Bahrain’s bankruptcy law: Sophisticated legislation that strengthens and protects both businesses and creditors
In the aftermath of the financial crisis, governments recognized that the existing laws governing bankruptcy and insolvency were not fully in line with corporate restructuring efforts – and thus needed a new bankruptcy law to effectively regulate this delicate matter.
The Kingdom of Bahrain, in cooperation with all relevant stakeholders, has therefore prepared a framework for the new Bankruptcy Law with a view to guaranteeing and protecting commercial projects and start-ups. For this purpose, the Law includes a special chapter on restructuring debt-ridden companies.
Accordingly, the new Bankruptcy Law was issued
The Law was largely about start-ups, as its provisions was drafted with a view to encouraging innovation and entrepreneurship by providing a reliable framework that decriminalized failure while promoting transparency and impartiality and aimed at protecting both the group of creditors and the debtor.
Who benefits from this Law?
In short, any start-up or commercial company not licensed by the Central Bank of Bahrain falls within the scope of Bahrain’s Bankruptcy Law of 2018. In addition, the Law also applies to all “traders of natural persons” who conduct their business activities in Bahrain.
Entities licensed by the Central Bank of Bahrain, such as banks and financial services institutions, are excluded; It is supervised by the Central Bank of Bahrain in accordance with the Financial Institutions Law of 2006.
It should be noted that the Law does not deal with cases of personal bankruptcy. Thus, the Bankruptcy Law does not cover a debtor’s personal, family and consumer debt.
The Law also excludes all derivative contracts that fall within the scope of the netting regulations.
Suspension Period
The suspension period shall be effective once bankruptcy proceedings have commenced, and the debtor is granted a 120-day grace period as long as certain legal requirements have been met.
The court may choose to extend the suspension period based on the recommendation of the bankruptcy/reorganization trustee. However, provided that the court is satisfied that the extension would further maximize or improve the value of the debtor’s assets.