A key piece of the puzzle in the jigsaw of legislation underpinning Oman’s appeal as an investment destination is set to fall into place potentially before the end of this year. The proposed Bankruptcy Law — part of a suite of new statutes planned by the government to help boost the investment climate and business environment in the Sultanate — will be a game-changer for the nation’s efforts to diversify the economy, according to market pundits.
“In my view, the introduction of a Bankruptcy Law will support the Government of Oman in its efforts to streamline the process for litigation in the event of a bankruptcy or a company filing for state protection,” said Alkesh Joshi, Tax Partner at leading multinational professional services firm EY.
“The terms insolvency and bankruptcy have different meanings in different countries,” Joshi further explained. “Introduction of a law to govern bankruptcy situations (whether individual or corporate) will be a significant step in the direction of boosting investor confidence and supporting the country in attracting foreign direct investment (FDI). These steps would certainly support economic diversification and improve the contribution of private sector in economic development of the country.”
Earlier this year, authorities pledged to improve the investment climate and business environment by addressing “impediments to doing business” in the Sultanate. The 2018 Budget Statement stated thus: “The Government is taking measures to tackle the constraints hindering the competitiveness of Oman, including through developing the legislative framework. In this respect, the Government is currently working towards enacting Foreign Investment Law, Public-Private Partnership (PPP) law, and Bankruptcy Law.”
Investor confidence
According to EY’s Joshi, a new Bankruptcy Law has the potential to improve the Sultanate’s ranking on the ‘Ease of Doing Business’ Index monitored by the World Bank. “Any improvement in the Ease of Doing Business ranking will certainly attract more attention from global investors, which in turn will enhance FDI inflows into Oman. Local investor confidence will be boosted as there will be certainty on the course of action in the event of a bankruptcy being reported as opposed to waiting for the courts to issue an order setting out the process which could be a long drawn process.”
The proposed statute, says the tax expert, will typically set out the rights and responsibilities of the creditors and the sequence of settlement process to be followed. “It would define the role of various parties involved in the process. Once the process is followed it will be a lot simpler and quicker to reach settlements if all is in order as opposed to a situation where there is no law in place to codify the process.”
Most importantly, a bankruptcy law provides greater comfort to investors and creditors when it comes to making important investment and lending decisions. “When investors look to invest in a country they certainly look at the overall legal framework and the litigation process available to them to recover their investments. A Bankruptcy law generally provides for a mechanism to settle the creditors in the event a bankruptcy is declared. The Bankruptcy order would be issued by a court which would set out the priority of settling the creditors (secured and unsecured),” Joshi explained.
Upon the eventual promulgation of bankruptcy legislation, Oman is set to join the league of advanced jurisdiction that offer legal clarity on some of the important issues that arise in the event of a bankruptcy declaration.
“All developed countries either have or are looking to have a detailed bankruptcy code or a law,” said the tax consultant. “Slowly all countries will introduce a law to address this issue. In the current environment of financial distress being experienced by various private companies and introduction of a law for this subject would make lot more sense.”
Modern practices
In the Gulf region, GCC member states eager to attract new investment and drive economic growth in the face of dwindling revenues from low oil prices have been taking tentative steps to roll out bankruptcy laws modeled largely on legislation adopted by Western economies.
Earlier this year, Saudi Arabia announced steps to change its bankruptcy provisions to encourage more FDI inflows. The proposed law will encourage risk-takers, primarily from the entrepreneurial class, to set up new businesses that may aid the kingdom’s transition away from its dependence on oil exports.
According to Middle Eastern experts, bankruptcy statutes being weighed by some countries in the Gulf and wider region would go so far as to incorporate guidelines none too different from Chapter 11 bankruptcy regulations in vogue in the United States. Under Chapter 11, financially distressed firms can obtain protection from creditors to allow them time to restructure their debts. This could potentially mean that some lenders might have to forego part of their investment or loans. Those in dire straits without any refinancing options will be fast-tracked — relative to the long-winding procedures currently in place — for liquidation, and their assets sold to recoup part of the money owed to other businesses and creditors.
In keeping with modern bankruptcy regulations embraced by advanced economies, models being looked at in the region will also attempt to balance competing public interests of rehabilitating debtors by giving them the opportunity of a fresh start, with the need to deter reckless borrowing and abuse of bank lending.
In particular, harsh penalties such at the threat of imprisonment and loss of personal property will likely dissuade young entrepreneurs from pursuing their innovative business ideas — an outcome that Oman and other countries in the region would like to safeguard it, experts added.
Oman Observer is now on the WhatsApp channel. Click here
