Monday, November 21, 2016

Insurance Coverage Obligations

Oman Labour Law

Chapter 3 of the Oman Labour Law issued by Royal Decree 35 of 2003, as amended, (“OLL”) deals with the management of employees. Article 33 of the OLL provides that an employer is required to provide its employees with access to medical facilities in the establishment. Additionally, if the number of employees in one place exceeds one hundred, the employer shall employ a qualified nurse for providing medical aid and shall assign a doctor to visit and treat the employees at a designated place prepared for such purpose. The employer must also provide the employees with the medical treatment free of charge.

If the number of the employees is more than five hundred, the employer shall, in addition to the above, provide the employees with all other means of treatment, including the assistance of specialist doctors or surgical operations or provide the required medicine, free of any charge to employees. However, the employer is not required to pay the costs for dental, ophthalmic and maternity treatment. If the employee is treated in a government hospital or a private clinic, the employer must pay the costs of treatment, medicine and inpatient care, in accordance with the regulations and financial rules applied by the hospitals, subject to the provisions of the laws on social security insurance.

Accordingly, Article 33 of the OLL creates the legal obligation on the part of the employer to bear the expenses of the employee at a government or private hospital, including the expenses of treatment, medicine and stay in the hospital, subject to the laws in respect of social security.

Medical Insurance for Expatriate Employees

An employer is required to provide medical insurance for its expatriate employees. The employer may satisfy this legal obligation in relation to the payment of medical treatment for expatriate employees by providing medical insurance for its employees with a third party insurer, which insurer would pay the government or private hospital directly when the employee receives medical treatment at these health institutions. The employer may also opt for establishing an arrangement with particular designated medical institutions to provide medical services to its employees and the employer would then settle the dues directly with the relevant medical institution.

Medical Insurance for Omani Employees

In the ordinary course, an employer is not obligated to provide medical insurance to an Omani employee, as Omani nationals are entitled to free medical treatment at all government hospitals. Additionally, all Omani employees are covered under social insurance provided by the Public Authority for Social Insurance (“PASI”).

The Social Security Insurance Law, issued by Royal Decree 72 of 1991, as amended, (“SSIL”) provides the social security system applicable to Omani employees on permanent contracts of employment under the age of retirement. The SSIL deals with two types of security:

1.          security against old age, disability and death; and

2.          security against occupational injuries and diseases.

In instances of occupational injury, under the SSIL, PASI is required to directly provide the Omani employee with medical care. The employer is required to contribute towards the security against occupational injuries and diseases by paying a monthly subscription to PASI at the rate of 1% of the monthly wages of each Omani employee. Only the employer (and not the employee) shall pay such subscription to PASI.

Is it mandatory, according to the OLL, for the employer to provide immediate health coverage to the employee’s dependent(s)?

There is no mandatory requirement under the OLL which requires the employer to ensure health coverage for the employee’s dependents (i.e., spouse and children). Article 33 of the OLL only requires the employer to provide all medical facilities to its employees with the exception of the costs relating to dental, ophthalmic, and maternity treatment.

However, if the employer has been sponsoring the employee’s dependents, the employer is not permitted under the OLL to discontinue such benefit. Article 6 of the OLL provides that an employer may establish a scheme by which its employees acquire benefits more generous than those granted by the OLL, or may provide the employee with other benefits, or may enter into agreements with them, the conditions of which are more generous than those provided for in the OLL. Article 6 further provides that if a condition in the OLL contradicts with any of the condition in such schemes or agreements, the condition that is more generous to the employee shall apply. Therefore, the discontinuation of the dependent’s coverage will be construed as ceasing a benefit that has been previously granted to the employee and thus a violation of the OLL.


Monday, November 14, 2016

Payment of Allowances – An Overview of Financial Publication No.5 of 2016

As part of a cost cutting initiative, earlier this year, the Government of Oman, through the Ministry of Finance (“MOF”), made efforts to reduce various benefits provided to employees of companies with more than 50% government ownership (the “Affected Entities”). In other words, the Government of Oman sought to curtail a wide array of benefits currently enjoyed by employees of Affected Entities, in addition to their salaries, in order to make them more uniform and performance dependent.

Financial Publication No. 5 of 2016 (the “MOF Publication”) on the rationalisation of expenditure of Affected Entities, was issued by the MOF on 21 February 2016. The MOF Publication urges all Affected Entities to curb expenses on the basis of a non-exhaustive list which includes bonuses, insurance policies, loans, financial rewards, education allowances and financial reimbursements of any kind (the “Allowances”). Annual salary increments are not included in this list and performance related bonuses are also explicitly excluded.

The stated aim of the MOF Publication is to reduce the disparity between the number and nature of Allowances given to employees in the Affected Entities, and to implement the spending review made necessary by the drop in oil prices.

The decision to reduce or cease the payment of Allowances was issued by the MOF through a “Publication” and not by way of Circular or Ministerial Decision. Publications from the MOF have been, in the past, used as means of communication from the MOF.

The Publication is issued pursuant to Article 6 of the Financial Law (RD 47/98) which authorises the Minister of Finance to undertake certain functions, one of which is to guide and coordinate ministries and government units in respect of financial affairs. Article 6 also includes the right to intervene in the recovery of payments made without justification for salaries, wages, allowances, remunerations or their equivalents in cases and under conditions specified by the executive regulations of the law. However, the content of the MOF Publication may pose legal issues, in particular, considering its interaction with the provisions of the Labour Law (RD 35/2003 as amended).

Individual employees of the Affected Entities are employed in the private sector and therefore subject to the Omani Labour Law. The MOF publication appears to be in contradiction with some provisions of the Labour Law concerning employees’ benefits. Particularly, Article 6 provides that the employer has the option to establish schemes from which his employees may obtain benefits in addition to what is prescribed by the Labour Law. Once these benefits are formalised, usually in an employment contract, the employer is forbidden from unilaterally reducing or revoking such benefits. An amendment to the Labour Law, or a new Law in the form of Royal Decree could override such provisions but, in the case of the MOF Publication, the hierarchy of laws provides otherwise. A Royal Decree will take precedence over a Publication in accordance with Article 80 of the Basic Law of the State (RD101/1996), which states that no authority in the State shall issue regulations, by-laws, decisions or directives that contradict the provisions of the laws and decrees in force, or international treaties and agreements that are part of the law of the country. Thus, where a contradiction arises the Royal Decree will prevail.

Most employees working in Affected Entities have open-ended employment contracts (i.e., for an unlimited term). Such employment contracts include different types of Allowances and the Affected Entities will find it difficult to revoke the Allowances that an employee is entitled to and has been receiving since the commencement of his/her employment. A revocation of such benefits would constitute a breach of the employment contract, opening the door to complaints to the Ministry of Manpower and subsequent litigation whereby the Affected Entities, as employers, may be sued for not adhering to contracts between them and their employees. As a consequence, Affected Entities may face legal and financial issues by cutting Allowances originating from existing contracts. Affected Entities should review and evaluate the potential impact that implementing the MOF Publication would have on the company and its operations to assess the possible effects of such implementation as board members and other company officials should ensure that the policies and plans to be adopted in relation to the company’s operation are in the best interest of the company and its shareholders. Finally, Affected Entities may consider offering more limited benefits in future employment contracts.

The MOF Publication does not provide for sanctions or penalties that may arise in the case of failure to comply with its provisions and does not specify dates with reference to its implementation. Thus, the MOF Publication appears to be structured substantially as a communication and a recommendation to the Affected Entities in the framework of the MOF’s general endeavour to reduce public spending. The MOF may issue further clarifications and take further measures in the matter in the near future, as stated in the MOF Publication in the following terms: “We are currently working on the amendment of the regulations and measures applicable in regard to what is mentioned…”. If and when such amendments to the existing regulations are issued, the matter will have to be reconsidered in the light of the interaction of such amended regulations with the Labour Law and other applicable laws.


Monday, November 7, 2016

Voluntary Liquidation in Oman

A number of limited liability companies (“LLCs”) are set up in Oman to carry out specific contracts for works and services, either as joint foreign and Omani enterprises under Article 2 of the Foreign Capital Investment Law promulgated by Sultani Decree 102 of 1994, as amended (the “FCIL”), or as 100% Omani owned LLCs. However, once the specific contract has expired, it is not always the case that these LLCs are successful in securing further contracts for works or services in Oman. As a result, these LLCs may consider voluntary liquidation.

Justifications for Liquidation

A LLC’s constitutive contract would usually set out the circumstances in which the LLC may be placed into liquidation, but justifications for liquidation are also set out in Article 14 of the Commercial Companies Law No. 4 of 1974 (the “CCL”). These are:

(a)        Expiration of the term fixed for the LLC, or the occurrence of any other event requiring
dissolution specified in the constitutive contract or articles of association of the LLC.

(b)       Accomplishment of the purpose for which the LLC was established, or impossibility of
accomplishing such purpose.

(c)        Transfer of all the shares or stocks in the LLC’s capital to one member.

(d)       Bankruptcy of the LLC, or loss of all or most of the LLC’s capital if such loss renders
the effective use of the remaining capital impossible.

(e)        Agreement of the members to dissolve the LLC.

(f)         If at the request of any interested party, and for any of the foregoing reasons or for
any other reason seriously impairing the LLC’s ability to accomplish its objectives, the Commercial
Court orders the dissolution of the LLC.

For the purpose of this article, we will consider the process to be followed where there is agreement of the members of an LLC to dissolve the LLC, although the main processes set out below would apply to the other justifications for liquidation.

Liquidation Process

Agreement to Liquidate
In accordance with Article 168 of the CCL, an LLC may be liquidated with the agreement of the 
shareholders representing 75% of the LLC’s capital.

Appointment of Liquidator

The shareholders will need to execute a resolution confirming their decision to liquidate the LLC 
and the appointment of a liquidator (usually a local law firm).   The shareholders resolution and 
appointment of the liquidator would then need to be filed by the liquidator in the commercial 
register of the Ministry of Commerce and Industry (“MOCI”) with a cheque for OMR 50 payable to the Ministry of Legal Affairs (“MOLA”).

Cessation of Business and Notices

Once the shareholders resolution discussed above is executed, the LLC must cease all of its business. The MOCI will liaise with MOLA to publish a notice of liquidation in the Official Gazette of Oman. The publication in the Official Gazette will invite the LLC’s creditors to present any claims they may have against the LLC. In accordance with Article 25 of the CCL, the creditors have six months from the first publication to present such claims, although the Minister of MOCI may authorise a shorter period, depending on the financial state of the LLC.

Any contracts, receipts, notices or other documents issued by the LLC after the publication of the notice of liquidation, must indicate that the LLC is under liquidation.

Liquidators Duties and Powers

The liquidator will take possession of the LLC’s ledgers, registers, documents and stock and with the LLC’s auditors or managers (if any) will prepare a detailed list of the LLC’s assets and liabilities. The liquidator will represent the LLC and manage its activities and take all measures necessary to liquidate the LLC’s assets and settle its debts. The liquidator will represent the LLC in law as either plaintiff or defendant and take appropriate steps to safeguard the interests of the LLC.

However, the liquidator will not be permitted to conclude any settlement arrangements with the LLC’s creditors, or to accept arbitration on its behalf or to relinquish any insurance or any other types of security belonging to the LLC at less than its full value. The Liquidator may not commence any new undertakings unless such undertakings are necessary to liquidate the LLC.

Return of Stake to Shareholders

After settling all valid claims made against the LLC, the liquidator shall repay to each of the shareholders the remaining value of his stake or shares in the LLC’s capital as set out in the LLC’s constitutive contract, and distribute among the shareholders any remaining assets in accordance with the provisions of the LLC’s constitutive contract. In the absence of a specific provision to this effect, the remaining assets will be distributed among the shareholders proportionate to each of their stakes or shares in the LLC’s capital.

Completion of Liquidation Process

When the liquidation process has been completed, the liquidator shall submit a final report and a 
statement of account on their work to the LLC’s shareholders for approval.  If the LLC’s 
shareholders do not agree unanimously to the final report and the statement of account, the 
liquidator may request the competent Court to approve.

he approved final report is then presented to the Tax office at the Ministry of Finance (the “MOF”) to confirm that all taxes have been paid.  The liquidator will also be required to receive a 
statement from the Ministry of Manpower (the “MOM”) confirming that all amounts due to the 
employees have been settled.

The liquidator is then required to submit the final report along with the MOF and MOM confirmations to the MOCI and file the announcement of completion of the liquidation process on the Commercial Register at the MOCI.

The announcement of the completion of the liquidation process will also be published in the Official Gazette, after which, an official request is made to the MOCI enclosing a copy of the publication for closure of the LLC. Upon filing this request, the liquidation shall be deemed to be completed and the LLC shall cease to exist.