Bahrain’s new bankruptcy code: A move towards global conformity

Introduction

The newly proposed Law No (22) of 2018 Issuing Reorganization and Bankruptcy Law is expected to come into force on December 8, 2018, and consequently shall supersede the existing Legislative Decree No (11) of 1987 Promulgating the Bankruptcy and Composition Law. The implementation of the new law is considered as a positive step towards modernizing Bankruptcy and insolvency proceedings in Bahrain and overcoming the shortfalls that are present in the old law, and to provide an improved business regulatory environment to further reinforce the Kingdom’s positions as a regional hub of Business.

In this article we shall highlight one of the most significant changes that will be introduced further to the implementation of the new law.

Key reforms

The new law recognises and adopts the new principle of cross- border bankruptcy, which did not previously exist under the old law. The aforementioned principle was inspired by the UNCITRAL cross-border insolvency law, thus making the new law a part of Bahrain legal system’s wave of promoting international practices.

The new law is segregated into eight parts, having an entire part dedicated to regulate cross-border bankruptcy titled Part Five: Cross-border Bankruptcy, which is composed of five sub-chapters, covering articles 158-189 respectively.

Cross-border bankruptcy

Chapter one

The first chapter of part five contains general provisions such as setting out the aims of part five, as well as definitions of the terms being used thereto.

In addition, the given chapter defines part five’s scope of application, suggesting that the provisions of any existing international treaty or convention to which Bahrain is a party shall overrule the provisions of part five as re-inserted under Article 161, hence avoiding any controversy which may arise in relation to the application of law should the provisions of part five conflict with the provisions of any existing treaty.

Article 165 may be considered as one of the key articles of part five, which may be of essence in revolutionising Bahrain’s Bankruptcy procedures and granting it an international character. The earlier article suggests that UNCITRAL model law on Cross- Border Insolvency shall be taken into account for the purposes of interpreting the provisions of part five.

Chapter two

Chapter two governs the ways of which foreign creditors or a representative of a foreign creditor, such as an appointed administrator / liquidator in foreign proceedings, may resort to the courts of Bahrain.

The provisions of this chapter entitle foreign creditor or foreign representatives to apply directly to the courts of Bahrain to request the commencement of bankruptcy proceedings if the necessary conditions of initiating such proceedings are met in accordance with the new law, and participate in the debtor’s bankruptcy proceedings upon the recognition of a foreign judgment by the courts of Bahrain.

The law takes further steps in safeguarding the interests of foreign creditors by granting them equal rights and treatment with Bahraini creditors, as well as setting provisions that stipulate the necessity of notifying foreign creditors of the commencement of bankruptcy proceedings in Bahrain.

Chapter three

The third chapter contains provisions regulating the recognition of foreign insolvency proceedings.

In order for a foreign judgment to be recognised by the courts of Bahrain, foreign creditors or their representatives are required to submit an application to the court accompanied by a copy of the decision of appointment of a liquidator and a certificate of confirmation thereto from the foreign court, which shall be presumed by Bahraini courts to be in conformity with new law as to the content of the decision and the terminology used therein .Moreover the supporting documents will be presumed to be authentic without the requirement for such documents to be legalised.

The new law entitles foreign creditors to apply for interim protection measures such as staying execution on the debtor’s assets or entrusting the said debtor’s assets with an administrator appointed by the court, in order to protect and preserve the value of assets.

The foreign representative is allowed under the new law, upon the recognition of the foreign judgment, to render ineffective acts detrimental to creditors, such as by intervening in any on-going proceedings in which the debtor is a party and being entrusted with the administration of the debtor’s assets that are present in Bahrain.

Chapter four

The provisions of this chapter define the new law’s international characteristic by entitling Bahrain courts to communicate directly with the foreign courts from which the bankruptcy procedures are ordered, or request information or assistance from foreign representatives and courts.

The new law places direct emphasis on Bahraini courts to cooperate to the maximum extent possible with foreign courts, and it sets out a non-exhaustive list of the possible means of cooperation.

Chapter five

The fifth chapter further reinstates the requirement of cooperation with foreign courts in the context of bankruptcy proceedings.
Article 186 of the new law suggests that local courts shall seek cooperation from foreign courts in relation the bankruptcy of the same debtor, to ensure that bankruptcy proceedings in Bahrain and in the foreign country are concurrent and coordinated.

This chapter also introduces the Rule of Payment in Concurrent Proceedings which seeks to ensure utmost fairness among local and foreign creditors in relation to the distribution of assets in bankruptcy of a debtor. The aforesaid rule suggests that a creditor who received a portion of payment in relation to his claim in the bankruptcy proceedings in a foreign state is not entitled to receive payment for the same claim in the proceedings taking place in Bahrain, and achieving the outcomes of this rule will require the local courts to demonstrate a high level of coordination and cooperation with foreign courts and representatives in bankruptcy proceedings.

Conclusion

In conclusion, we hope that the implementation of the new law achieves the intended purposes of the law, and further enhance Bahrain’s judicial system to overcome the shortfalls caused due to the lack of consideration to international aspects of bankruptcy.