Tuesday, October 8, 2019

The New Oman Bankruptcy Law

(This article by Zainab Aziz, counsel in Curtis' Muscat office, appeared in the Lexis Nexis Middle East Legal Insight on 16 September 2019)


Prior to the issuance of Oman Sultani Decree No. 53/2019 (the “Bankruptcy Law”), Oman Sultani Decree No. 29/2013 promulgating the Civil Transactions Law (the “Civil Code”) set out various provisions relating to insolvency and bankruptcy in Oman. In addition, Oman Sultani Decree No. 18/2019 on the Issuance of the Commercial Companies Law (the “Commercial Companies Law”) also sets forth provisions with respect to the liquidation of companies. Under the aforementioned laws, bankruptcy must be declared by the relevant competent court with jurisdiction over the bankrupt person. An application for bankruptcy may be made by the insolvent person or by a creditor of the insolvent person.

Although the Bankruptcy Law repeals the provisions of Book 5 of Oman Law No. 55/1990 (the “Law of Commerce”), Article 2 of the Bankruptcy Law states that for all matters not specifically provided for under the Bankruptcy Law, the provisions of the Commercial Companies Law, Oman Sultani Decree No. 68/2008 on the Promulgation of the Law of Evidence in Civil and Commercial Transactions, and Oman Sultani Decree No. 29/2002 Promulgating the Law on Civil and Commercial Procedures will continue to apply. In addition, the Bankruptcy Law states that regulations and decisions may be introduced by the Minister of Commerce and Industry in conjunction with the competent authorities to implement the legislation.

Applicability

The provisions of the Bankruptcy Law will apply to traders. The term “trader” is defined in the Law of Commerce as any person who effects a commercial act in their own name, is qualified in the requisite manner and who makes such commercial transactions an occupation. In addition, commercial companies are also considered traders. The Bankruptcy Law also applies to foreign agencies and branches of foreign companies established in Oman, even if the parent company has not been adjudicated to be bankrupt in a relevant foreign jurisdiction and is not subject to the jurisdiction of the Omani courts.

Entities licensed by the Central Bank of Oman and insurance companies licensed under Royal Decree No. 12/1970 Promulgating the Insurance Law are excluded from the applicability of the Bankruptcy Law.


Main provisions of the Bankruptcy Law

Roll of experts

The Bankruptcy Law prescribes that a roll of experts be established. The roll of experts will include individuals and companies specialising in restructuring, the management of assets during a bankruptcy proceeding, valuators, and all other experts as may be needed in connection with the provisions of the Bankruptcy Law.

Restructuring

The Bankruptcy Law introduces the concept of restructuring, which aims to assist traders to overcome financial and administrative challenges in settling debts by restructuring the traders’ outstanding obligations in accordance with a restructuring plan prepared by a restructuring committee comprising of experts registered on the roll of experts. Restructuring the debts will allow the trader to avoid liquidation, by reaching a compromise with its creditors. The Bankruptcy Law also provides timelines within which the restructuring plan needs to be prepared, and the time within which the court must decide on an appeal in order to make the process expeditious. Unlike in the case of preventive composition, traders are permitted to submit a petition for restructuring prior to reaching a position where they are unable to pay their debts – only a showing of financial and administrative disorder is required to submit a restructuring petition. The term “financial and administrative disorder” is not defined in the Bankruptcy Law, and it remains to be seen how it will be interpreted by the courts.

The petition for restructuring may be submitted by a trader who has been continuously engaged in business for the two years that precede the filing of the petition, provided that such trader has not committed any fraud. In addition, a petition for restructuring cannot be submitted until 3 years have lapsed from the date of refusal or stay of the previous petition. In the case of companies applying for a restructuring, the approval of a majority of the shareholders will be required.

The petition is required to be submitted to the Control and Inspection Department of Commercial Establishments at the Ministry of Commerce and Industry (the “Department”). Filing a petition for restructuring will result in the stay of a petition in bankruptcy and preventive composition, until the final adjudication of the petition for restructuring.

The petition for restructuring is required to include the reasons for the financial and administrative disorder, the date of the disorder, the steps taken by the trader to overcome or remedy such disorder, as well as the steps the trader deems necessary to overcome such disorder. The petition for restructuring is required to be submitted within six months from the date of the financial and administrative disorder.

The Department will hold meetings with all the concerned parties to mediate and the settle the issues detailed in the petition. The Department will also appoint a restructuring committee comprising of members of the roll of experts to review the petition, determine the reason of the disorder, and manage and assess the assets of the petitioner. The restructuring committee is required to a prepare a report including the reasons for the disorder, a restructuring feasibility study, and a restructuring plan to be submitted to the Department or the relevant court, as the case may be, within three months of the restructuring committee being appointed. Any proposed restructuring plan must be capable of being implemented within five years.

If the creditors agree to a settlement or the restructuring plan, the trader and the creditors will execute the settlement agreement or restructuring plan, which will then be submitted to the court and will be binding on all the signatories.

If the parties are unable to reach a settlement or agree to the restructuring plan, the petition for restructuring will be considered to be rejected. The petitioner is entitled to appeal such rejection before the court within 15 days of notification of rejection of the petition. The court is required to decide on such appeal within seven days of the date of referral, and such decision will be final.

If the parties agree on a restructuring plan, the court may appointment a person from the roll of experts to assist the trader in implementing the restructuring plan. Such person will be required to prepare a report every three months in respect of the implementation and compliance with restructuring plan and submit such report to the Department and the signatories to the restructuring plan.

During the implementation of the restructuring plan, unlike in the case of an insolvency proceeding, the trader will continue to administer its property, and will remain liable in respect of obligations that are not included in the restructuring plan, are subsequent to the accreditation date of the restructuring plan, or that are contrary to the terms of the restructuring plan.

Preventive composition

The concept of preventive composition under the Bankruptcy Law is similar to provisions in respect of preventive composition set forth in Book 5 of the Law of Commerce. By applying for a preventive composition, a trader seeks to achieve a settlement with creditors and avoid bankruptcy.

A trader is entitled to apply for a preventive composition if the trader is likely to cease payment of the trader’s debts. In order to be eligible to apply for preventive composition, the trader should have been engaged in business in the preceding two years and must not have committed any act of fraud or gross fault. All companies except for joint ventures are entitled to apply for preventive composition provided that they comply with the aforementioned requirements and obtain the approval of a majority of the shareholders. Unlike in bankruptcy proceedings, creditors cannot make an application for preventive composition.

Following the submission of a petition for a preventive composition that is accepted by the relevant court, all bankruptcy proceedings and other claims and enforcement actions relating to the trader are automatically stayed, which includes proceedings in respect of both secure and unsecured debts. The stay against secured claims is distinct from bankruptcy proceedings, where only unsecured claims are stayed. The court may also decide to take precautionary measures in order to preserve the trader’s assets. By preserving the assets of the trader, both from secure creditors and potentially from the trader, it is anticipated that the trader will be able to achieve a resolution whereby the business is preserved and able to settle the debts, as opposed to liquidating the business. During this time, the trader can continue to administer the property and undertake acts in the ordinary course of business.

A composition trustee is appointed by the court, and the trustee must, within five days of being notified of his appointment, notify the Commercial Registry of the commencement of the composition proceedings and publish the initial consent to commence composition proceedings in the Commercial Register and invite all creditors of the trader to a meeting. Such invitation is required to be published in a well-known daily newspaper or any other publication specified by the court. Within 15 days of such publication, all creditors of the trader are required to provide details in respect of their debts to the composition trustee to enable the composition trustee to prepare list of debts and creditors and submit the same to the relevant court within 40 days of the date of issuance of the decision opening the preventive composition proceedings. Once the list of creditors has been verified, the court will set a time within which the creditors are required to meet to decide on the terms of the preventive composition. Five days prior to such meeting of the creditors, the composition trustee is required to submit their report including their opinion on the terms of the preventive composition proposed by the trader.

A judge of the relevant competent court will preside over such meeting of creditors and an approval of a majority of the creditors whose debts have been accepted is required to approve the preventive composition, provided that such majority of creditors also holds two-thirds of the verified debts. In the case of a company that has issued bonds or sukuks, where the value of the outstanding bonds or sukuks exceeds one-third of the total outstanding debts, the composition will require the approval of a general assembly of the holders of such bonds or sukuks. Secured creditors are prevented from participating in voting unless they waive their rights as secured creditors.

Once the preventive composition is approved by the requisite majority and is ratified by the court, the terms of the composition will apply to all unsecured creditors, including those who voted against it.

The rights of secured creditors are not impacted by the preventive composition, and they remain entitled to enforce their securities against the trader.

A preventive composition may be annulled by the court after ratification if it is later discovered that the trader acted in a fraudulent or misleading way, such as by concealing assets or over estimating debts etc.

Bankruptcy

The provisions relating to insolvency proceedings under the Bankruptcy Law are similar to provisions previously set forth in Book 5 of the Law of Commerce.

A trader may submit a bankruptcy petition if the trader has suspended payment of commercial debts due to a disruption in the trader’s business. The petition is required to be submitted within 15 days from the date of cessation of payment. Unlike in the case of preventive compositions, creditors owed commercial debts are also entitled to submit a bankruptcy petition to declare a debtor trader bankrupt.
In addition, a court may, on its own initiative, adjudicate a trader bankrupt. With respect to companies, submission of a bankruptcy petition by the trader company requires the approval of majority of its shareholders.

Bankruptcy claims will be examined by the court on a summary basis and the court may order precautionary measures against the assets of the trader debtors to preserve the assets of the trader prior to the adjudication of bankruptcy. The court will also determine a date for the cessation of payments by the trader, and appoint a liquidator and appoint a judge as the official receiver to oversee the insolvency proceedings. The liquidator takes over the management of the assets of the bankrupt person and acts on behalf of the bankrupt person during the liquidation process. The fees and expenses of the liquidator are determined by the official receiver.

Following the adjudication of bankruptcy by the court, the liquidator will enter the adjudication in the Commercial Register and publish a summary of the adjudication in the official gazette, which should include an invitation to creditors to submit details of their debts. The bankrupt person will no longer be entitled to administer, dispose of any property, pay any debts or recover any amounts owed to him. The management of the assets and liabilities of the bankrupt person rests with the liquidator.

If a partnership is adjudicated to be bankrupt, all the partners will also be declared bankrupt, regardless of whether the court adjudicating the bankruptcy has jurisdiction over such partners. In addition, former partners of a partnership who withdrew from the partnership after the cessation of payment of debts but prior to the adjudication of bankruptcy will also be declared bankrupt when the partnership is declared bankrupt.

The fact that a person has been declared bankrupt does not have the effect of vitiating, or automatically terminating, those contracts that were entered into by the bankrupt person prior to the declaration of bankruptcy. Any contract entered into by the bankrupt person prior to the date of declaration of bankruptcy remains valid and continues to exist although certain obligations under those contracts may become suspended by reason of bankruptcy.

Following the declaration of bankruptcy of an insolvent person, interest will cease to accrue on the debts of the bankrupt person and creditors will not be entitled to initiate or continue any legal proceedings against the bankrupt person. Secured creditors may however, continue or initiate proceedings against the liquidator for the sale of the securities securing the amounts owed to the secured creditors.

Upon the declaration of bankruptcy, the bankrupt person’s debts will be settled in the following order of priority:

  • salaries of employees;
  • government dues and taxes;
  • preferred or secured creditors; and
  • unsecured creditors.

In the event that the assets of a company adjudicated bankrupt are not sufficient to settle at least 20% of the debts, the court may, at the request of the liquidator, oblige all or some members of the board of directors of the company to jointly or severally settle the debts of the company, unless the directors are able to prove that they exercised due care and diligence in the management of the company. The liquidator may also request that the bankruptcy judge require shareholders to settle outstanding debts of the bankrupt company from their shares in the company or the remainder of the value of their shares in the company.

Pursuant to the Commercial Companies Law, insolvency of a company is one of the reasons for which it may be dissolved and be struck off from the Commercial Register. The Bankruptcy Law states that a company may be dissolved if it is established that the remaining assets after liquidation are not sufficient to proceed with its activities.

Under the provisions of Oman Sultani Decree No. 35/2003 on the Promulgation of the Labour Law, an employer is responsible for all obligations towards its employees arising under the contract of employment and Oman Sultani Decree No. 35/2003. Article 47 of Oman Sultani Decree No. 35/2003 states that the liquidation, insolvency or bankruptcy and final authorised closure of an employer are valid grounds for termination of an employment contract by that employer. To the extent that the employer terminates its employees on the ground of its insolvency, that would be considered a valid ground for termination of such employees.

Judicial composition

A judicial composition may be initiated by a bankruptcy judge after a declaration of bankruptcy at the request of an interested party. The liquidator will be asked to provide an opinion on the terms of the proposed composition, and similar to a preventive composition, approval of a majority of creditors (whose debts have been approved in the bankruptcy) is required, provided that the amounts owed to such creditors comprise of two-thirds of the total outstanding amount.

Once the creditors and the bankrupt person have agreed the terms of the judicial composition, it will be ratified by the judge and all effects of the person being adjudicated bankrupt will be removed. Upon ratification of the judicial composition, the liquidator must resign and the bankrupt person will be entitled to manage their assets.

A bankrupt person will not be entitled to enter into a judicial composition if they have been sentenced for committing fraud during the bankruptcy proceedings, and a ratified judicial composition may be annulled if the bankrupt person is later convicted a committing fraud during the bankruptcy proceeding.

Creditors’ union

If a bankrupt person does not apply for a judicial composition or the composition is rejected or annulled, the creditors will be ipso jure in a state of union.

Following the establishment of the union of creditors, the bankruptcy judge will convene a meeting of the union of creditors to appoint a trustee of the union of creditors and to determine whether to retain or change the liquidator, as may be determined by a majority of the creditors.

The trustee is not entitled to continue the business of the bankrupt person without the prior approval of three-quarters of the total number of creditors forming the union and the bankruptcy judge. The trustee may, however, be entitled to sell moveable and immoveable assets of the bankrupt person, the amount of which may be deposited into a designated bank account. The fees associated with the bankruptcy proceeding, the cost of administration of the estate, and any amounts to be paid to the bankrupt individual will be deducted from amounts realized from the insolvency, followed by amounts due to secured creditors. The remaining amount will be distributed amongst the unsecured creditors on a pro-rata basis based on the debts verified by the liquidator.

The official receiver may terminate the bankruptcy proceedings under the following conditions:


  • no debts were accepted in the bankruptcy proceedings or debts were owed to one creditor; 
  • the payment of all debts accepted under the bankruptcy proceedings; 
  • entering into a composition with creditors;
  • non-availability of property belonging to the bankrupt person that may be subject to the execution; and 
  • liquidating all the property of the bankrupt person and ratifying the final accounts.

Rehabilitation

A bankrupt debtor may be rehabilitated if such person has paid all due amounts and expenses owed to the creditors. In any event, all rights extinguished by virtue of a person being declared bankrupt will be restored three years from the date of the termination of the bankruptcy proceedings.

A bankrupt debtor who has been sentenced for fraudulent or negligent bankruptcies may not be rehabilitated unless in accordance with the provisions of Royal Decree No. 97/1999 on the Penal Procedures Law.

Penalties

If a trader submits a bankruptcy petition that it rejected by the court, and if the court believes that the trader had deliberately alleged bankruptcy, the court may sentence the trader to a fine of no less than OMR 200 and not exceeding OMR 500. A court may impose a similar fine on a creditor whose bankruptcy petition in respect of a trader is rejected by the court.

The Bankruptcy Law provides that a trader will be sentenced to imprisonment for a period of not less than six months and not exceeding three years, or a fine of not less than OMR 1,000 and not more than OMR 5000, or both, in the event that a trader:

  • in bad faith conceals all or some their property with the aim of achieving a restructuring or a preventive composition;
  • induces or enables a creditor to unlawfully participate in a restructuring or preventive composition; or
  • in bad faith neglects to include the name of certain creditors in the list of creditors.
Similarly, any creditor who takes part in a composition fraudulently or has conspired with the trader to vote for a composition in return for a benefit will be sentenced to imprisonment for a period of not less than three months and not exceeding two years or to a fine of not less than OMR 500 and not exceeding OMR 2000, or both. The composition trustee may be sentenced to the same penalty if they have provided, in bad faith, false information about the debtor.

The Bankruptcy Law prescribes penalties for experts, supervisors and liquidators who act in bad faith, and any person who provides false information in connection with the procedures set out in the Bankruptcy Law.

Conclusion

The Bankruptcy Law is part of the Omani government’s ongoing efforts to encourage investment in the Sultanate and to provide comfort to both foreign and domestic investors. The introduction of the concept of restructuring, as well the inclusion of strict time lines within which procedures are required to be completed will hopefully be beneficial both to businesses and investors in avoiding liquidation, and in the event a liquidation is required, managing the liquidation in a timely manner.

Given that the Bankruptcy Law will go into force in July 2020, it is hoped that the interim time will be used to identify the experts who will be listed in the roll of experts and that proper training is provided to all the relevant stakeholders for smooth implementation once the law goes into force. In addition, the Bankruptcy Law mentions that implementing regulations will be issued.

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Monday, September 23, 2019

Dissolution and Liquidation Under the New Commercial Companies Law

The recently issued Commercial Companies Law (Royal Decree No. 18/2019), introduced in our previous post, has implemented several changes that modernize and increase the efficiency of commercial company practice in Oman. Among these, we will review some notable changes to the regime governing the dissolution and liquidation of commercial companies.

Generally, the new provisions regarding liquidation are more elaborate and detailed in setting out the liquidation process and the responsibilities of the parties involved, resulting in a clear and more organized procedure. They also establish new or more stringent deadlines to expedite the liquidation process. Below, we set out the key changes as introduced in Section 3 of the Commercial Companies Law.

Reasons for Dissolution

The list of reasons for the dissolution of a company has expanded. The failure of a company to conduct business from the date of its incorporation or a halt in its operations and business for more than two years are now valid reasons for dissolution. Moreover, the reduction of the company’s share capital beyond a stipulated minimum limit, with no possibility of increasing it within a specified period, can also justify dissolution.

Under the previous Commercial Companies Law (Royal Decree No. 4/1974), transfer of all shares in the capital of the company to one partner was a reason for dissolution. As the new Commercial Companies Law introduced the Sole Shareholder Company, this was changed to “the transfer of all shares to a number of partners or shareholders below the stipulated limit” and remains applicable only to Joint Stock Companies, which still require at least three shareholders.

Liquidators and Liquidator Responsibilities 

A noteworthy change is that liquidators must be licensed accountants and auditors, accredited by the competent authorities. This excludes lawyers from acting as liquidators, and reflects the nature of the liquidation process and the necessity of involving accountants in the process.

The new law now also requires liquidators to prepare financial statements of the company, in addition to the inventory of the company’s assets and liabilities.

Time Limits

The following new time limits have been imposed in order to streamline the liquidation process:


  1. the period of voluntary liquidation is now limited to three years, and can only be extended with the approval of the competent authority (the Ministry of Commerce and Industry or the Capital Market Authority, depending on the type of company);
  2. a copy of the liquidation resolution or the order must be lodged with the Registrar within 15 days of issuance, and then published by the Registrar within seven days;
  3. the announcement for the creditors’ grace period to bring forward claims must be issued by the liquidator within seven days from the date on which the issued liquidation order is lodged with the Registrar;
  4. the report on liquidation activities conducted during the year, together with the financial statements, must be submitted within 30 days of the end of the financial year during liquidation;
  5. on conclusion of liquidation, the final report must be submitted within 30 days for approval. Once issued, a copy of the approval must be lodged with the Registrar within seven days of issuance, and then published within two days.

Unpaid and Unclaimed Proceeds of Liquidation

Any remaining unpaid balance of liquidation is to be deposited in a fund set up by the Ministry of Commerce. Entitled persons must be notified, and publication must be made in two daily newspapers at least twice in one year before the passage of fifteen years from the date of deposit. Monies that remain unclaimed for fifteen years are to be hypothecated for charitable activities.


Read more about the New Commercial Companies Law (Sultani Decree 18/2019):

New Commercial Companies Law Permits Work and Services as Contributions in Kind to the Share Capital of Joint Stock Companies (April 2019)

Access to Company Documents under the Old CCL and the New CCL (June 2019)

The Board of Directors of an Omani Joint Stock Company under the New Commercial Companies Law (June 2019)

Establishment of Companies by Sultani Decree (July 2019)

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Monday, September 16, 2019

Islamic Banking in Oman: Rapid Growth Towards Competing with Conventional Banking

Islamic banks in Oman have made their mark in the banking sector since their adoption at the end of 2012.

They can no longer be considered a mere diversification of the banking system. Over the past few years, these banks have developed significantly and are now competing with their conventional counterparts, earning huge profits and enjoying high asset quality.

Strong presence and expansion in Oman

Over the past years, Islamic banks and windows have registered a strong presence across a network of branches throughout Oman. The total number of branches of Islamic banks and windows operating in Oman reached 77 licensed branches at the end of March 2018, according to data published on the Central Bank of Oman’s (the “CBO’s”) website. These branches belong to two Islamic banks, Bank Nizwa and Alizz Islamic Bank; in addition to these, there are six Islamic windows operated by conventional banks.

According to recent data published by the CBO at the end of last month, the total Islamic banking assets in the country had increased from OMR3.3 billion in 2017 to OMR3.991 billion. In the third quarter of 2018 alone, there was 21% growth.

Combined Islamic finance institutions accounted for 12.4% of the total assets of the Omani banking sector at the end of March 2018.

The volume of financing provided to private sector institutions and companies from Islamic banks and banking windows amounted to OMR2.747 billion, equivalent to 1.3% of the total funding provided to the private sector by banks.

Continuing growth

In May 2018, Bank Nizwa, Oman's first Islamic bank, announced a net profit of OMR3.8 million at its annual general meeting, representing growth of 3.343% from the previous year.

The bank’s total assets increased by 35% to reach OMR697 million, up from OMR516 million in the previous year.

Taher bin Salim Al Omari, chief executive officer of the CBO, said in remarks published by the official Oman News Agency (“ONA”) in July of this year, that Islamic banks and windows accounted for 13.2% and 13%, respectively, of the total financing and deposits in the Omani banking sector until the end of March 2019.

He explained that Islamic banks and windows generally require a period ranging between three and four years to achieve good results, and to draw level with other banks.

He also explained that Oman’s adoption of Islamic banking in 2013 was aimed at diversifying banking and financial services in the local market and increasing financial depth and comprehensiveness, in order to serve the national economy.

Islamic banks in the Gulf region hold approximately a third of the assets of their international counterparts, according to a study by the Arab Monetary Fund issued in June 2017.

According to the same study, the period following the global financial crisis in 2008 witnessed a remarkable growth in Islamic banking activity, with a compound growth rate of 17% during that period, reflecting widespread global interest in Islamic banking financing opportunities.

There are around 700 Islamic banking institutions worldwide, of which 250 are operating in the Gulf region.


Read more about Islamic Banking and Finance in Oman in previous Oman Law Blog articles:

Islamic Project Finance - Part 1 (March 2016)

Islamic Project Finance - Part 2 (May 2016)

Islamic Project Finance - Part 3 (September 2016)

Takaful in Oman (May 2015)

Shari'a-Compliant Investment Banking in the Sultanate of Oman (March 2013)

Sukuk in the Sultanate of Oman (February 2013)

Islamic Banking Law Decree in the Sultanate of Oman (January 2013)

Islamic Banking: Home Purchase Financings Part I - The Lease (August 2012)

Islamic Banking: Home Purchase Financings Part II - Musharaka Mutanaqisa (August 2012)

Islamic Banking: Home Purchase Financings Part III - Murabaha and Tawarruq (October 2012)

Islamic Banking: A Brief Introduction (July 2012)

Islamic Banking (November 2012)

Islamic Banking: Shari'a Governance (December 2012)

Islamic Banking in Oman - Part 2 (July 2011)

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Monday, September 9, 2019

Istishkal Appeals

Istishkal is a mechanism that is used to enforce one’s rights to stop the enforcement of an award. This article provides an overview of how Istishkals work.

The Law

Article 363 of the Code of Civil and Commercial Procedures outlines two types of Istishkal:

  1. Istishkal for urgent relief:
    The first type of Istishkal provides a party with urgent relief. This article gives a bailiff  the option to either suspend the execution of an award or continue with the execution of an award. If this type of Istishkal application is made, the parties must appear before the enforcement court. The notice period before which a party must appear at the hearing may be very short, in some cases the parties may be given only 1 hour to appear before a judge, and if the court is closed the parties may even appear before a judge at the judge’s home, if necessary.
  2. Istishkal related to the ownership of property or a substantive dispute in the enforcement of an award:The second type of Istishkal application relates to the suspension of  the enforcement of an award after the award has been submitted to an execution court for enforcement. The enforcement judge decides on the Istishkal application in a hearing after notice is given to the parties. This second type of Istishkal application has been increasingly used to stall the enforcement of awards in Oman.

Procedures

Submission of an Istishkal application:

  1. An Istishkal application is directly submitted to the enforcement judge or to the bailiff in the case of an urgent Istishkal application.
  2. If the Istishkal is of the first type described above, the litigants are assigned to appear before the enforcement judge urgently, even within an hour and at the judge’s residence; the bailiff in this case cannot complete the enforcement procedures before the judge issues his judgment.
  3. If the Istishkal is of the second type described above, the parties are notified of the Istishkal application and a judge holds a hearing to determine whether to grant the Istishkal.
  4. In both cases, the enforcement judge shall issue a judgment on the Istishkal application. The enforcement judge may make the applicant pay a fine if his Istishkal application is not successful. In cases where a party files a vexation Istishkal application to stop the enforcement, the other party may claim compensation.
  5. It takes approximately one month from the time of filing an Istishkal application to a court issuing a decision on an Istishkal application.
  6. Filing an Istishkal application will stall the enforcement.

Appeal of Istishkal decision:

  1. If the Istishkal is of the first type, the appeal shall be made to the Primary Court. The appeal panel at the primary court will consist of three judges.
  2. If the Istishkal is of the second type, when the value of the dispute is between RO 1,000 and RO 3,000 the appeal shall be made to the Primary Court and heard by a bench of three judges. If the value of the dispute exceeds RO 3,000, the appeal shall determined by the Court of Appeal.
  3. An appeal of an Istishkal decision shall be filed no more than 7 days from the date of the judgment.
  4. If the judgment is issued by a Primary Court consisting of three judges, it may not be appealed before the Supreme Court, and if it is issued by the Court of Appeal, it may be appealed before the Supreme Court.
  5. It takes approximately one month from the time of filing an appeal to a court issuing the Judgment.
  6. Filing the appeal will stall the enforcement.

Legal Precedents before the Supreme Court

The Supreme Court has issued judicial precedents which establish the following in relation to Istishkals:

  1. The purpose of Istishkal is a timely or precautionary measure that does not affect the disputed right, which may be presented by the enforcement parties or by third parties of interest.
  2. The Supreme Court is not allowed to prejudice the right to settle Istishkal.
  3. Istishkal judgments issued by the Courts of Appeal may be appealed at the  Supreme Court.

Read more about disputes in Oman and the enforcement of Omani court judgments:

Omani Arbitration Law: Time for a Change? (July 2018)

Enforcement of Omani Court Judgments and Arbitration Awards in Commercial Disputes: Process and Procedure (November 2015)



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Monday, September 2, 2019

In the Pipeline - August 2019


The Statistics and Information Law is promulgated by Sultani Decree No. 55/2019. The executive regulations and decisions in connection with its implementation shall be issued by the Chairman of the Board of the National Centre for Statistics and Information. Also, the Chairman shall issue the National Data Strategy. The aim of the provision is to provide accurate and up-to-date information and data relating to demographics, culture, the environment and various technical, social and economic aspects by supporting the development of scientific and technical research.
Please contact us if you would like more detailed advice on the above.

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Monday, August 26, 2019

Construction of Contracts in English and Omani Law

English law

In English law the process by which courts decide what an agreement means is based on the objective view of a reasonable person, given the context in which the contracting parties made their agreement, though recent judgments suggest that the courts are reverting to a more rigid mode of interpretation paying closer attention to the formal expression of the parties’ intentions and taking more of a literal view of what they have said.

The lead case remains, for now, Investors Compensation Scheme Ltd. v West Bromwich Building Society [1997] UKHL 28, which laid down that a contextual approach must be taken to the interpretation of contracts.  In his judgment, Lord Hoffman set out five principles, so that contractual terms should be construed in accordance with:

1.     what a reasonable person having all the background knowledge would have understood;

2.     where the background includes anything in the ‘matrix of fact’ that could affect the language’s meaning;

3.     but excluding prior negotiations, for the policy of reducing litigation;

4.     where meaning of words is not to be deduced literally, but contextually; and

5.     on the presumption that people do not easily make linguistic mistakes.

Omani law

By contrast, under Omani law, if there is any ambiguity in a contractual term, a subjective test is applied to discover what the real intention of the parties was when drafting the contract.  Article 165 of the Civil Transactions Law, promulgated by the Civil Code, provides that:

“If the wording of a contract is clear, it may not be departed from under the pretext of construing same to find the intention of the parties.”

However:

“If there is ambiguity in the phrase of the contract, it must be construed to find the mutual intention of the parties without limiting the construction to the literal meaning of the words. This shall be guided by the nature of the transaction, common practice and the trust and confidence which should exist between the parties to a contract.”

Further, article 166 of the Civil Code states that any ambiguity in a contractual term should be construed against the party seeking to rely on the provision.

However, it is important to remember that the parties are free to modify or exclude any of these statutory rules of construction by agreement and to stipulate their own rules of construction in their place.

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Monday, August 19, 2019

Latent Defects in Omani Construction Contracts

In Justin Sweet’s authoritative work Defects, the term “defect” is defined as “a failure of the completed project to satisfy the express or implied quality or quantity obligations of a construction contract.”

The question of whether a defect is patent or latent is determined objectively.  A latent defect is one that would not be apparent in the course of a reasonable inspection.  A particular defect may be latent to the casual observer, but patent to a construction professional, such as an architect or engineer.  In a commercial context, there are cases that suggest that a defect is patent if it is reasonably discoverable with the benefit of such skilled third-party advice.

The Omani perspective 

The Fédération Internationale des Ingénieurs-Conseils (FIDIC) Conditions of Contract for Construction, more commonly known as the FIDIC Red Book, is commonly used for building and engineering works designed by the employer in Oman.  (This article references the 1999 first edition.)

The provisions in the Red Book dealing with latent defects are generally consistent with the position under Omani law, essentially that contractors may be liable for latent defects discovered after the performance certificate has been issued by the employer.

Many of those familiar with the construction industry in the Middle East region will be familiar with the term “decennial liability.”  In particular, many will be familiar with a requirement that, in relation to works performed under a construction contract, a contractor and an architect remain legally liable for a period of 10 years after the completion of the works.

A number of countries in the Middle East have similar legal provisions in that regard.  Generally, neither a contractor nor an architect can contract out of the liability.  The liability is a form of strict liability.  There are some differences of opinion among the legal profession as to what extent (if any) a claimant needs to prove fault or causation against a contractor or architect, but it is clear that there is no obligation on a claimant to prove negligence, or a failure to achieve an industry standard, etc.  To put it another way, there is no requirement to demonstrate the contractor or architect was “negligent,” but there are some differing views as to what extent (if any) there is a need to show that some action or inaction by the contractor or architect caused or contributed to the loss and damage.

In most parts of the Middle East, where there is a law imposing decennial liability, it only applies where the relevant structure has collapsed or suffers a major structural defect.  The law in Oman is far more extensive.  The relevant provisions of Sultani Decree 29/2013 (the “Civil Code”) are typical of what might be found in other jurisdictions in the Middle East, in that liability is limited to total or partial collapse, and defects affecting the stability or safety of the works.

However, the Engineering Consultancy Law promulgated by Sultani Decree 27/2016 (the “Engineering Consultancy Law”) provides that decennial liability extends to any defect, not just defects leading to collapse or those affecting stability or safety.  This would suggest that the contractor and the engineer remain liable for ten years for even minor defects.

In summary, decennial liability is broader in Oman than elsewhere in the Middle East, and can cover defects, both patent and latent, that are neither structural nor safety-related.  It is important that, when drafting contracts, contractors and consultants consider how best to allocate risk and protect themselves from claims.  It is also critical that parties to construction contracts keep good records to protect themselves from such claims, including photographs of works, and any relevant warranties given by manufacturers and suppliers.

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Monday, August 12, 2019

New Foreign Capital Investment Law

His Majesty Sultan Qaboos issued Sultani Decree 50/2019 on 1 July 2019, issuing the much-awaited new Foreign Capital Investment Law (the “New FCIL”) that replaced the earlier Foreign Capital Investment Law issued by Sultani Decree 102/1994 (the “Old FCIL”).  The development of the New FCIL took over four years and involved assistance from the World Bank.  During the course of the development of the New FCIL, the comments and input from various stakeholders, and consultation sessions, were organised by the Ministry of Commerce and Industry (the “MOCI”).  The New FCIL comes into force six months after the date of its publication in Official Gazette issue 1300 on 7 July 2019.

Under the Old FCIL regime, foreigners could not undertake commercial activity in Oman unless they had a formal presence by way of a legal entity or an agent.  A legal entity would take the shape of either a commercial company under the Commercial Companies Law or a branch of a foreign company.

While foreigners could register a local commercial entity under the provisions of the Old FCIL and the Commercial Companies Law, their ability to establish a wholly owned commercial company was restricted.  Under the provisions of the Old FCIL, a foreigner could establish a commercial company in Oman, subject to a restriction on maximum foreign ownership in the share capital of the commercial company.  This restriction initially allowed up to a maximum foreign ownership of 49%.  Upon Oman’s accession to the World Trade Organisation (the “WTO”), this restriction was relaxed to a maximum of 70% of the share capital of a commercial company.  As an exception to the Old FCIL, complete foreign ownership was permitted in some exceptional circumstances.  The exceptions were as follows:

(i) establishment in one of the Free Zones;
(ii) establishment under the Gulf Co-operation Council (the “GCC Treaty”);
(iii) establishment under the one of the free trade agreements (“FTA”) ratified and in force in Oman; and
(iv) special projects (with a minimum capital of OMR 500,000) which contribute to the development of the national economy as approved by committee for foreign investment following a recommendation from the MOCI under the provisions set out in the Old FCIL.

The New FCIL removes the requirement for having an Omani partner and shareholding restrictions on foreigners, thereby effectively permitting wholly owned non-Omani companies.

Under the New FCIL, all benefits, incentives and guarantees granted to foreign investment projects under the Old FCIL shall continue until such time that those benefits expire.  The New FCIL is promulgated without prejudice to the regimes pertaining to GCC investment, the Special Economic Zone at Duqm, the Public Establishment for Industrial Estates and the Free Zones.  Article 3 prohibits foreigners from practicing investment activities in Oman save in accordance with the provisions of the New FCIL.  It further provides that foreign investment projects will be subject to the laws of Oman and subject to any international treaty in force in Oman in relation to investment and double taxation.  It appears that FTAs entered into by Oman will continue to be implemented in their usual course.

The New FCIL provides for establishment of an Investment Service Centre (the “Centre”) at the MOCI.  The Centre will be responsible for licensing and easing the procedures relating to grant of licences, permits and other consents required for an investment project.  The Centre will also be responsible for issuing foreign investment licences to foreign investors.  While the Old FCIL also provided for grant of a licence for foreign investment, in recent practice that licence was not issued separately and was considered deemed to have been granted with the company registration documents.

Article 7 of the New FCIL states that foreign investors will be required to abide by the timetables provided by them for the execution of the project and approved in accordance with the economic feasibility study.  It also restricts foreign investors from making substantial amendments to the project without the MOCI’s approval.  It appears that under the New FCIL the foreign investors will be required to submit a business plan.  We expect this to be similar to, although more detailed than, the foreign investment application form that the MOCI introduced few years ago.

In addition, the New FCIL provides that the Cabinet may grant a single approval based on a recommendation of the Minister of Commerce and Industry to establish, operate and manage strategic projects.  This approval will be effective on its own without the need for further procedures.  It appears that once the Cabinet’s single approval is granted as an umbrella approval, then the other project approvals from different governmental entities and authorities would not be required.  What this would entail in practice and how different it would be from the other approvals mentioned in the New FCIL is yet to be seen.

While the New FCIL is substantially different from the Old FCIL, there are a number of similarities.  Article 6 of the New FCIL provides that foreign investment projects may be carried out by an establishment or a company established under the law.  Furthermore, Article 14 provides for a negative list of activities, in other words activities that are not open to foreign investment.  The MOCI maintains a list a foreign investment negative list on the basis of the Old FCIL and following reservations made in its accession to the WTO.  Until such time that a new negative list is published we expect that the negative list currently implemented will continue in effect.

The executive regulations of the New FCIL are to be issued within six months of its effective date.  Until such time, the regulations under the Old FCIL will continue to the extent that they do not contradict the New FCIL.


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Friday, August 9, 2019

In the Pipeline - July 2019


The Foreign Capital Investment Law is promulgated by Sultani Decree 50/2019. It aims to boost and promote foreign capital investments in the Sultanate by expanding investment sectors. The Executive Regulations and implementing decisions shall be issued within six months. Sultani Decree 102/94 and any legislation that contradicts the new law shall be repealed. The Sultani Decree is to be published in the Official Gazette and implemented six months from the date of publication.

The Privatization Law is promulgated by Sultani Decree 51/2019. The law sets out procedures for the privatisation of government facilities so as to expand the role of the private sector. The former privatization Law, Sultani Decree 77/2004, and any legislation that contradicts the new law will be repealed. The Sultani Decree is to be published in the Official Gazette and implemented the day following the date of publication.

Sultani Decree 52/2019 promulgates the Law on Partnership between Public and Private Sector. The law encourages investments by the private sector in the public sector in order to encourage a diverse range of national income sources. Any legislation that contradicts the new law will be repealed. The Sultani Decree is to be published in the Official Gazette and implemented the day following the date of publication.

The objective of the Bankruptcy Law, Sultani Decree 53/2019, is to support businesses in resuming their economic activity while in distress by restructuring the business. Book Five of the Law of Commerce and any legislation that contradicts the new law will be repealed. The Sultani Decree is to be published in the Official Gazette and implemented one year after the date of publication.

The Public Authority for Privatization and Partnership and its system of governance has been established by Sultani Decree 54/2019. The newly established public authority will have a legal identity that will enjoy administrative and financial autonomy. All employees and assets of the Oman Authority of Partnership for Development and the Department of Privatization at the Directorate General under the Ministry of Finance shall be allocated and transferred to the new Public Authority.
Sultani Decree 9/2014 and any legislation that contradicts the new law shall be repealed. The Sultani Decree is to be published in the Official Gazette and implemented from the date of issuance.

Please contact us if you would like more detailed advice on the above.

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Monday, July 22, 2019

Oman Rolls Out Unified Health Insurance Policy - or 'Dhamani'

In March 2019, the Capital Markets Authority (“CMA”) introduced the Unified Health Insurance Policy (“UHIP”), also known as Dhamani, as part of the mandatory health insurance plans being rolled out by the government for expatriate and local workers employed in the private sector.

Under the policy, all persons employed by the private sector in Oman, as well as all visitors to the country, will be required to obtain health insurance through providers authorised by the CMA.  The policy will also provide coverage to the spouses of employees in the private sector, as well as to their children under the age of 21.  The policy does not apply to public sector employees and is distinct from the social health insurance currently in place which is partially or entirely funded by the government.  The premiums in respect of insurance coverage for private sector employees will be payable by their employers.  It is anticipated that health insurance coverage in the private sector will increase from around 470,000 workers to more than 2 million workers.  Domestic workers who are currently not usually provided with insurance coverage by their employers will mandatorily be covered under the provisions of the UHIP.

UHIP sets forth a minimum level of benefits that the insurance policy must provide, including doctors’ fees, diagnostic services, ambulatory services, and emergency services, but will not include treatment in connection with pre-existing conditions, self-inflicted injuries, drug or alcohol abuse, sexually transmitted diseases, or use of alternative medicine or therapies.  Medical treatment in connection with pregnancy and childbirth will not mandatorily be covered under the UHIP and will be left to the discretion of employers.

Under the terms of the policy, the maximum coverage in respect of inpatient treatment shall be OMR 3,000, which will include hospital stay, treatment, medicines, etc.  The maximum coverage in connection with outpatient treatment will be OMR 500, which will include the cost of consultation, diagnostics, medicines and laboratory fees.  The maximum amount payable in connection with the repatriation of a deceased expatriate’s remains will be OMR 1,000.

The CMA is currently in the process preparing the necessary regulations and legislation to implement the policy.  The CMA has indicated that the implementation of the UHIP will take place gradually over 2019 and 2020 and will be determined in accordance with the classification of the private sector companies, with the larger local companies and international companies being expected to comply with the policy initially, with smaller companies being required to comply at a later stage.

In connection with the implementation of the UHIP, the CMA announced a tender in April 2019 in connection with the creation of an electronic platform to enable the efficient rollout of the UHIP by conducting health insurance transactions online between insurance companies, private health service providers, third-party administrators, and the relevant regulators.


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