Tuesday, January 31, 2017

Tanfeedh

At the beginning of January 2016, Sultani Decree 1/2016 was issued approving the Ninth Five-Year Plan (2016-2020), i.e., the last of the Five-Year Plans included in the Government policy named Vision for Oman’s Economy (Oman 2020), which, in due course, will be followed by Vision Oman 2040.

Due to the economic and financial challenges caused by oil price volatility, the National Program for Enhancing Economic Diversification (“Tanfeedh”) was announced as one of the fundamental elements in the Ninth Five-Year Plan. Tanfeedh is an Arabic word that can be translated into English as “execution” (referring to execution of a project or of a plan). The aim of the programme is to accelerate diversification and reduce dependence on the oil and gas sector, both by developing a series of projects in five crucial business sectors and by reforming some aspects of the local legal framework in order to facilitate the establishment and operation of businesses in the private sector.

The five business sectors the Sultanate elected to focus on are manufacturing, transportation and logistics, tourism, fisheries and mining. The two parallel “community and sustainability enablers,” aimed at improving the ease of doing business, relate to finance and the labour market. The Tanfeedh initiatives will initially focus on three of the five business sectors, namely manufacturing, transportation and logistics and tourism, with fisheries and mining projects to be developed at a later stage due also to the need of suitable logistics and transport facilities, particularly in connection with large mining projects.

A comprehensive list of the main projects proposed in the three initial business sectors is available in the official Tanfeedh website at the following link: http://tanfeedh.gov.om/en/overview.php. This article will not focus on the specific projects being implemented but on the proposed changes in the legal framework which should enable the implementation of these and other projects and generally encourage private-sector initiative and foreign investments. The information utilised derives from the documentation outlining the outcome of the Tanfeedh labs, discussion ‘labs’ which formed part of the Tanfeedh process and were attended by approximately two hundred decision-makers from the public and private sectors. The Tanfeedh labs represented the second of the eight steps of the process and were followed by open days, during which the general public was invited to express its opinion on the Tanfeedh proposals.

The two main issues addressed by the research relating to the finance sector were: (a) the need to increase the participation of the private sector in funding large projects; and (b) the best way to improve the business environment and attract investors. In 2016, the Sultanate ranked 70th overall in the Ease of Doing Business Index (The World Bank – Doing Business Report 2016) and such ranking must improve in order to attract foreign investors. The initiatives envisaged in this respect include new legislation on foreign investments, the integration of all Government entities in the ‘Invest Easy Platform’ and the unification of the national investment promotion efforts.

In particular, the new Foreign Capital Investment Law, which, in accordance with the Tanfeedh recommendations, should be issued during the course of 2017, should allow for 100% foreign ownership of companies in Oman, subject to the power of the Ministry of Commerce and Industry to restrict certain business sectors by reasons of national interest.  This, once implemented, will represent a radical change in the Omani business environment. Other measures include the establishment of a Credit Bureau and the integration of all Government entities in one tendering platform, which will allow a full overview of all aspects of public procurement, the latter to be coupled with more incisive intervention in order to increase accountability and transparency.  In this respect, it has been proposed that all Government-owned companies will be subject to the Code of Corporate Governance (the “Code”) issued in 2016.  The Code, for the time being, applies only to publicly listed companies. Finally, Tanfeedh proposes that a number of Government-owned enterprises be privatised and listed on the stock market.

With reference to the labour market and generally to employment, Tanfeedh includes various strategies to create employment opportunities in the private sector and, in particular, the manufacturing, logistics and tourism sectors.  The Tanfeedh reports quote restrictive labour regulations and low productivity of the labour force as two key areas that require improvement.  The keyword appears to be flexibility: part-time work, temporary work and flexible movement of employees (in particular between companies belonging to the same group) are some of the proposed new initiatives.

From an educational point of view, the Government wishes to form a closer relationship between the business environment and the education providers and to improve the quality of the training programmes proposed to the Omani youth.  At the same time, measures shall be taken to attract young Omanis to seek employment in the private sector and to encourage the establishment and operation of small and medium enterprises.

The following has been proposed to assist entrepreneurs and employees alike and to encourage employers, inter alia, to invest on the local workforce:

  • The creation of a specialised and dedicated Labour Court, which should assist in reducing the duration of lengthy and expensive court proceedings.

  • One-window process for obtaining Labour clearances, i.e., the permission to employ a foreign employee in a specified position.  This bureaucratic process involves different Government authorities and can be extremely time-consuming; the proposed new process is aimed at reducing the total time required to five working days.

  • Dedicated Labour Solution Packages for specific sectors such as the construction sector.
The proposed measures arising from the Tanfeedh process do not have force of law; however, many appear to be on track for swift implementation as shown, for instance, by recent articles appearing in the media on the establishment of a dedicated Labour Court.  Certainly, entrepreneurs and investors are looking with great interest at the developments which have the potential to change to a great extent the Omani business environment.

We will provide further updates as to any changes of law or proposals that are implemented throughout the year.


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Monday, January 16, 2017

A Ceiling on the Charging of Interest?


Charging interest on a commercial loan or debt is an important part of any contractual bargain.  For the creditor, the interest charged on a debt encourages quicker repayment by the debtor, and represents the price at which the creditor is willing to lend.  For the debtor, interest charged is important as it is the amount for which he will be liable, in addition to the principal debt.

Omani courts have consistently upheld the payment of interest in commercial cases.  Article 80 of Oman’s Commercial Code (issued by Royal Decree 55/1990) states:

“A creditor shall be entitled to levy interest in consideration of the debtor obtaining a commercial loan or debt.  The interest shall be determined by the agreement of the two parties within such limits as the Ministry of Commerce & Industry shall set in agreement with the Oman Chamber of Commerce & Industry each year, having due regard to the term of the loan, the purposes thereof, and the risks attendant thereon. If the debtor is late in making payment on the due date, the creditor shall be entitled to claim the agreed interest in respect of the period in arrears.”

The Ministry of Commerce and Industry (the “MOCI”) periodically issues a decision on the maximum interest rate chargeable for commercial loans.

Starting from 2001, the limit on the rate of interest set by the MOCI was 10%; thereafter it has been tapered, whereby in 2006 it was set at 9%, in 2008 it was set at 8% and by 2015 it was set at 6.5%.

Ministerial Decision 172/2016 is the most recent decision issued by the MOCI in respect of the maximum interest that can be charged on a commercial debt or commercial loan given by a company that is neither a bank nor a finance and asset-leasing company licensed by the Central Bank of Oman. MD 172/2016 set the maximum interest rate chargeable on commercial loan or debt at 6.5% for a period of one year starting from 20 July 2016.

Thus, as the interest rate in Oman for commercial debts is currently set at 6.5%, any final arbitral award or court decision will likewise apply this rate.

The parties entering into a contract normally agree to a rate of interest chargeable in case of default or delay in payment by one party to the other party as per the contractual terms.

What happens if the contract is silent in respect of the interest rates?

In the event that a contract is silent as to the applicable interest rate regarding a commercial debt or commercial loan, the Omani courts may still award the claim of interest based on the applicable interest rate which is set out by the MOCI’s most recent and applicable Ministerial Decision.  The Omani courts are generally of the view that a claim for interest cannot be denied on the ground that a contract is silent on the subject.

What happens if the parties agree to a higher rate of interest than the rate specified by the Ministerial Decision?

While entering into construction contracts, the parties usually adopt an edition of the Sultanate of Oman’s Standard Conditions. The Standard Documents for Building and Civil Engineering Works – Fourth Edition 1999 sets the rate of interest at 7%.  In general, the Omani courts, or the arbitral tribunal, would award interest at 7% as stipulated in the Standard Documents referred to above (although it is higher than the rate set by the MOCI), unless the parties raise a dispute about the rate of interest in the contract being higher than the rate of interest set by the MOCI.
In the event that litigation is pursued in respect of the rate of interest in a contract being higher than the rate set by the MOCI, the Omani courts would generally uphold those contractual terms each party had agreed to, including the rate of interest.  However, the Omani courts’ interpretation of the issue of the contractual interest rate being higher than the interest rate set by the MOCI is still not clear and will depend on the merits of each case.

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Wednesday, January 11, 2017

An Overview of the Land Transport Law


Overview of Land Transport Law in Oman

Oman has recently taken a very active approach in promoting and boosting transportation services throughout the region.  As part of this vision, the Ministry of Transportation and Communication (the “MOTC”) plans to introduce a road management system whereby it will promote efficiency and maintain clear guidelines on the operation of public transport.  The MOTC has recently issued Ministerial Decision 10/2016 (the “Land Transport Law”).  The Land Transport Law was published in the Official Gazette on 6 March 2016 and it will come into effect on 6 March 2017.

The rules governing the Land Transport Law apply to all transport activities, except those activities where it has clearly been established by particular Sultani Decree or Ministerial Decision.  The Land Transport Law obliges the party seeking to conduct transport activities to obtain an authorization from MOTC.

The main governmental body that is in charge of facilitating and ensuring that companies are in compliance with the Land Transport Law is MOTC.  As part of its objectives, the MOTC is responsible for preparing a comprehensive strategy for land transport services in Wilayat and the Governorates. The MOTC is also responsible for determining the locations of the facilities and their technical conditions and specifications.  The MOTC is also in charge of setting and implementing the transportation fees. 

Goods transport contracts

The carrier may inspect the goods to be transferred to check their condition and the accuracy of the data provided to him by the shipper.  If it turns out that the condition of the goods does not allow transferring without damaging them, the carrier may refuse to transport them unless the shipper approves in writing his knowledge about it and he approves the goods to be transported.  The carrier is responsible for the safety of the goods.  He is also responsible for loss, or damage or delay in delivering the goods. The carrier will not be liable to the extent of any error from the shipper or receiver or any hidden defects in the goods.

Commission agent

The commission agent of transport is responsible for the safety of the passengers and goods and cannot contract out of this liability.  Article 47 provides that “Any condition that requires the full or partial exemption of the commission agent of transport’s liability of whatever physical damage that occurs to the passenger shall be considered null and void.

Compensation grounds

If it is proven that the carrier is responsible for the delay in the delivery of the goods, his liability will be within the range of what is equal to half or double of the transportation fees, and shall not exceed the total value of goods transportation fees.

Penalties
Any person contravening the provisions of this law shall be punished by imprisonment for a term not less than one month and not more than six months and a fine not less than OMR 100 and not more than OMR 500, or either of these punishments. The punishment is doubled for repeat offences.

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Monday, January 9, 2017

A Brief Overview of the New Executive Regulations of the Tourism Law


Earlier this year the Ministry of Tourism issued the Executive Regulations of the Tourism Law by way of Ministerial Decision 39/2016 (the “New Executive Regulations”).  The New Executive Regulations supersede the Executive Regulations issued by Ministerial Decision 91/2003 (the “Old Executive Regulations”).  The New Executive Regulations came into force on 1 September 2016 (by way of an amending Ministerial Decision 50/2016).

Whilst the Tourism Law, promulgated by Royal Decree 33/2002 has not been amended, the New Executive Regulations are drafted to bring greater clarity to the booming tourism industry of the Sultanate. The New Executive Regulations also include new categories of hotels, tourist establishments, etc. which are now part of Oman’s tourism industry.

This article aims to provide a brief overview of the New Executive Regulations, their features and where required a comparison with the Old Executive Regulations.

Licensing provisions

One of the most significant changes to the licensing provisions brought about by the New Executive Regulations is the issuance of a preliminary approval.  The Ministry of Tourism will now issue a preliminary approval to the licence applicant in order to fulfill the required conditions for the tourism project and to obtain required approvals from competent authorities.  The preliminary approval will be effective for one year from the date of issuance and shall not be extended or renewed.

By introducing the concept of a preliminary approval, the Ministry has done away with the mandatory requirement to launch the establishment within six months of the date of issuance of license, as provided in the Old Executive Regulations.

Further, in order to ensure that the tourist establishments are managed and operated in a professional manner, Appendix 3 of the New Executive Regulations sets out the minimum qualifications and experience required from the managers of the hotels and tourist establishments.  The qualifications and experience requirement has been further classified into requirements from an Omani and a non-Omani manager.

Revocation of license

Whilst retaining many of the licensing, renewal and revocation provisions from the Old Executive Regulations, the New Executive Regulations have reduced the number of days within which a renewal application should be made. Further, if the business of an establishment is suspended for reasons within the control of the licensee for a period of six consecutive months, then the Ministry has the right to revoke the licence.  The Old Executive Regulations gave 24 months’ time for revocation of a licence in the event the business is suspended.

Unlike the Old Executive Regulations, the New Executive Regulations now provide a cure period of 30 working days to the licensee prior to suspension or revocation of the licence to allow the licensee to rectify the violation or breach.

The New Executive Regulations also provide a mechanism for filing grievance(s) against any decision issued in accordance with the New Executive Regulations.

Increase in fees

Appendix 1 of the New Executive Regulations sets out the types of tourist establishments and the fees and duration for each of their respective licences.  Compared to the Old Executive Regulations, the fees payable under the New Executive Regulations are almost ten times higher.  

Further, the requirements relating to provision of a Letter of Guarantee and the circumstances in which it can be liquidated have been relaxed.

Recognition of Archeological Sites and Tourist Villages

Whilst the Old Executive Regulations recognised and provided for tourism establishments such as hotels, restaurants, hotel apartments and tourist camps, the New Executive Regulations now provide rules related to identified ‘Archaeological Sites,’ specified as castles, forts and other archaeological sites subject to the supervision of the Ministry of Tourism.

The New Executive Regulations also include ‘Tourist Villages’ on a site encompassing a number of utilities and services including lodges but essentially having a unique architectural identity that is subject to a single management.

Article 25 of the New Executive Regulations provide that the tourist places and sites, governmental tourist lands and Archeological Sites shall be utilised pursuant to usufruct, lease, management or performance contacts in accordance with the unified forms prepared by the Ministry of Tourism.

As the Sultanate is also evolving into a destination for adventure sports enthusiasts and hikers, the New Executive Regulations specify that the Ministry of Tourism may specify mountain passages and paths in the Governorates and license a party to manage such passages and paths.

Musical groups

Amongst other requirements, the New Executive Regulations specify that only five- or four-star hotels, or a hotel that is managed by an international company in the field of hotel management, can apply for recruitment of musical groups.  It is also essential that the performance of the musical group correlates with the type of restaurant and the cuisine served.

All other requirements in terms of recruiting a musical group remain largely similar to the Old Executive Regulations, including the three months’ license period which can be extended for one or more terms.

Tourism guidance
The tourism guidance licence in the Old Executive Regulations was limited to only Omani individuals provided they fulfill all the requirements for grant of such tourism license.  The New Executive Regulations have broadened the scope by granting a temporary licence to any person to be trained in the ways of tourism guidance for a period of not more than one month.

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Wednesday, January 4, 2017

Board Members in Public Joint Stock Companies: Amending their Responsibilities and Election Provisions


The MOCI has issued Ministerial Decision 201/2016 (“MD 201/2016”), which became effective on 5 September 2016 amending previous Ministerial Decision 137/2002, regarding the rules and conditions for electing the members of a board of directors in a public joint stock company, and the terms specifying their responsibilities.  The provisions introduced by MD 201/2016 are consistent with the Code of Corporate Governance (the “Governance Code”) for Public Joint Stock Companies, which was introduced by the Capital Market Authority (the “CMA”) and came into effect on 22 July 2016, in relation to the composition and responsibilities of the board of directors in Public Joint Stock Companies (i.e., public companies).

MD 201/2016 prohibits executives in a public company, and any person who works for the company and is entitled to receive financial compensation for his/her work, from being a board member in that company.  MD 201/2016 provides that the board of a public company must be comprised of at least one third independent members and have a minimum of two seats.  MD 201/2016 states that a member is not independent if:

  1. S/he holds 10% (ten percent) or more of the shares of the company, company’s parent company, or company’s affiliates or sister companies.
     
  2. S/he is a representative of a corporate body holding 10% (ten percent) or more of the shares of the company, company’s parent company, or company’s affiliates or sister companies.
     
  3. In the two years preceding candidacy, s/he used to hold an executive position or was an employee in the company, company’s parent company, or company’s affiliates or sister companies, was employed by any party contracting with the company (including independent auditors, key suppliers, and NGOs that received finance representing more than 25% of its annual budget) or used to hold about 20% of the shares of any of the abovementioned parties.
     
  4. S/he serves as a member on the board of the company’s parent company, affiliates, or sister companies.
     
  5. S/he is a first-degree relative to any of the board members in or key management personnel of the company, company’s parent company, or company’s affiliates or sister companies.
     
  6. S/he has a material, economic or financial relationship with the company or any of the company’s sister, affiliate or owned entities.

MD 201/2016 prohibits a person from nomination to the board of a public company if that person is an employee in any other private or public joint stock company which has similar objectives to those of the public company s/he is nominating to become a board member in.  It also prohibits board members from interfering in the company’s day-to-day activities and from being held under mandate or assignment for the company.
MD 201/2016 requires the board of directors in public companies to establish a separate ‘Nomination and Remuneration Committee’ from among its members to consider nomination applications for board membership and determine the remuneration for board members.  This committee will also assist the company to produce clear and credible policies on remuneration and board membership nominations which should enhance transparency and professionalism in public companies.  It should be noted that the formation of this committee was one of the major introductions to the Governance Code, which we have discussed in more detail in a previous article on Oman’s Code of Corporate Governance.

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Monday, January 2, 2017

Guarantees and Indemnities in the Sultanate of Oman


Guarantees are a form of security commonly used to secure the performance of a physical or monetary obligation by another party. Rules concerning guarantees are prescribed in various Omani laws including Sultani Decree 04/1974 promulgating the Commercial Companies Law (the “CCL”) (as amended), Sultani Decree 55/1990 promulgating the Law of Commerce (the “CL”) (as amended), and Sultani Decree 29/2013 promulgating the Omani Civil Transactions Law (the “Code”) (as amended).

Shareholder approval

A company or government entity may guarantee the obligations of its parent, subsidiary or, as the case may be, government-owned company.  However, before a guarantee can be given by a company, it is essential that the necessary internal approvals are obtained from the shareholders.  There are certain restrictions placed on partners, managers and directors of a guarantor company. Article 8 of the CCL stipulates that these individuals cannot, without the prior consent of the members of the company, or in the case of a joint stock company its consent at a general meeting, use the company’s property for the benefit of third parties.  In other words, shareholder consent is required if a company wishes to provide a guarantee.

Additionally, to guarantee third-party debts outside the ordinary course of business, or to mortgage company assets for matters other than securing company debts, express authorisation is required by the articles of association of a joint stock company, or by resolution of the company’s members at a general meeting, in accordance with Articles 102(c) – (d) of the CCL.

Notification

Article 758 of the Code stipulates that if a debt becomes due and the beneficiary under a guarantee does not claim the same from the debtor, the guarantor is entitled to notify the beneficiary that legal proceedings are necessary against the debtor to settle the debt.  If the beneficiary fails to initiate proceedings within six months of the date of such notification, and the debtor does not make the requested payment, the guarantor is discharged from his liability towards the guarantee, save where the debtor provides adequate security in respect of the guaranteed obligation.

Accordingly, from a lender’s perspective, it is advisable to add wording to the guarantee agreement explicitly excluding and dis-applying Article 758 of the Code.

Joint and several liability

Guarantors are jointly and severally liable together with the debtor under Article 238 of the CL.  As such, the beneficiary of a guarantee can claim against the debtor, the guarantor or both at his option, and does not forfeit his right to claim against the other, until he has received full satisfaction of the debt owed and covered by the guarantee.  Notwithstanding this, it is advisable that, when drafting a guarantee, the beneficiary requests the inclusion of a clause that allows him to make a claim directly against the guarantor under the guarantee in the event of default of the debtor, without first having to exhaust all claims against the debtor.

Obligations of the beneficiary

If a beneficiary receives any property (i.e., security) from the guarantor securing the guarantee, Article 241 of the CL imposes on the beneficiary an obligation to safeguard this property and, in doing so, take account of the interests of the guarantor.  If the beneficiary does not fulfil his obligation and the guarantor suffers a loss to the property as a result, the guarantor is released from his obligation to the extent of the loss suffered.

If the debtor becomes bankrupt, the beneficiary of a monetary guarantee must make a claim for the debt in bankruptcy.  If he does not, as stipulated by Article 242 of the CL, his right of recourse against the guarantor will be barred to the extent that the guarantor suffers loss as a consequence of the creditor being at fault.

The beneficiary is further under an obligation to seek the approval of the guarantor prior to granting the debtor an additional period of time in which to fulfil his obligation.  In the event that the beneficiary does not obtain the consent of the guarantor, the guarantor may be ‘release[ed] [from] his liability for the guarantee’ under Article 246 of the CL.

Obtaining a release of guarantee

The most common way to be released from a guarantee is through performance of the guaranteed obligation, or to receive the consent of the parties to the guarantee.  If a party in the latter case does not consent, and the debtor’s obligation is deferred, the guarantor’s obligation must also be deferred in accordance with Article 235 of the CL.

Indemnities

The courts of the Sultanate of Oman have not drawn a clear distinction between the two concepts. Whilst the CL specifically provides for guarantees, it is silent on the issue of indemnities.  However, if an indemnity has been agreed in contract, in principle there is no reason such agreement should not be recognised by the courts of Oman.  The contract would have to make explicitly clear that the beneficiary has the right to claim directly against the guarantor for a fixed amount without having to prove his losses were caused by the default of the debtor; and without any duty to mitigate his losses.

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