Arrival of Value Added Tax (VAT) in Oman

Towards the end of 2016, the Gulf Cooperation Council (GCC) member states agreed and signed a Unified VAT Agreement (the “Unified Agreement”) for the introduction of value added tax (“VAT”).  The Unified Agreement sets out the framework through which each individual GCC member state will implement domestic VAT legislation.  The intention was that VAT would be implemented by the GCC states by 1 January 2018.

Implementation so far

The United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) introduced VAT in accordance with the terms of the Unified Agreement on 1 January 2018.  Both countries enacted a VAT Act together with Implementing Regulations.  Bahrain has recently announced that VAT will be introduced in the country on 1 January 2019 and has published the Arabic version of its VAT law.  Qatar has indicated that it may introduce VAT later in 2019, while Kuwait may potentially delay implementation until 2021.

We understand that the Omani VAT legislation is currently being prepared and that VAT may be introduced as early as 1 September 2019, though it may be delayed until 1 January 2020.

Key terms of the Unified Agreement

Under the terms of the Unified Agreement, VAT will apply to goods and services at the standard rate of five percent.  Although the majority of the VAT compliance requirements are left to the discretion of the member states to be determined in their respective VAT legislations, the Unified Agreement requires businesses with an annual turnover of SAR 375,000 (or its equivalent from any other GCC member state currency) to register for VAT.  Businesses generating half of the turnover threshold may register for VAT on a voluntary basis.

Under the terms of the Unified Agreement, the following must be zero rated (i.e., subject to zero percent VAT rate):  medicine and medical equipment; the transport of goods and passengers (intra-GCC and international) and associated ancillary services; export of goods outside of the GCC; and certain transactions in gold and silver.  Certain food items (e.g. bread, milk), oil and gas including oil derivatives, and the supply of means of transportation for commercial purposes may be zero rated at the discretion of each individual member state.  The member states also have the discretion to exempt or zero rate, as they deem fit, supplies made in the education, healthcare, real estate, and local transport sectors.

The Unified Agreement requires VAT due on import of goods to be paid at the first point of entry in the GCC.  However, in the event that goods imported are exempt or zero rated in the country of importation or exempt from customs, such goods will be exempt from VAT.  Financial services are also exempt from VAT under the terms of the Unified Agreement.

Preparing for VAT in Oman

Although VAT is unlikely to be introduced in Oman until 1 September 2019 at the earliest, it is best to start preparing for the implementation of VAT sooner rather than later.  The UAE did not issue its VAT Implementing Regulations until November 2017, while KSA only issued them in September 2017.  In both instances, companies waiting for the issuance of the Implementing Regulations in order to prepare for VAT realised they did not have enough time to fully comply with the legislation.

It is imperative for companies to review existing contracts which will continue until 1 September 2019 or beyond and determine if the contracts include clauses relating to the payment of VAT.  In the event that such transitional contracts do not have VAT clauses, it may be useful to determine if the counterparty will agree to an amendment to include a VAT clause, and if it is in the company’s interest to do so.  It may also be helpful to identify what portion of the supply will be subject to VAT.

In the event that transitional contracts do have VAT clauses, it is worth considering whether the company will practically be able to collect the amount of VAT chargeable in respect of such contracts, particularly if the payment in respect of such contract has already been made.  For example, in the UAE insurance companies struggled during the transitional period to collect VAT in respect of individual insurance policies where the premium had already been paid.

All contracts expected to continue until 1 September 2019 or beyond should include relevant VAT clauses and the parties should determine who will be responsible for paying VAT.  Companies should also consider the impact VAT will have on cash flow, particularly in instances where customers are invoiced but will not be required to make payment until later (or where a customer usually pays the invoiced amount late).  VAT is payable upon the issuance of a tax invoice, regardless of whether the customer has paid such amount.  This may have a significant impact on a company’s cash flow, and may require reconsideration of payment terms.  Third-party vendors may also be reconsidered on the basis of whether or not they are VAT registered, which will allow the company to deduct input tax.  In the event that a company has many customers outside of Oman, yet within the GCC, the treatment of VAT on supplies to such customers should also be considered.

In the case of group companies, the Unified Agreement provides for a group of companies in the same member state to be treated as a single taxable person (a “tax group”).  The group of companies will need to determine if it advantageous for them to register as a tax group.

On a practical note, companies will need to ensure that their software takes into account VAT pricing and that they are able to issue tax invoices in accordance with the relevant legislation.  For example, in KSA, VAT invoices for amounts over SAR 1000 are required to be in Arabic.  As a result, all companies needed to ensure that they had the relevant software to issue VAT invoices in the requisite form from the day the VAT legislation went into force.

Read More...

Secondment of Employees in Oman

The Oman Labour Law issued by Royal Decree 35/03 (as amended) does not provide for or recognise the concept of secondment.  However, in practice, it is fairly common for foreign commercial companies to second their employees to local entities pursuant to a secondment agreement with the new company or the local partner.  This facilitates compliance with local law requirements, which require mandatory permits for the secondee to be employed and to reside in Oman.

Over the years, certain conventions have evolved which do not have the force of law, but which most companies follow when seconding employees in Oman.  Below we set out some of the more important of these conventions:

1. The secondee always remains the employee of the foreign company regardless of any agreement that the local company may be required to enter into with the secondee for the purpose of obtaining employment permits.
   
2. The local company “employing” the secondee and the foreign company providing the secondee should enter into a secondment agreement setting forth the terms of secondment and providing essential safeguards for the local company, foreign company, and the secondee.
   
3. The local company should act as the local sponsor for the secondee for the purpose of procuring the requisite visa and the residence permit for the secondee and, as the case may be, for the family members of the secondee under the same sponsorship.
   
4. The local company should provide the necessary amenities to the secondees (and to the dependants, if agreed) during the secondment in accordance with the agreement between the parties as indicated in the secondment agreement.
   
5. The secondees are expected to perform their duties in Oman in accordance with the terms of their secondment and the policies of the local company.
   
6. The foreign company is expected to withdraw the secondee immediately in case of misconduct or breach of any provision of the local laws by the secondee.
   
7. Any material change to the job profile or designation of the secondee is subject to mutual agreement between the foreign and local companies.
   
8. As the provisions of the Omani labour law would apply to all persons employed in the private sector including secondees, sufficient safeguards must be provided in the secondment agreement to exclude the applicability of Omani labour law and the jurisdiction of Omani courts in case of disputes arising from the secondment. 

Read More...

Replacing London Interbank Offered Rates (LIBOR)

Current background

Following the 2008 financial crisis, liquidity in the interbank loan market fell significantly to the point where over seventy percent of the bank quotations on which LIBOR is set were based on judgements by the panel banks as to their own costs of credit, rather than being based on the interest rates for actual interbank loan transactions.  Not surprisingly, as came to light in 2012, the LIBOR market became subject to manipulation by bank participants.  While UK bank regulators undertook various reforms to address the problem, because liquidity has not returned to the market, concern over the reliability of LIBOR persists.  Consequently, the UK Financial Conduct Authority (FCA), which began regulating LIBOR in 2013, has promoted the phase-out of LIBOR in favour of reference rates based on verifiable market transactions.  The FCA has targeted the end of 2021, a little over three years from now, for the phase-in of new risk-free reference rates (RFR) to be completed.  While it remains possible that LIBOR also will continue to be quoted after 2021, given the uncertainty, floating rate debt, as well as swaps and derivatives, with tenors extending beyond 2021 should include appropriate LIBOR fallback and replacement provisions.

Alternative RFRs

Various currency-specific industry working groups, in coordination with their relevant regulators and central banks, are developing the new RFRs expected to replace LIBOR.  In the U.S., with respect to the dollar, the effort is led by the Alternative Reference Rates Committee (ARRC).  ARRC is an ad hoc committee convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York and is comprised of representatives from leading U.S. banks, industry groups, and regulators, including the U.S. Treasury, Federal Deposit Insurance Corporation, Commodity Futures Trading Commission and Securities Exchange Commission.  ARRC has identified the so-called Secured Overnight Financing Rate (SOFR) as the reference basis for a U.S. dollar RFR.  SOFR is a volume-weighted median of rates on overnight repos collateralised by U.S. Treasury securities.  The New York Fed began publishing SOFR in April 2018, and overnight indexed swaps and futures in SOFR already have begun trading.  Once sufficient liquidity develops, ARRC intends to fashion term reference rates based on SOFR derivatives.

In the UK, the effort is led by the Working Group on Sterling Risk-Free Rates operating under the auspices of the Bank of England.  This Working Group has identified the Sterling Overnight Index Average (SONIA) as the RFR basis for pounds sterling.  SONIA, which is administered by the Bank of England, has long served as the reference rate for sterling overnight indexed swaps.  It represents the mean of interest rates paid on overnight wholesale deposits, where credit and liquidity risks are minimal. 

The challenge posed by SOFR, SONIA, and equivalent RFRs being developed for the euro, yen and Swiss franc is that they all are backward-looking overnight rates and so do not compensate for the forward risk and time value of term lending, whether it be one week, one month, or longer.  LIBOR, by contrast, is forward-looking over several different maturities.  LIBOR compensates for term risk and provides lenders and borrowers certainty as to the cash flows during each interest rate period.  In addition, SOFR is secured by U.S. treasuries and so nearly risk-free, while LIBOR is unsecured and responsive to bank risk generally.  SONIA is similarly low risk.  SOFR and SONIA, therefore, are likely in most circumstances to be lower, less volatile rates than LIBOR, implying that different margins will be required to achieve equivalent effective interest rates.  At this point, while under development, the mechanics, timing and ultimate availability of forward-looking term rates based on the new RFRs remain uncertain.

Implications for current floating rate debt

Although the phase-in of RFRs is not targeted to be completed until the end of 2021, floating rate notes and syndicated loans with tenors beyond that date are already being placed in the market.  It is important, therefore, that new debt instruments include provisions which, as best they can at this point, anticipate the replacement of LIBOR.

While the ultimate nature of the RFRs to be implemented by the end of 2021 is not yet known, it is likely that they will not be economically interchangeable with their corresponding LIBOR rates, and so it is unlikely that the new RFRs can be slotted into existing loans with their margins as currently priced without resulting in unintended value transfers to either lenders or borrowers.  Consequently, it appears the best that can achieved at the moment in new loan documentation to address the risk that LIBOR will become unavailable, unreliable or non-standard during the term of a loan is to include provisions which facilitate amendments undertaken specifically to reset the interest rate reference and margin to accommodate the mechanics and economic metrics of the new RFR.

In the syndicated loan market, the general rule has always been that the unanimous consent of all lenders and the agreement of the borrower is required in order to change the rate of interest.  In the case of conversion to new RFRs, however, because the new metrics will be well established and understood by the time replacement is necessary, and the transition will be undertaken on a market-wide basis, lenders and industry groups appear comfortable with relaxing the lender consent requirement, generally to a majority in interest of the lenders.

In the UK market, the Loan Market Association (LMA), which works to standardise documentation for English law-governed credit agreements, has published a set of provisions addressing the replacement of LIBOR.  These provisions (i) identify the changes in LIBOR or the market, including but not limited to the cessation of LIBOR quotations, which would trigger the relaxed lender consent threshold for interest rate amendments and (ii) delineate the nature and scope of amendments that qualify for such treatment, including the prerequisite characteristics of qualifying RFR benchmarks.

In the New York law-governed syndicated loan market, similar though varied clauses have begun to appear in recent floating rate credit agreements, without any dominant market standards having yet taken hold.  In addition, on 24 September 2018, ARRC published for comment proposed LIBOR replacement provisions for floating rate notes and syndicated loans.  These are similar in format to the LMA provisions, although ARRC also includes provisions which, in addition to replacing the benchmark, would adjust the credit spread in certain cases.

Read More...

Simon Ward Returns to Curtis as Muscat Managing Partner

We are pleased to announce that Simon Ward re-joined Curtis in October as a partner in the international arbitration and litigation groups, and has also been appointed Managing Partner of the firm's Muscat office. Former Managing Partner Bruce Palmer has agreed to take on an advisory role as Director of Middle East Strategic Planning.

Mr. Ward stands out among Oman’s most experienced arbitration counsel with over a decade of experience in the region. He is currently ranked by Chambers Global as a top Commercial Litigation and Arbitration lawyer for his heavyweight commercial arbitration practice, and has advised on some of the highest-profile commercial arbitration and court cases in the Sultanate.

He was appointed to the Oman Court of Appeal Roll of Arbitrators in 2011 and has acted as both arbitrator and lead counsel before the Omani courts. He has also acted in domestic and international arbitrations under the auspices of the ICC and LCIA, and in Omani/UNCITRAL ad hoc arbitrations.

Before leaving Curtis last year to return to his native New Zealand for family reasons, Mr. Ward had spent nearly five years in our Oman office, including most recently as Curtis’ Head of Disputes in Oman.

You can contact Simon in our Muscat office, or read our full press release here.

Read More...

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.

Read More...

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 Doğan 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.

Read More...

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.

Read More...

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.

Read More...

Debt Recovery in Oman

In the current climate, increasing numbers of contractors and consultants are finding it difficult to recover payment for work they have already undertaken in Oman.

In the past, many companies working in the region have been wary of pursuing their entitlements through formal dispute resolution processes, due to perceived cultural sensitivities.  However, many now feel that they have no choice but to consider the available debt recovery options.

In many instances, the amounts owed are not disputed.  However, in the current market, some developers/contractors consider that they should not be obliged to pay their debts in full, and are attempting to avoid, defer, reduce and/or make piecemeal payments over a substantial period of time.

How to recover your debts in Oman

Wherever you are from, outstanding payments can be frustrating, not to mention costly.  However, a contractor will usually be aware of the tools available in its home jurisdiction in order to speed payment along.

When working overseas, however, the different cultural, legal and practical issues can make the whole process much more challenging.  In Oman, this challenge is in part due to the local civil legal system.  Those instruments that common law practitioners are used to wielding are not present in quite the same form.

The options available to pursue non-payment of due monies will depend on the dispute resolution mechanisms contained within the relevant contract.  Typically, a contractor/consultant will have to litigate or arbitrate to recover payments.

In addition, there are a number of procedures available under local laws that could assist in the recovery of debts.  Potential options available under Oman law include:

An order of payment

An order for payment within Oman is a developing area of law.  It can therefore often be hard to determine the likelihood of success before the Omani courts when making such an application.  It is a procedure by which a party applies to the courts for summary judgement against a defendant for commercial debts, substantiated by a commercial instrument such as a bill of exchange, promissory note or cheque, which are valid, but not paid.

If a party has a successful application for an order for payment, the outcome would be a direction from the courts for the outstanding debts to be paid by the debtor.  Success is by no means guaranteed, but the mere threat of an order for payment can be a persuasive tool for the creditor, as an outstanding debt can bring with it considerable public embarrassment within the local community.  This in turn can act as an incentive for the debtor to settle any outstanding debts.

Precautionary attachment order

A precautionary attachment order, if granted, essentially allows the court to seize the assets in question at the claimant’s request prior to judgement/arbitral award in order to preserve those assets during the trial.  It is as close to seeking injunctive relief as it gets in Oman.  The procedure, timing and effect of precautionary attachment orders can at times be somewhat unclear.

Precautionary attachment orders are made in absence of the other party and are ordinarily used as a tool to ensure that assets are not disposed of prior to receiving the court’s judgement/arbitration.

The order can be made against any assets in Oman, including machinery, bank accounts, goods or other assets owned by the defendant and under his possession, or owned by a defendant but in the possession of a third party.  It should be noted that the assets, money or material to be attached must be specified before the application will be granted.

If a precautionary attachment order is granted, the substantive case must be filed at court within eight days.

An order for sale

This is a procedure whereby a claimant applies to court for an order that a property or part thereof be sold where a defendant has failed to pay for material and equipment supplied for that property.

An order for a charge over property

In certain circumstances a contractor can exercise a form of charge over a property on which it is doing work until payment for that work is received.

Substantive action

As discussed above, pursing substantive action is also a possibility, either through the local courts or via arbitration.  Litigation in Oman can be both costly and time-consuming.  There are cases that continue for five years or more, and only local advocates can appear and plead before the courts. 

Arbitration might allow a claimant to remain within their common law comfort zone; however, cases usually take at least a year to reach a decision and the costs are not insignificant.

Practical tips

(a) Examine the payment terms in the contract;

(b) Ascertain entitlement to the outstanding debt and collate all the documentation in support of it;

(c) Review the dispute resolution mechanism in the contract, if any;

(d) Determine what assets the debtor owns and where these assets are held; and

(e) Review the amount in question and determine what is the best avenue for recovery.

Read More...

The Effect of Insolvency in Oman

The Oman Commercial Law issued by Sultani Decree 55/90 (the “OCL”) is the primary legislation governing insolvency in Oman.  Pursuant to the OCL, if a business is in financial distress and is unable to pay its debts, it will be forced to apply to the Commercial Court for a declaration of bankruptcy.  Otherwise, an application can be made by one of its creditors when such debtor has ceased payment of the debt.

In addition, any creditor pursuant to a commercial debt which is not yet due shall have the right to apply for the declaration of the bankruptcy of a debtor, if such debtor has no known domicile, has absconded, has closed the relevant business or initiated the liquidation thereof, or has effected dealings detrimental to its creditors.

How to apply for declaration of bankruptcy

A declaration of bankruptcy shall be by statement submitted to the registry of the Commercial Court, supported by reasons for the cessation of payment of debt.  An application must also attach certain documents, including but not limited to:

(a) the principal commercial books;

(b) a copy of the last balance sheet and of the profit and loss account;

(c) a statement of personal expenditure for the three years preceding the making of the application;

(d) a detailed statement of the immovable and movable property owned by the debtor and the approximate value thereof on the date of cessation of payment;

(e) a statement as to the names of the creditors and the debtors, their domiciles, the amounts of their entitlements or their debts, and the securities securing the same; and

(f) a statement of the protests for non-payment made against the debtor during the two years preceding the making of the application.

The effect of bankruptcy

After an application has been submitted, the Commercial Court may order the taking of measures necessary to preserve or administer the assets of the debtor until it makes its decision on the declaration of bankruptcy.  This may include delegating such person as it sees fit to conduct investigations into the financial state of the debtor and the reasons for its/his cessation of payment, and to submit a report thereon.

A consequence of a judgement declaring bankruptcy is such that as of the date it is rendered the bankrupt shall relinquish in favour of the administrator in bankruptcy the management of all his assets, including assets passing to him while he is in a state of bankruptcy.  This does not apply, however, to earnings and certain other assets that a judge considers commensurate with the bankrupt’s need to support himself and his family.

Further, the bankrupt may not effect any dealing in relation to any part of his assets, and he shall not be entitled to effect any act of payment or of receiving save where the receiving is of a commercial instrument and bona fide.

Right to restitution

1. Actual items

Any person may obtain restitution from the estate in bankruptcy for specific items in respect of which he can prove ownership, but the administrator may not deliver any item to the person seeking restitution before first obtaining leave of the respective judge.

If the administrator refuses to return items in respect of which restitution is claimed, the dispute will be placed before the Commercial Court.

2. Instruments of value

It is permissible to obtain restitution of commercial paper and other instruments of value delivered to the bankrupt in order to realise their value or to apply them to a specific payment, if they are actually present in the estate in bankruptcy and their value had not already been paid out when bankruptcy was declared.  Restitution will not, however, be permissible unless the instruments in question have been recorded in a current account between the person seeking restitution and the bankrupt.

Restitution of bank notes deposited with the bankrupt will not be permissible until the person seeking restitution proves they are actually the notes in question.

3. Goods in deposit

Under Article 636, it is permissible to obtain restitution of goods present in the possession of the bankrupt as a deposit, or for the purpose of their sale on behalf of their owner, or for the purpose of delivering them to the owner, on condition that they are present in the estate in bankruptcy.

If the bankrupt has already deposited the goods with a third party, restitution may be obtained from the third party.  If the bankrupt borrows and mortgages the goods by way of security for borrowing, and the lender was at the time of charging unaware that the bankrupt did not have title to the goods, there may be no restitution until the debt secured by the mortgage has been discharged.

4. Spouse’s assets

Either spouse may, whatever the financial regime followed in the marriage, obtain restitution from the other’s estate in bankruptcy of movable and immovable assets if title can be proven and the property will remain encumbered by rights lawfully acquired in respect thereof by third parties.

Assets which are purchased by the spouse of a bankrupt or which are purchased for the account of such spouse or for the account of infants comprised within the guardianship of the bankrupt from the date they took up trade will be considered to have been bought with the monies of the bankrupt, and will come into the assets of the estate in bankruptcy unless the contrary is proved.

Neither spouse may claim from the other spouse’s estate in bankruptcy gifts which the bankrupt spouse makes to such spouse during marriage by transaction inter vivos or with posthumous effect.
Similarly, the group of creditors may not claim from either spouse gifts which the bankrupt spouse makes to such spouse during marriage.

Read More...