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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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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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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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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