Understanding company liquidation and bankruptcy in Oman

From time to time, we read about the liquidation or bankruptcy of a company. This situation requires understanding the circumstances faced by the management of those companies and the necessity for them to work with full capacity using modern management methods. It also requires reliance on advanced technologies to increase production and maintain continuity in performance.
It appears that liquidation cases in the Sultanate of Oman are more common than bankruptcy cases, due to the conditions faced by some companies and institutions. These organisations have been exposed to financial and administrative crises, especially after the decline in oil prices, the impact of the Covid-19 pandemic and other difficulties experienced by the country.
Oman’s bankruptcy law is relatively recent. It was issued by Royal Decree No 53/2019 and came into force in July 2020. The law aims to achieve several objectives, including regulating bankruptcy procedures transparently between creditors and debtors, protecting the rights of all parties such as workers and institutions, supporting economic stability and attracting foreign investment in line with Oman Vision 2040.
Despite the issuance of this law, there are several procedures that it regulates before announcing liquidation. One of these is preventive settlement, which is an attempt to settle debts before declaring bankruptcy. Another is restructuring, which organises debts through agreements with creditors that allow the company to continue operating. After that comes the formal declaration of bankruptcy before the court, followed by the distribution of the company’s or institution’s assets according to specific priorities. These priorities begin with paying workers’ salaries, then government taxes and finally the rights of creditors. Omani law also stipulates that bankruptcy must be declared by a judicial order.
There are several main reasons that lead to the bankruptcy of institutions and companies. Some relate to the economic environment, such as weak financial planning and poor cash-flow management within the company itself, misjudging working capital and failing to anticipate financial obligations that significantly affect a company’s ability to meet payment deadlines. High operating costs — such as rent, employee wages and other services — also contribute to the problem. These conditions reduce profit margins and weaken the ability to continue operating. In addition, failure to adapt to market developments leads some companies to fail in adopting modern business methods or competing with companies that possess greater resources. Limited legal and professional awareness also represents a challenge for some Omani companies.
There are also external economic factors that may lead to the bankruptcy of certain institutions, such as fluctuations in global oil prices, volatility in the international economy, and slow government spending, which affects economic activity in general. Additionally, problems caused by a lack of liquidity in the market and delays in payments — whether from government institutions, companies, or other clients — can lead to serious liquidity imbalances.
Furthermore, corruption sometimes represents a problem in commercial activities, as it may lead directly or indirectly to the liquidation or bankruptcy of companies and institutions through the accumulation of its negative effects. Manipulation of accounts and hiding losses delay corrective actions until financial problems worsen. Moreover, paying illegal bribes and commissions reduces profitability and increases operating costs. Companies facing such difficulties must seek solutions to maintain their sustainability.
In conclusion, the effective application of the bankruptcy law requires greater practical support, increased legal awareness, training for judges, support for workers and the use of restructuring tools in order for the law to achieve its objectives of economic sustainability.