Key Legislation Governing Insolvency in Oman
As a general principle, in the Oman Civil Code, promulgated by RD 29/13, Article 277 provides that a restriction may be placed on a debtor by order of the court if his debts due exceed his assets. A restriction order has the following consequences:
• any debts due from the debtor shall become payable; and
• any disposal of his property by the debtor shall be void as against his creditors after the restriction order is issued and from the date the statement of claim is registered.
However, it is Book Five of the Oman Commercial Law issued by RD 55/90 (“OCL”) that contains the more detailed provisions governing bankruptcy and insolvency in the Sultanate of Oman.
Penalties for Directors or Business Owners Who Knowingly Trade While their Business is Insolvent
Article 604 of the OCL provides that a bankrupt entity may not dispose of any assets, nor make or receive any payment save where such receipt of payment is for a bona fide commercial purpose.
Article 614 of the OCL, however, permits a bankrupt entity to conduct a new trade with assets other than those of the estate in bankruptcy, provided that the creditors do not suffer detriment as a consequence.
Pursuant to Article 590 of the OCL, the Commercial Court will specify in a judgement the date on which the bankrupt is deemed to have ceased making payments. Under Article 609 of the OCL, creditors may petition the Commercial Court to avoid transactions made by the bankrupt after the cessation date (a) if such a transaction is considered to be detrimental to them; and (b) where the third party to such a transaction is aware at the time that the bankrupt has ceased payment.
The following transactions may be avoided if carried out by the bankrupt after the cessation date:
• all donations, except customary small gifts;
• settlement of debts before their due date;
• settlement of debts by means other than those agreed upon; and
• creation of any security interest.
Any application to have a transaction declared void by the receiver must be made within twelve months of the declaration of bankruptcy. Creditors may in any event bring an action for restitution.
What Options Does a Business in Distress Have?
The only option available to a business in distress is to apply to the Commercial Court for a declaration of bankruptcy. On the adjudication of bankruptcy, the Commercial Court appoints a receiver to administer the bankrupt’s estate (Article 589).
What Options Do the Creditors of a Business in Distress Have?
Pursuant to Article 589 of the OCL, creditors may file an insolvency petition at the Commercial Court. As noted above, under Article 609 of the OCL, creditors may ask the Commercial Court to avoid transactions made by the bankrupt after the cessation date (a) if such a transaction is considered to be detrimental to them; and (b) where the third party to such a transaction is aware at the time that the bankrupt has ceased payment.
Priority of Creditors
On declaration of bankruptcy there is constituted, by operation of law, a group of creditors whose claims against the bankrupt were validly established before the declaration of bankruptcy. Secured creditors with mortgages do not form part of the group of creditors until they participate in the bankruptcy for the recovery of any amounts that have remained unpaid after the sale of the secured assets.
The Government has priority under RD 32/94 for sums it is owed, whether by way of taxation or otherwise. Such decree provides that debts owed to certain Government bodies have priority claim over all debts, secured or otherwise, owed by that debtor to any other person, and sets out specific mechanisms for precautionary attachment and execution of the debtor’s assets.
The Oman Labour Law safeguards employees’ rights to receive any salary and other benefits still owed to them upon the bankruptcy of a business and, accordingly, their dues will rank higher in priority to payments due to other creditors.
Restructuring the Debt
There is provision for judicial composition (akin to a restructuring or a scheme of settlement) in Chapter Two of Book Five of the OCL.
The commissioner in bankruptcy notifies the creditors whose debts have been finally or provisionally admitted to attend the deliberations on composition.
Where the debts are not contested, such notice is sent within the seven days following the drawing up of the final list of the debts, and, where the debts are contested, within fifteen days following the expiry of the time for appeal against the last decision of the judge commissioner in bankruptcy as to whether the debts are to be admitted or rejected.
No composition shall take place without the approval of a majority of the creditors whose debts were finally or provisionally admitted, and provided that they hold two thirds of such debts.
Article 708 (in Chapter Two of Book Five of the OCL) provides that the composition may grant additional time for the debtor to discharge its debts and may provide for the release of the debtor from part of the debt.