Monday, July 13, 2009

Doing business in Oman FAQ: Bankruptcy

The financial crisis has resulted in many companies encountering difficulties in maintaining profits and even staying solvent. In Oman, courts may declare a company facing financial difficulties as bankrupt or insolvent if (i) its financial state is in disorder; and (ii) it has ceased to discharge its commercial debts. The bankruptcy declaration may be ordered by the court based on the court’s own initiative, upon application by the debtor company, or by one of the company’s creditors. Omani courts often appoint an administrator for managing the debtor’s assets while the bankruptcy application is pending.

Once a company has been declared bankrupt by an Omani court, the company may be liquidated. The court will usually appoint a liquidator for effecting the transfer of the company’s remaining assets. The liquidation is usually effected by way of judicial sale or public auction.

In distributing the assets of a bankrupt company, all expenses of the administrator or liquidator, including compensation, must be paid from assets of the bankrupt company before any distribution is made to creditors. Thereafter, creditors are ranked pursuant to the Law on Recovery of Government Debts [RD 32/94] in the following order of priority:

  1. Government;
  2. Employees;
  3. Secured Creditors;
  4. Unsecured Creditors; and
  5. Subordinated Creditors.
As a general rule, debt of secured and unsecured private debts is subordinate to debt owed to the government even if the government debt arose later and is not secured. The Government is generally known to give up its priority ranking in favor of employees.

Unlike the bankruptcy law of some countries, the Omani laws for bankruptcy and liquidation are very straightforward. The focus of the law is to protect creditors as much as possible and ensure the insolvent company is liquidated efficiently.