and the shareholders; and
  • an audit of the liquidation process, finalisation of the liquidator’s report. This will lead to the completion of the liquidation process.

The entire liquidation process may be completed within a period of nine months to three years depending upon its complexity.

Bankruptcy milestones will include the debtor’s declaration of bankruptcy, the appointment of the administrator, the invitation to creditors to submit their claims, verification of debts, disposal of assets, collection of receiveables, distributions amongst creditors, termination of bankruptcy proceedings unless sooner terminated for the reasons provided for by the Bankruptcy Law.

The bankruptcy proceedings may be completed within a period of nine months to 36 months depending upon the complexity of the proceedings.

Claims may be traded prior to distribution and settlement of verified debts in favour of creditors. The recipients of the traded debt will need to prove the purchase of the debt to the liquidator or the Administrator in-Bankruptcy.

In respect of liquidation and bankruptcy proceedings, there will be no stay in respect of legal proceedings or enforcement action initiated by the secured creditors. The unsecured creditors may initiate proceedings if their claims are rejected by the liquidator or the administrator bankruptcy.

Once the bankruptcy and liquidation proceedings commence the directors will no longer continue to manage the business. Management responsibilities will be assumed by the liquidator in the case of liquidation and by the administration in respect of bankruptcy proceedings. Managers and directors of companies may continue to remain engaged in the management of their companies subject to the terms of any consensual restructuring arrangements or if the company is undergoing a protective composition then in accordance with the relevant provisions of the Bankruptcy Law.

The liquidator and the Administrator may reject or disclaim contracts. The counter parties will have the right to claim damages if disclaimer or rejection has occurred without justification. 

Once a bankruptcy order has been passed, in accordance with Article 112 of the Bankruptcy Law, no right of set off will be exercisable between the assets and the liabilities of the insolvent debtor unless a link can be established between the two. Such link will be deemed to exist if the assets and liabilities have arisen from one reason and include a current account to which the insolvent debtor is a party. The statute provides for no similar limitations or restrictions with regards to the exercise of a right of set off in respect of a company under liquidation.

Once the liquidation process has started, the creditors of the company will have the right to inspect the register recording the process and activities and receive information from the liquidator with regard to the company’s indebtedness and ongoing liquidation process.

With respect to bankruptcy, a summary of the judgment establishing the state of bankruptcy will be published by the administrator. Additionally, each creditor and all interested parties shall have the right to inspect the list of debtors' and their indebtedness deposited by the Administrator with the court. The Group will also be given access to periodical reports prepared on the state of the bankruptcy by the Administrator and submitted to the Bankruptcy Judge.   

The proceeds of liquidation will be distributed to the creditors in the order noted in 5.8 Statutory Waterfall of Claims. The secured creditors will receive the proceeds from the sale of their secured assets to be applied against secured debt. The unsecured creditors will receive the proceeds available on a pro-rata basis after settlement of the secured claims. The shareholders are placed at the bottom of the order of priority and will receive a settlement only after all other secured and unsecured creditors have received settlement of their claims.

The Bankruptcy Law provides that the Administrator or the secretary of the Union (as the case may be) shall prepare the list of assets and following verification of the assets by the bankruptcy judge, the assets will be disposed of by public auction and the proceeds received from the sale of secured assets shall be paid to the creditor to whom the security had been granted and thereafter the remaining balance to be paid to the unsecured creditor pro-rata to their claims.

A statutory officer holder negotiates, executes and authorises the sale of assets, under the supervision of a court appointed judge, where a bankruptcy order has been filed. In respect of liquidation proceedings, this role is taken by the liquidator unless otherwise directed by the court.

As and when the disposal of the assets is made under the Bankruptcy Law or by the liquidator in accordance with liquidation rules and regulations contained in the CCL, the purchaser will acquire good title to the assets free and clear of claims and liabilities that may be asserted against the company.

As the assets will be disposed of through a public action, secured and unsecured creditors may bid for the company assets.

These transactions may be questioned and set aside by the Administrator in bankruptcy and liquidation proceedings where the transactions have been entered into prior to the declaration of bankruptcy or the commencement of liquidation proceedings.

See 6.15 Failure to Observe the Terms of Agreements.

See 6.10 Priority New Money. With respect to liquidation, Article 53 of the CCL provides that the liquidator cannot commence any new transaction/business unless required for completion of previous transactions/businesses.

There is no specific bankruptcy or liquidation process that would be applicable to the bankruptcy or liquidation of a group of companies.

The law does not provide for a process through which creditor committees may be formed and/or represented. Creditors are free to represent themselves or be represented by another.

The Bankruptcy Law provides that a group of creditors shall be formed from amongst unsecured, ordinary creditors whose claims were validly constituted prior to issuance of the bankruptcy order. The group has a legal personality and is represented by the Administrator.

Additionally, the Bankruptcy Law provides for the formation of a Union of Creditors, comprising of secured and unsecured creditors, in specific events (eg, if the debtor did not request for a composition, or if such request has been rejected by the creditors). The Union of Creditors have special powers conferred upon them with respect to voting on matters relating to the bankruptcy administration process. Upon the constitution of the Union of Creditors, the Administrator will be the secretary of the Union of Creditors and, should they so desire, they may replace the Administrator.

From the date of the bankruptcy order, the debtor will not be permitted to participate in the management of its business or to dispose of its assets, with the exception of specific transactions enumerated by law (eg, assets which legally cannot be seized, and assets belonging to a third party). The Administrator will assume responsibility for the management of the debtor’s business and the disposal of its assets.

With respect to the sale of bankruptcy assets, please refer to 7.1 Types of Voluntary/Involuntary Proceedings.

The Civil and Commercial Procedures Law (RD 29/2002) (CCPL) sets out the conditions for recognition of any foreign judgment/arbitral award, without prejudice to any special treaty on reciprocal recognition of the enforcement of foreign judgments and orders in Oman. Any bankruptcy or restructuring orders made overseas may not be readily enforced in the Sultanate of Oman in the absence of reciprocal treaties or unless such judgements/orders satisfy the conditions set out Article 352 of the CCPL. 

Regarding cross-border cases, such arrangements can only be implemented pursuant to special treaties in place between the Sultanate of Oman and other foreign countries. For example, in the Riyadh Convention for Judicial Co-operation of 1983, to which Oman is party, the GCC member counties render co-operation to each other in respect of judicial matters.

As noted in 8.2 Co-ordination in Cross-border Cases, much would depend upon the treaties entered into by the Sultanate with foreign counties with respect to the enforcement of judgements in each of the contracting countries.

Foreign creditors are not treated differently.

A liquidator will be appointed either by court or by the shareholders of the company. An Administrator will be appointed by the court upon declaration by a debtor of bankruptcy. The Administrator may, following constitution of the Union of Creditors, become a Secretary of the Union of Creditors. See 7.1 Types of Voluntary/Involuntary Proceedings and 7.6 Organisation of Creditors or Committees.

See 7.1 Types of Voluntary/Involuntary Proceedings, 7.3 Failure to Observe Terms of Agreed/Statutory Plan and 7.6 Organisation of Creditors or Committees. The liquidator, depending on the body responsible for its appointment (ie, by a court order or shareholders' resolution), reports to the court or the shareholders. Upon the completion of the liquidation, the liquidator shall submit their final report either to the shareholders, if appointed by them, or to the court in the case of an involuntary liquidation. In a bankruptcy, the Administrator shall continue to report to the Bankruptcy Judge.

See 7.1 Types of Voluntary/Involuntary Proceedings. The CCL provides that a liquidator may be removed/replaced by a shareholders' resolution (if they were appointed by the shareholders), or by the court if appointed in respect of an involuntary liquidation. The Administrator may be removed and replaced by a court order issued suo motu, at the request of the Bankruptcy Judge, or on the request of the Union of Creditors. Additionally, the insolvent debtor and the auditor engaged for the bankruptcy may request the Bankruptcy Judge replace the Administrator.

The company's management/directors will be removed from office and replaced by the liquidator/Administrator upon their appointment. The CCL provides that the liquidator shall participate with the auditor of the company or its managers (if any) in taking inventory of company assets and in dealing with third parties with whom the company may have disputes. Following the completion of the inventory, a list accompanied with the financial statements of the company shall be signed by the liquidator, the managers (or members of the board of directors) and the company's auditor.

A statutory officer may only be appointed pursuant to the applicable laws. For bankruptcy proceedings, the court will appoint an Administrator of its choice. The Bankruptcy Law lists the persons prohibited from acting as Administrators. These are: a person who is a spouse of the bankrupted debtor, their relative up to the fourth degree, or their employee, accountant or attorney during the two years preceding the declaration of bankruptcy, or anyone who was previously convicted for one or more of specific offences listed by the Bankruptcy Law (for example offences of bankruptcy, theft, embezzlement of public funds or breach of trust).

For the liquidation of companies, only a person licensed to act as an auditor and liquidator by the MOCI may be appointed. The liquidator and/or the Administrator must be free of conflict of interest and in accordance with laws pursuant to which they are appointed. 

The liquidator should be a person licensed to carry out accounting and auditing activities and certified by the relevant authority (for example the CMA or the MOCI, depending on the legal form of the company).

The Administrator may be selected from amongst experts with the court.

Professional advisers specialising in law, accountancy, investment banking, management consultancy, financial advice and restructuring services are typically engaged to advise on restructurings.

The terms and conditions on which the professional advisors may be retained will depend upon the services required by the creditors and the debtor and whether or not the debtor is in a position to discharge the costs and fees for and on behalf of itself and/or the creditors.

Each of the professional service providers will need to be working with a licensed service provider, for example, an accountancy firm, a firm of legal advisors, investment bank, a management consultancy firm or restructuring specialist, all of whom will be licensed by their own Omani regulatory authorities.

The professional advisors will, within their areas of specialism, provide their restructuring services. 

Subject to our comments in 3.1 Restructuring Market Participants, with respect to Articles 6 to 23 of the Bankruptcy Law, mediation is permitted, pursuant to RD 98/2005, where parties wish to resolve any disagreement or disputes between themselves through the process of mediation prior to referring their dispute to a court of law or arbitration. If the parties have not been able to achieve settlement through mediation, then arbitration is permissible under the Arbitration Law.

Mediation is a common method adopted for the resolution of disputes in restructuring and insolvency situations prior to referral to the Omani courts.

The Courts do not order mandatory arbitration or mediation.

Once insolvency proceedings are commenced under the Bankruptcy Law, the courts are conferred with jurisdiction.

Statutes governing arbitrations and mediations are the Arbitration Law and Law on Amicable Settlement and Conciliation, RD 98/2005.

Arbitrators may be appointed by the Omani courts under the terms of the arbitration agreement, pursuant to the agreement of the parties and in accordance with the Arbitration Law.

The mediator may be appointed by the parties. If mediation is initiated by the parties before a formal conciliatory committee (see 3.1 Restructuring Market Participants), this committee shall act as mediator.

An arbitration/mediator can be a legal/financial/business expert, as the parties may decide, except for cases where the law specifies a particular mediator or arbitrator.

The directors may be held liable for their joint acts in violation of the law or acts exceeding the limits of their authority, eg, for any fraud, forgery or error committed in the performance of their duties, or for their failure to act prudently in specific circumstances. In accordance with Article 147 of the CCL, directors are required to take remedial action immediately following the reduction of 25% of the company’s issued share capital, or in the case of a reduction 50%, the board of directors are required to convene a shareholder meeting to determine the appropriate course of action to be adopted by the company. The directors owe a duty to the company’s creditors from the time of distress and not from the point of insolvency, as well as a duty to ensure the company discharges its obligations. 

In accordance with Article 147 of the CCL, if the company’s issued share capital has been reduced by more than 25% it will be considered to be a financial distress and the board of directors will need to take remedial action so as to remove the causes for the loss of capital and to work towards the restoring the company’s profitability.

Article 206 of the CCL provides that there is a general obligation on the members of the board of directors to act prudently and they must act in accordance with law in order to discharge their duties with regards to the activities of the company and protection of its assets. The directors must, in the case of public joint stock companies also comply with the CMA Corporate Governance Regulations, and the disclosure requirements provided for by the CMAL.

The directors will be under a continuing obligation to ensure that they jointly act in the best interests of the company, and do not violate the laws of Oman or commits acts in excess of the limits of their authority and or to commit any fraud, forgery or error in the performance of their duties, fail to act prudently. A breach of any of the above will expose the directors to liability towards owners/shareholders/company affiliates. Should directors fail to take the necessary actions to resolve the cause of the company's distress and restore the company's profitability, they may be personally liable for harm caused.

Directors may be exposed to civil and or criminal liability pursuant to the CCL and CMAL.

Article 206 of the CCL allows for the company, shareholders/creditors and the third parties to bring proceedings against directors of a joint stock company in respect of the damage suffered.

We have not come across appointments of Chief Restructuring Officers in the Sultanate of Oman.

There is no concept of shadow directors in the Sultanate of Oman.

Shareholders of LLC and joint stock companies have limited liability to the extent of their paid-up share capital.

As a general rule, the Administrator can declare transactions conducted by the bankrupted debtor two years prior to the date of the declaration of bankruptcy as being unenforceable  whether or not the rights of creditors have arisen prior to or after occurrence of such transaction. Additionally, the Bankruptcy Law lists certain transactions which, in all events, shall be unenforceable (for example donations, except for nominal, customary gifts, and the settlement of debts prior to their maturity). Any transaction (other than the aforementioned) conducted by the debtor after its failure to pay its debts, but prior to declaration of bankruptcy, may be deemed unenforceable if these are harmful to the creditors and if the counterparty of the debtor had knowledge of its failure to pay its debts.

The Bankruptcy Law provides for a look-back period of two years from the date of the bankruptcy order.

The creditor, Administrator and/or the Bankruptcy Judge may set aside a transaction concluded by the debtor prior to the declaration of bankruptcy.

Evaluation of the debtor's assets and liabilities may be made by expert evaluators appointed by the court from a list of evaluators approved by the court. If the intercreditor agreement provides for the appointment of an evaluator, the appointment may be made in accordance with the terms of the intercreditor agreement, unless the matter has been referred to the Omani courts, when the court may appoint the evaluator of its own choice.

Valuation process may be initiated by the company and or the creditors.

In respect of insolvency and restructuring, valuation experts may be appointed by the concerned parties by joint agreement and if the matter has been referred to the Omani courts, the court will appoint an evaluator from the list of expert available with them.

Omani courts will refer to a register of certified experts, who assist with technical and financial matters (eg, valuation) for the appointment of such experts on an as-needed basis.

We are unable to comment on which forms or valuations (eg, liquidation analysis, peer-group analysis, LBO valuations etc) are typically utilised.

It would be prudent for office holders to undertaken their own valuation processes so that the company continues to retain current information with regards to the value of its assets and the law provides for no market testing regarding M&A processes, etc, however, the law does provide for standards regarding forward looking valuations.

We are unable to comment on the relevance of liquidation values as the sole value comparator.

Al Busaidy, Mansoor Jamal & Co. (AMJ)

Muscat International Centre
Central Business District
Bait Al Falaj Street
P.O. Box 686, Ruwi
Postal Code 112, Muscat
Sultanate of Oman

+968 2482 9200

+968 2481 2256

mj-co@omantel.net.om www.amjoman.com
Author Business Card

Law and Practice

Authors



Al Busaidy, Mansoor Jamal & Co. (AMJ) was established 40 years ago and is a full-service law firm of international quality. It is described as a rarity in the Middle East being an independent, national firm, widely considered one of the strongest advisers in the market. AMJ has been involved in innovative, "first of a kind" deals and landmark projects in Oman. The firm has one of the largest, most diverse practices in Oman, comprising a 38-strong resident team of lawyers comprising eight partners, special counsel, experienced solicitors, barristers, Arab law specialists and Omani advocates, backed by a 35-strong support team. The eight-lawyer team dedicated to the Insolvency and Restructuring practice allows AMJ to advise on a wide variety of transactions as well as ensuring that client’s needs are not compromised due to a lack of resources.

Compare law and practice by selecting locations and topic(s)

{{searchBoxHeader}}

Select Topic(s)

loading ...
{{topic.title}}

Please select at least one chapter and one topic to use the compare functionality.