Monday, December 17, 2018

Guarantees and Indemnities in the Sultanate of Oman

Guarantees are instrumental in providing a means of security to the beneficiary of a guarantee by the person giving the guarantee (i.e., the guarantor) for the performance of a physical or monetary obligation by another party.  This concept has been recognised by law of the Sultanate of Oman in Sultani Decree 04/1974 promulgating the Commercial Companies Law (the “CCL”) (as amended), in Sultani Decree 55/1990 promulgating the Law of Commerce (the “CL”) (as amended), and in Sultani Decree 29/2013 promulgating the Omani Civil Transactions Law (the “Code”) (as amended).

Guarantee

A company or government entity may guarantee the obligations of its parent, subsidiary or, as the case may be, a government-owned company.  However, before a guarantee is given, it is essential that the shareholders of the guarantor give the necessary internal approvals to bind the company.  It is also necessary to be aware of the limitations placed on partners, managers and directors of a company.  Article 8 of the CCL stipulates that the aforementioned individuals cannot without the prior consent of the members of the company, or in the case of a joint stock company, its consent at general meeting, use the company’s property for the benefit of third parties.

Additionally, to guarantee third-party debts outside the ordinary course of business, or to mortgage company assets for matters other than securing company debts, requires express authorisation 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.

Receiving a guarantee

It is worth noting that 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.

From a lender’s perspective it is advisable to add wording to the guarantee agreement explicitly excluding and disapplying Article 758 of the Code.

Claiming on a guarantee

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 the above legal provision, it is advisable that when drafting a guarantee, the beneficiary requests the inclusion of a clause which will allow 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

In the case that a beneficiary receives any property (i.e., security) from the guarantor to secure the guarantee, Article 241 of the CL imposes on the beneficiary an obligation to safeguard this property and, in so doing, 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.

In case 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 creditor will be barred to the extent that the guarantor suffers a loss as a consequence of the beneficiary 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 as clear a 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 had 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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Monday, December 10, 2018

The Maritime Law of Oman

The Maritime Law pursuant to Oman Sultani Decree 35/1981 (the “Maritime Law”) is the main source of law for matters relating to shipping and maritime in Oman. It is anticipated that a new maritime law shall be issued next year which may, among other matters, include updated provisions relating to vessel registration, vessel management and the arrest of vessels in case of abandonment. Until such time as a new maritime law is effective, some key aspects of the Maritime Law are as follows:

Nationality of a vessel 

A vessel shall acquire the nationality of Oman if it is owned by an Omani national or an Omani company, in accordance with Omani laws.[1] Vessels adrift at sea that are picked up by Omani vessels, as well as vessels which are confiscated for violating Omani laws, shall also be deemed to have Omani nationality.[2] Vessels with Omani nationality are required to be registered in Oman, fly the Omani flag and adopt a name pre‐approved by the competent maritime authority. Particulars such as the name of the vessel, the number and port of registration and the net tonnage must also be written in Arabic together with Latin characters in specified places on the vessel.

Port authorities 

The Omani port authorities carry out all of the inspections of a vessel, for example, ports regulate the arrival and departure of vessels as well as pilotage and towage together with berthing and the shifting of vessels.

Ports are also concerned as to safety and conduct of berthing and will ensure that adequate fire and safety precautions are taken. The port authorities also regulate port operations including licensing and permitting, communications and the handling, storage and delivery of cargo. The port authorities aim to ensure the prevention of accidents and ensure general safety within its ports.

The Maritime Inspection Department of the Ministry of Transport and Communication may carry out inspections in relation to Omani national vessels wherever they are located, and on foreign vessels at the ports or passing through Omani territorial waters.[3] In respect of national vessels, inspections will include verification that the ship is registered, that it has the documents required under the Maritime Law on board, and that compulsory conditions under the Maritime Law are complied with.

Inspectors of foreign vessels must be able to verify that the conditions laid down in international agreements relating to safety at sea and shipping lanes are being complied with.

The head of the competent maritime authority or his deputy may prevent a vessel from sailing if it has not passed its applicable inspections conducted pursuant to Article 28 of the Maritime Law.

Removal of a wreck 

In jurisdictions with a developed maritime legal system, a central authority is usually responsible for arranging the removal of wrecks in territorial waters. A central authority either has the power to order the removal of a wreck by a vessel owner or to remove the wreck itself and recover the cost of doing so from the vessel owner.

The applicable port authority shall have the right to seise the wreck of a ship by way of security for the costs of removing the wreck.[4] It may sell the wreck administratively by public auction and recover the debt due from the proceeds and in that regard it shall have priority over other creditors. The balance of the proceeds shall be retained in its treasury department for distribution to such creditors, if any.

Vessel operator’s responsibilities 

The Maritime Law contains detailed provisions relating to the crew and the regulation of marine employment. The operator of a vessel is obliged to pay wages in full, despite injury or sickness on the voyage, though certain exceptions apply. The operator, during the period of the voyage, is obliged to feed and accommodate the crew of a vessel without requiring payment from them and in addition the operator is bound to provide medical treatment free of charge to a crew member if he is injured in the service of the vessel or falls ill during a voyage.

The Maritime Law sets out detailed provisions relating to the powers and responsibilities of the master (otherwise referred as commander of the vessel). Among these, the master has the following powers:

  • Command of the vessel;
  • Maintain order;
  • Right to impose disciplinary penalties; and
  • Act on behalf of and represent the operator. 

  • The master’s responsibilities include the following:

  • To observe the technical principles of maritime navigation, agreements, maritime custom and provisions in effect at the Omani ports where the vessel is located;
  • To arrange the manning of the vessel, conclude the necessary contracts and take beneficial measures for the voyage;
  • To carry out the investigation of crimes committed on board the vessel and, if necessary, to order the arrest of the accused, conduct searches and take the necessary measures to prove the crime;
  • To carry out the instructions of the operator and keep him notified on matters relating to the vessel or the cargo;
  • To maintain on board the vessel documents required by law; and
  • To take necessary steps to protect the interests of the owner, operator, crew and passengers. Further to the provisions above, our June 2018 article “Arresting a Vessel in Oman” sets out the key steps to arresting a vessel in Oman.
[1] Article 10 of the Maritime Law
[2] Article 11 of the Maritime Law
[3] Article 28 of the Maritime Law
[4] Article 170 of the Maritime Law

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Monday, December 3, 2018

Key Considerations for Analysing Management Fee Provisions

The sponsor of a closed-ended fund, such as a private equity fund, typically receives a management fee to cover the basic overhead expenses of operating the fund and managing its investment activities, including salaries of the investment professionals and administrative staff, rent, utilities and travel. In the course of conducting due diligence on a prospective investment in a fund, investors should pay attention to the fund documentation and reporting by sponsors, and carefully review the provisions relating to the calculation of the management fee and allocation of expenses to the fund and its investors. Regulatory agencies, such as the U.S. Securities and Exchange Commission (“SEC”), have reviewed the business practices of many private equity firms and found that they pass on fees and expenses that should be covered by the management fee to clients without their knowledge. For example, Andrew Bowden, the former director of the SEC’s Office of Compliance Inspections and Examinations, said at a private equity conference in 2014 that “[b]y far, the most common observation our examiners have made when examining private equity firms has to do with the adviser’s collection of fees and allocation of expenses. When we have examined how fees and expenses are handled by advisers to private equity funds, we have identified what we believe are violations of law or material weaknesses in controls over 50% of the time.”[1] Prospective investors may wish to consider the following questions when evaluating an investment in a closed-ended fund and the determination of the management fee:

  • What is the applicable rate of the management fee? Generally, the rate of the management fee is in the range of 1% to 2% per annum, though we have seen instances where the applicable rate has been higher or lower than this range.
  • Are there any discounts available on the rate? With increased competition to attract capital commitments and an escalating pressure to raise larger funds, it is becoming more commonplace for sponsors to offer discounts on the stated rate. Discounts may be offered in circumstances where (i) an investor’s commitment exceeds a stated minimum threshold (a size-based discount), (ii) an investor has invested in prior funds raised by the sponsor (a loyalty discount), or (iii) an investor participates at the first closing (an early closing discount).
  • What is the base on which the management fee is calculated? During a fund’s investment period, the management fee should be expressed as a percentage of capital committed to the fund by investors unaffiliated with the sponsor. It would be unusual for the sponsor to charge a management fee for managing its own committed capital (or the committed capital of its affiliates). To the extent it does, however, the investor should ensure that the management fee is also being charged to the sponsor and its affiliates such that they bear their proportionate share of the management fee.
  • Is the management fee subject to any offsets? Generally, sponsors agree to offset or reduce the management fee by amounts of any placement fees or organisational expenses incurred by the fund as well as certain transaction fees that may be received by the sponsor, its affiliates and their respective members and employees in respect of any portfolio investment. These transaction fees may include monitoring fees, director fees, commitment fees, break-up fees, investment banking or similar services and topping fees. The management fee will typically be offset and reduced by a specified percentage of these transaction fees. Normally, the percentage is in the range of 50% to 100%, and it is now viewed as market for the management fee to be offset by 100% of these transaction fees.
  • When does the management fee start to accrue? Historically, the management fee started to accrue from the fund’s first closing date as the sponsor effectively begins to manage the committed capital from that date. As sponsors tend to focus the first 12 to 18 months on raising additional capital and having subsequent closings, it is becoming more commonplace to see the management fee start to accrue from a later date, such as the fund’s final closing date, a “commencement date” or “effective date” which is a date determined by the sponsor, or the date on which the fund makes its first investment.
  • Who is responsible for paying the management fee? It is important to determine whether the management fee is paid by the fund rather than by the investors directly. In other words, is the management fee included within an investor’s capital commitment or is it expected to be paid on top of the investor’s capital commitment? An investor typically expects that its capital commitment represents its entire obligation to contribute capital to the fund and that it will not be expected to make further contributions in addition to its capital commitments to fund the management fee.
  • When does the management fee “step down”? Generally, the management fee should “step down” when the sponsor is no longer actively managing committed capital and/or devoting all of its time to the fund. This “step down” usually occurs at the end of the investment period where investors are, subject to certain limited exceptions, released from their obligations to make further contributions to the fund or once a successor fund starts to accrue fees.
  • When the management fee steps down, what adjustments are made to the base on which the management fee is calculated? Following the expiration of a fund’s investment period (or other event that gives rise to the stepping down of the management fee), the management fee should be expressed as a percentage of invested capital. Sponsors may, however, seek to have other amounts included in this calculation, such as amounts reserved and committed for investments or follow-in investments and outstanding indebtedness and borrowings. Further, to the extent that the fund makes acquisitions or dispositions of investments, or otherwise undertakes a write-down or write-up of an investment, such events may affect the base on which the management fee is calculated.
  • When does the sponsor stop earning the management fee? Generally, the management fee will continue to accrue during the fund’s term for so long as their remains invested capital. Where the sponsor seeks to extend the fund’s term or the investors elect for an early termination of the fund’s term, the investors (or the limited partner advisory committee) may be faced with negotiating an appropriate management fee for the sponsor to continue to manage the fund for the duration of the extended term and/or through its winding up and dissolution.

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Monday, November 26, 2018

Arrival of Value Added Tax (VAT) in Oman

Towards the end of 2016, the Gulf Cooperation Council (GCC) member states agreed and signed a Unified VAT Agreement (the “Unified Agreement”) for the introduction of value added tax (“VAT”).  The Unified Agreement sets out the framework through which each individual GCC member state will implement domestic VAT legislation.  The intention was that VAT would be implemented by the GCC states by 1 January 2018.

Implementation so far

The United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) introduced VAT in accordance with the terms of the Unified Agreement on 1 January 2018.  Both countries enacted a VAT Act together with Implementing Regulations.  Bahrain has recently announced that VAT will be introduced in the country on 1 January 2019 and has published the Arabic version of its VAT law.  Qatar has indicated that it may introduce VAT later in 2019, while Kuwait may potentially delay implementation until 2021.

We understand that the Omani VAT legislation is currently being prepared and that VAT may be introduced as early as 1 September 2019, though it may be delayed until 1 January 2020.

Key terms of the Unified Agreement

Under the terms of the Unified Agreement, VAT will apply to goods and services at the standard rate of five percent.  Although the majority of the VAT compliance requirements are left to the discretion of the member states to be determined in their respective VAT legislations, the Unified Agreement requires businesses with an annual turnover of SAR 375,000 (or its equivalent from any other GCC member state currency) to register for VAT.  Businesses generating half of the turnover threshold may register for VAT on a voluntary basis.

Under the terms of the Unified Agreement, the following must be zero rated (i.e., subject to zero percent VAT rate):  medicine and medical equipment; the transport of goods and passengers (intra-GCC and international) and associated ancillary services; export of goods outside of the GCC; and certain transactions in gold and silver.  Certain food items (e.g. bread, milk), oil and gas including oil derivatives, and the supply of means of transportation for commercial purposes may be zero rated at the discretion of each individual member state.  The member states also have the discretion to exempt or zero rate, as they deem fit, supplies made in the education, healthcare, real estate, and local transport sectors.

The Unified Agreement requires VAT due on import of goods to be paid at the first point of entry in the GCC.  However, in the event that goods imported are exempt or zero rated in the country of importation or exempt from customs, such goods will be exempt from VAT.  Financial services are also exempt from VAT under the terms of the Unified Agreement.

Preparing for VAT in Oman

Although VAT is unlikely to be introduced in Oman until 1 September 2019 at the earliest, it is best to start preparing for the implementation of VAT sooner rather than later.  The UAE did not issue its VAT Implementing Regulations until November 2017, while KSA only issued them in September 2017.  In both instances, companies waiting for the issuance of the Implementing Regulations in order to prepare for VAT realised they did not have enough time to fully comply with the legislation.

It is imperative for companies to review existing contracts which will continue until 1 September 2019 or beyond and determine if the contracts include clauses relating to the payment of VAT.  In the event that such transitional contracts do not have VAT clauses, it may be useful to determine if the counterparty will agree to an amendment to include a VAT clause, and if it is in the company’s interest to do so.  It may also be helpful to identify what portion of the supply will be subject to VAT.

In the event that transitional contracts do have VAT clauses, it is worth considering whether the company will practically be able to collect the amount of VAT chargeable in respect of such contracts, particularly if the payment in respect of such contract has already been made.  For example, in the UAE insurance companies struggled during the transitional period to collect VAT in respect of individual insurance policies where the premium had already been paid.

All contracts expected to continue until 1 September 2019 or beyond should include relevant VAT clauses and the parties should determine who will be responsible for paying VAT.  Companies should also consider the impact VAT will have on cash flow, particularly in instances where customers are invoiced but will not be required to make payment until later (or where a customer usually pays the invoiced amount late).  VAT is payable upon the issuance of a tax invoice, regardless of whether the customer has paid such amount.  This may have a significant impact on a company’s cash flow, and may require reconsideration of payment terms.  Third-party vendors may also be reconsidered on the basis of whether or not they are VAT registered, which will allow the company to deduct input tax.  In the event that a company has many customers outside of Oman, yet within the GCC, the treatment of VAT on supplies to such customers should also be considered.

In the case of group companies, the Unified Agreement provides for a group of companies in the same member state to be treated as a single taxable person (a “tax group”).  The group of companies will need to determine if it advantageous for them to register as a tax group.

On a practical note, companies will need to ensure that their software takes into account VAT pricing and that they are able to issue tax invoices in accordance with the relevant legislation.  For example, in KSA, VAT invoices for amounts over SAR 1000 are required to be in Arabic.  As a result, all companies needed to ensure that they had the relevant software to issue VAT invoices in the requisite form from the day the VAT legislation went into force.

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Monday, November 19, 2018

Secondment of Employees in Oman

The Oman Labour Law issued by Royal Decree 35/03 (as amended) does not provide for or recognise the concept of secondment.  However, in practice, it is fairly common for foreign commercial companies to second their employees to local entities pursuant to a secondment agreement with the new company or the local partner.  This facilitates compliance with local law requirements, which require mandatory permits for the secondee to be employed and to reside in Oman.

Over the years, certain conventions have evolved which do not have the force of law, but which most companies follow when seconding employees in Oman.  Below we set out some of the more important of these conventions:

  1. The secondee always remains the employee of the foreign company regardless of any agreement that the local company may be required to enter into with the secondee for the purpose of obtaining employment permits.
  2. The local company “employing” the secondee and the foreign company providing the secondee should enter into a secondment agreement setting forth the terms of secondment and providing essential safeguards for the local company, foreign company, and the secondee.
  3. The local company should act as the local sponsor for the secondee for the purpose of procuring the requisite visa and the residence permit for the secondee and, as the case may be, for the family members of the secondee under the same sponsorship.
  4. The local company should provide the necessary amenities to the secondees (and to the dependants, if agreed) during the secondment in accordance with the agreement between the parties as indicated in the secondment agreement.
  5. The secondees are expected to perform their duties in Oman in accordance with the terms of their secondment and the policies of the local company.
  6. The foreign company is expected to withdraw the secondee immediately in case of misconduct or breach of any provision of the local laws by the secondee.
  7. Any material change to the job profile or designation of the secondee is subject to mutual agreement between the foreign and local companies.
  8. As the provisions of the Omani labour law would apply to all persons employed in the private sector including secondees, sufficient safeguards must be provided in the secondment agreement to exclude the applicability of Omani labour law and the jurisdiction of Omani courts in case of disputes arising from the secondment. 


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Monday, November 12, 2018

Replacing London Interbank Offered Rates (LIBOR)

Current background

Following the 2008 financial crisis, liquidity in the interbank loan market fell significantly to the point where over seventy percent of the bank quotations on which LIBOR is set were based on judgements by the panel banks as to their own costs of credit, rather than being based on the interest rates for actual interbank loan transactions.  Not surprisingly, as came to light in 2012, the LIBOR market became subject to manipulation by bank participants.  While UK bank regulators undertook various reforms to address the problem, because liquidity has not returned to the market, concern over the reliability of LIBOR persists.  Consequently, the UK Financial Conduct Authority (FCA), which began regulating LIBOR in 2013, has promoted the phase-out of LIBOR in favour of reference rates based on verifiable market transactions.  The FCA has targeted the end of 2021, a little over three years from now, for the phase-in of new risk-free reference rates (RFR) to be completed.  While it remains possible that LIBOR also will continue to be quoted after 2021, given the uncertainty, floating rate debt, as well as swaps and derivatives, with tenors extending beyond 2021 should include appropriate LIBOR fallback and replacement provisions.

Alternative RFRs

Various currency-specific industry working groups, in coordination with their relevant regulators and central banks, are developing the new RFRs expected to replace LIBOR.  In the U.S., with respect to the dollar, the effort is led by the Alternative Reference Rates Committee (ARRC).  ARRC is an ad hoc committee convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York and is comprised of representatives from leading U.S. banks, industry groups, and regulators, including the U.S. Treasury, Federal Deposit Insurance Corporation, Commodity Futures Trading Commission and Securities Exchange Commission.  ARRC has identified the so-called Secured Overnight Financing Rate (SOFR) as the reference basis for a U.S. dollar RFR.  SOFR is a volume-weighted median of rates on overnight repos collateralised by U.S. Treasury securities.  The New York Fed began publishing SOFR in April 2018, and overnight indexed swaps and futures in SOFR already have begun trading.  Once sufficient liquidity develops, ARRC intends to fashion term reference rates based on SOFR derivatives.

In the UK, the effort is led by the Working Group on Sterling Risk-Free Rates operating under the auspices of the Bank of England.  This Working Group has identified the Sterling Overnight Index Average (SONIA) as the RFR basis for pounds sterling.  SONIA, which is administered by the Bank of England, has long served as the reference rate for sterling overnight indexed swaps.  It represents the mean of interest rates paid on overnight wholesale deposits, where credit and liquidity risks are minimal. 

The challenge posed by SOFR, SONIA, and equivalent RFRs being developed for the euro, yen and Swiss franc is that they all are backward-looking overnight rates and so do not compensate for the forward risk and time value of term lending, whether it be one week, one month, or longer.  LIBOR, by contrast, is forward-looking over several different maturities.  LIBOR compensates for term risk and provides lenders and borrowers certainty as to the cash flows during each interest rate period.  In addition, SOFR is secured by U.S. treasuries and so nearly risk-free, while LIBOR is unsecured and responsive to bank risk generally.  SONIA is similarly low risk.  SOFR and SONIA, therefore, are likely in most circumstances to be lower, less volatile rates than LIBOR, implying that different margins will be required to achieve equivalent effective interest rates.  At this point, while under development, the mechanics, timing and ultimate availability of forward-looking term rates based on the new RFRs remain uncertain.

Implications for current floating rate debt

Although the phase-in of RFRs is not targeted to be completed until the end of 2021, floating rate notes and syndicated loans with tenors beyond that date are already being placed in the market.  It is important, therefore, that new debt instruments include provisions which, as best they can at this point, anticipate the replacement of LIBOR.

While the ultimate nature of the RFRs to be implemented by the end of 2021 is not yet known, it is likely that they will not be economically interchangeable with their corresponding LIBOR rates, and so it is unlikely that the new RFRs can be slotted into existing loans with their margins as currently priced without resulting in unintended value transfers to either lenders or borrowers.  Consequently, it appears the best that can achieved at the moment in new loan documentation to address the risk that LIBOR will become unavailable, unreliable or non-standard during the term of a loan is to include provisions which facilitate amendments undertaken specifically to reset the interest rate reference and margin to accommodate the mechanics and economic metrics of the new RFR.

In the syndicated loan market, the general rule has always been that the unanimous consent of all lenders and the agreement of the borrower is required in order to change the rate of interest.  In the case of conversion to new RFRs, however, because the new metrics will be well established and understood by the time replacement is necessary, and the transition will be undertaken on a market-wide basis, lenders and industry groups appear comfortable with relaxing the lender consent requirement, generally to a majority in interest of the lenders.

In the UK market, the Loan Market Association (LMA), which works to standardise documentation for English law-governed credit agreements, has published a set of provisions addressing the replacement of LIBOR.  These provisions (i) identify the changes in LIBOR or the market, including but not limited to the cessation of LIBOR quotations, which would trigger the relaxed lender consent threshold for interest rate amendments and (ii) delineate the nature and scope of amendments that qualify for such treatment, including the prerequisite characteristics of qualifying RFR benchmarks.

In the New York law-governed syndicated loan market, similar though varied clauses have begun to appear in recent floating rate credit agreements, without any dominant market standards having yet taken hold.  In addition, on 24 September 2018, ARRC published for comment proposed LIBOR replacement provisions for floating rate notes and syndicated loans.  These are similar in format to the LMA provisions, although ARRC also includes provisions which, in addition to replacing the benchmark, would adjust the credit spread in certain cases.

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Monday, November 5, 2018

Simon Ward Returns to Curtis as Muscat Managing Partner

We are pleased to announce that Simon Ward re-joined Curtis in October as a partner in the international arbitration and litigation groups, and has also been appointed Managing Partner of the firm's Muscat office. Former Managing Partner Bruce Palmer has agreed to take on an advisory role as Director of Middle East Strategic Planning.

Mr. Ward stands out among Oman’s most experienced arbitration counsel with over a decade of experience in the region. He is currently ranked by Chambers Global as a top Commercial Litigation and Arbitration lawyer for his heavyweight commercial arbitration practice, and has advised on some of the highest-profile commercial arbitration and court cases in the Sultanate.


He was appointed to the Oman Court of Appeal Roll of Arbitrators in 2011 and has acted as both arbitrator and lead counsel before the Omani courts. He has also acted in domestic and international arbitrations under the auspices of the ICC and LCIA, and in Omani/UNCITRAL ad hoc arbitrations.
Before leaving Curtis last year to return to his native New Zealand for family reasons, Mr. Ward had spent nearly five years in our Oman office, including most recently as Curtis’ Head of Disputes in Oman.

You can contact Simon in our Muscat office, or read our full press release here.

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Monday, October 15, 2018

Personal Debts of Members of Commercial Companies

Many companies have a joint ownership structure.  Indeed, many types of commercial companies – for example, limited liability companies or joint stock companies – are required by law to have multiple shareholders.  However, joint ownership can make matters complicated when an individual shareholder of the company, whose assets include his interest in the company, is pursued by a creditor for personal debts (let us call this creditor the “personal creditor”).

The personal creditor will wish to access any of the shareholder’s assets that it can in order to claim payment of the member’s debts.  However, if the personal creditor were able to withdraw the shareholder’s share of a company’s capital, this reduction in the company’s capital could adversely affect the company and its remaining shareholders.  Likewise, if the creditor were able to accede to the shareholder’s interest in the company and become a shareholder in the company without the consent of the company’s remaining shareholders, this could adversely affect those other shareholders.  Particularly in a privately held company (as opposed to a publicly traded joint-stock company), many shareholders are active in the company’s affairs – voting on key decisions; serving on the board and committees; even participating in day-to-day management – and are very selective about who they want to work with as fellow shareholders.

Fortunately, the Commercial Companies Law (RD 4/74) does prescribe rules for dealing with these types of issues.  The statute provides that:

  • A personal creditor may not claim the shareholder’s share in the company’s capital as payment of the shareholder’s debt; however, upon dissolution of the company, the personal creditor may claim as payment the shareholder’s share of the company’s assets remaining after settlement of the company’s liabilities.
  • When the shareholder’s interest is in a company other than a joint stock company, a personal creditor may claim payment of the shareholder’s debt out of the shareholder’s share in the company’s profits.
  • When the shareholder’s interest is in a joint stock company, a personal creditor may claim payment only out of the shareholder’s share of the declared dividends; however, the personal creditor may also – subject to the company’s articles of association and applicable law – require the public sale of the shareholder’s shares and claim payment of the debt from the proceeds of this share sale.

In addition to these statutory requirements, companies can impose additional requirements – e.g., via the company’s commercial contract or a shareholders’ agreement – to govern such matters as shareholder composition and capital withdrawals.

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Monday, October 8, 2018

Oman Applies for Enforcement of an ICSID Costs Award in Massachusetts

On 20 June 2018 the Omani government made an application to a Massachusetts Federal Court to enforce a US$5.7 million award.

This is a significant development for Oman in light of the fact that this award was rendered in the first-ever investor treaty claim brought against Oman.  The award, which was issued under the International Centre for Settlement of Investment Dispute Rules, was a big win for the government of Oman.

Oman and bilateral investment treaties

The International Centre for Settlement of Investment Disputes (ICSID) Convention is a treaty ratified by 153 contracting states, including Oman.  The ICSID Convention provides a mechanism for investors from signatory states to make a claim against a government of another signatory state.  The aim of the ICSID Convention is to encourage cross-border investment by providing a means of enforcing contractual rights.

In addition to the ICSID Convention, Oman is a party to 38 bilateral investment treaties and numerous multilateral investment treaties with other countries, all of which include investment protection mechanisms with arbitration in accordance with the ICSID Rules as the means to resolve any disputes that arise under such treaties.

The case

The award for which enforcement is being sought in Massachusetts Federal Court is an award for costs that was issued against Adel Hamadi Al Tamimi.  In 2011 Mr. Tamimi filed a claim for US$273 million against the government of Oman under a 2008 US-Oman free trade agreement (FTA).  In his claim Mr. Tamimi alleged that the government of Oman improperly ended leases that permitted his company to mine for limestone and, in doing so, the ending of these leases violated his rights under the US-Oman FTA.  In alleging that his rights had been violated, he made three claims:  (i) a claim that his rights had been expropriated in accordance with the US-Oman FTA; (ii) a claim for failure of the Omani government to treat his investment in accordance with the minimum standard of treatment under the US-Oman FTA; and (iii) a claim for breach of the national treatment standard in accordance with Article 10.3 of the US-Oman FTA.  Virtually all investment treaties provide that they will treat investors of the other country no worse than its own nationals.

An ICSID tribunal found that the claim was entirely without merit, dismissed the claim, and rendered an award for costs of US$5.7 million in favour of the government of Oman, which the government is now seeking to enforce.

This is not the only instance in which the Omani government and Omani nationals have been involved in investor-state arbitration.  The remainder of this article will summarise the other cases in which either the government of Oman or private Omani investors have been involved in investor-state arbitration.

Oman and investor-state arbitration

From an Omani perspective, the Tamimi case is particularly notable as it was the first ICSID case ever filed against Oman and the first case filed under the US-Oman FTA.  Since the filing of this case against Oman, there have been two other ICSID cases filed against Oman.  The first was a claim filed by Samsung in 2015 under the 2003 South Korea-Oman bilateral investment treaty in relation to a US$2 billion contract for the upgrade of an oil refinery.  This case settled in January 2018.  The second case against Oman was brought by a Turkish company, Attila Doğan Construction & Installation Co. Inc., over an oil project run by Petroleum Development of Oman.  This case was filed in 2016 under the 2007 Turkey-Oman bilateral investment treaty and is ongoing.

On the other side of the coin, there have been two investment treaty arbitrations filed by Omani investors.  The first was filed by Desert Line Projects LLC in 2005 against the government of Yemen under the 1998 Oman-Yemen bilateral investment treaty.  In this case, Desert Line Projects claimed OMR 40,000,000 against the government of Yemen for moral damages which included loss of reputation as a result of the respondent’s breaches of its obligations under the bilateral investment treaty, namely that the claimant’s executives suffered the stress and anxiety of being harassed, threatened and detained by the respondent as well as by armed tribes.  In 2008, the tribunal awarded Desert Line Projects US$1,000,000, 70% of the arbitration costs and US$400,000 towards the claimant’s legal fees.

The second case commenced by an Omani entity was filed by the State General Reserve Fund of the Sultanate of Oman against Bulgaria in 2015 under the 2007 Bulgaria-Oman bilateral investment treaty.  This case is currently ongoing and relates to the collapse of Corporate Commercial Bank (Corpbank).  Oman’s State General Reserve Fund owned a 30 percent stake in Corpbank, which had its licence withdrawn by the government of Bulgaria, went bankrupt and was shut down by the Bulgarian central bank.

Remarks

While Oman has been involved in relatively few investment treaty cases, the summaries above shed light on the disputes that are arising under the various bilateral investment treaties into which Oman has entered.  Being a party to such treaties is important for Oman as these treaties encourage investors to invest in Oman by providing investors with safeguards and a mechanism to make claims to protect their investments in Oman.

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Monday, October 1, 2018

Curtis Welcomes Zainab Aziz to our Team in Oman

We are excited to welcome new counsel Zainab Aziz to our team this month. Zainab is a seasoned commercial lawyer with experience in M&A, capital markets, and banking and finance matters, and is admitted to the New York Bar. She also brings significant Islamic Finance experience, having advised clients in the issuance of sukuk, the implementation of wakala agreements, and the development of ijara documentation. You can contact Zainab in our Muscat office.

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