Wednesday, June 25, 2008

The Oman Law Digest 2009 - BANKRUPTCY

Under the Law of Commerce [RD 55/90], a commercial entity may be declared, by a competent court, as bankrupt or insolvent if: (i) its financial state is in disorder; and (ii) it has ceased to discharge its commercial debts. Bankruptcy may be ordered by court, suo motu, or upon application by the commercial entity or by an undischarged creditor. The court may appoint an administrator for debtor’s assets pending disposal of bankruptcy application.

Under Commercial Companies Law [RD 4/74 as amended], a company may be liquidated if it has been declared bankrupt or there is a loss of all or most of its share capital. The court is empowered to appoint a liquidator upon application by a commercial entity or undischarged creditor.

Judgment on the declaration of bankruptcy must be made public by publishing a summary of the judgment in the Official Gazette within two weeks from date of judgment and by entering it in the Commercial Register at MCI within 30 days following date of judgment. An interested party may appeal against judgment within 15 days from publication.

After a declaration of bankruptcy, set-off of rights and liabilities in respect of individual creditors is not permitted unless there is a connection between them. Connection may be established if such entitlements and liabilities are attributable to one cause or in relation to one current account.

All expenses of the administrator/liquidator, including compensation, must be paid from assets of judgment-debtor before any distribution is made to creditors by the administrator pursuant to the Law on recovery of Government debts [RD 32/94] which ranks creditors in order of priority as: (i) Government; (ii) Employees; (iii) Secured Creditors; (iv) Unsecured Creditors; and (v) Subordinated Creditors.

As a general rule, secured and unsecured private debts are subordinate to debt owed to the Government even if the latter debt arose later and is not secured. The Government is generally known to give up its priority ranking in favour of employees.

Enforcement is stated in the law to be by way of judicial sale or public auction which will transfer title to purchaser.