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 Do─čan 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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New Law to Govern Public Private Partnerships in Oman

Current market conditions for infrastructure finance present numerous challenges.  Government revenues are shrinking and private infrastructure investors are both scarce and risk averse, thereby creating an acute need for alternative sources of capital.  Privatisations have become increasingly unpopular and difficult to execute, largely eliminating another source of government liquidity.

Public Private Partnerships (PPPs) are defined by the World Bank as “long-term contracts between a private party and a government entity for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance.”  PPPs typically do not include service contracts or turnkey construction contracts, which are categorised as public procurement projects, or the privatisation of utilities where there is a limited ongoing role for the public sector.

PPP project contracting is commonly used for major public infrastructure projects such as new roads, hospitals, schools, telecommunication systems, airports or power plants.

PPPs in Oman

In Oman, as in other civil law jurisdictions, a distinction is made between public contracts such as concessions, where the private party is providing a service directly to the public and taking end-user risk, and PPPs, where the private party is delivering a service to a public party in the form of a bulk supply, such as a build-operate-transfer project for a water treatment plant, or the management of existing facilities (e.g., hospital facilities) against a fee.

Oman has been a pioneer in the Middle East for PPP projects especially in the form of independent power producer projects (IPPs) and independent water and power projects (IWPPs).

In 1994 Oman saw its first PPP project, the Al-Manah independent power project, and has since regularly used the PPP model.  As recently as April this year, the Oman Power and Water Procurement Company (OPWP), advised by Curtis, signed agreements to establish the Salalah Independent Water Project with an ACWA Power-led consortium with Veolia and DIDIC.

A quarter of a century on from the Al-Manah project, Oman is now on the verge of issuing a new PPP law.  Oman will also establish a dedicated authority to oversee the implementation of this law.

Why regulate PPPs in Oman? 

PPPs in Oman are not wholly unregulated. Local laws that apply to PPPs include Oman’s Privatisation Law, Royal Decree 77/2004, which allows public utilities to be privatised or restricted under the law.  Further IPPs and IWPPs are currently tendered by the OPWP pursuant to Royal Decree 78/2004 amended by Royal Decree 59/2009 (Energy Sector Law) and Royal Decree 36/2008 (Tenders Law).  The Tenders Law is the key legislation that regulates government procurement in Oman.  It establishes a Tender Board and sets out requirements relating to advertising of tenders, forms of bid submission, bid timetable and evaluation, etc.

Key elements to look for in the new law

Effective PPP programs hinge on the ability of governmental entities to delegate some of their functions to one or more private parties.  Thus, PPP legislation should unambiguously identify the governmental entities authorised to enter into PPPs, the types of functions or services that may be delegated to private parties and the types of assets or facilities that may be developed, constructed, owned and operated under a PPP structure.  These determinations require careful balancing of government policy objectives, the public interest and the need to incentivise private sector participation.

Legislation authorising government entities to enter into PPPs also may specify categories of permissible transactions.  For example, some jurisdictions may wish to limit PPP transactions to a build-lease-transfer format, while others may contemplate more long-term (or even more permanent) arrangements for private participation.  At a minimum, the PPP-enabling legislation should identify the sectors in which PPPs are authorised and any limitations on the structure and duration of private sector participation.

Legislation should designate, or create, a governmental entity to oversee and facilitate PPP development and implementation (PPP Entity).  For example, a PPP Entity should be authorised to both receive PPP proposals from constituent government entities (e.g., authorities, municipalities) and propose PPP projects and issue “requests for proposals” (RFPs) for PPPs.

In evaluating proposed projects, the PPP Entity should be required to perform an economic analysis and an initial risk/reward assessment of the proposed project.  The PPP Entity also should have the authority to enter into PPP contracts and ancillary arrangements including contracts to retain professional advisers (e.g., engineers, financial advisers, attorneys) and take other actions necessary or desirable to effectuate the goals of PPP legislation.

Finally, PPP legislation may authorise certain types of government financial support including credit enhancement instruments (e.g., bonds, letters of credit) and, in limited cases, sovereign guarantees.  Other types of governmental support may be appropriate depending on the project and the government’s objectives.  At bottom, however, PPP legislation must answer the central question of whether the delegation of public functions will require the commitment of public credit to or on behalf of private parties and, if so, whether such commitments conflict with constitutional or public policy constraints in the relevant jurisdiction.

Conclusion 

PPPs have an important role to play in meeting Oman’s long-term public infrastructure needs.  The implementation of a comprehensive PPP law can improve the volume and efficiency of PPP transactions while mitigating the costs assigned to the government’s balance sheets.  An effective PPP law also will improve the ability of the Omani government to compete for private sector partners and capital.  Although natural resource wealth will mitigate the short-term need for such capital, Oman’s long-term infrastructure needs will require increased utilisation of PPPs as a cost-effective vehicle for programmatic infrastructure development.

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