Knowledge Series Volume IV: Execution Provisions against Companies and CBB Licensees
Our Associates, Hisham Almansoor and Fatima Alsayed explain the Law of Execution in our five-part series.
Hisham Almansoor ([email protected]) & Fatima Alsayed ([email protected]) – Associates
Our previous volume in the Raees + Co Knowledge Series (Volume III) examined the key execution provisions against individuals and juristic persons under Chapter Two of Decree Law No. 22/2021 on the Issuance of the Law of Execution in Civil and Commercial Matters (“Execution Law”or “the Law”) with reference to its Implementing Resolutions. In this volume, we address the provisions which apply exclusively to commercial companies and financial institutions licensed by the CBB.
Execution Provisions Exclusive to Commercial Companies
Chapter Three of the Execution Law is targeted at commercial companies licensed in Bahrain under the Commercial Companies Law (Decree Law No. 21/2001) (“CCL”). We adopt the term ‘debtor’ to refer to the defendant where the judgement has become final, and an Execution file has been opened under the same, or the party who is required to perform an obligation pursuant to the Execution Deed. The term ‘creditor’ is used to refer to the party who is executing the judgement or is seeking payment from a debtor or the performance of a specified obligation under an Execution Deed.
The Ministry of Justice (“MOJ”) expressed in its summary opinion of the Execution Law that the approach adopted by Bahraini legislators in structuring the Law such that certain chapters and provisions apply to individuals and other apply to commercial companies and financial institutions is a system that is observed in other jurisdictions around the world, such as the United States, United Kingdom and France, and as such it is designed to increase the efficacy and clarity of execution procedures that may be taken against the debtor depending on their legal status.
Grace Period for Settlement
One of the key features introduced by the Execution Law is a twenty-one-day grace period for debtor commercial companies to reach an out-of-court settlement with the creditor before the court begins any legal executionary procedures against the debtor (“Settlement Period”). This ought not to be confused with full satisfaction of the debt or performance of the obligation under the Execution Deed, which is still possible during this period. Article 46 of the Law allows the debtor and creditor a period of twenty-one days from the date of the initial execution application. The Settlement Period is a new concept that was not addressed by the previous execution regime under Title Eight of Decree Law No. 12/1971 on the Issuance of the Civil and Commercial Procedures Law (“CCPL”). It is intended to pressurize the debtor to cooperate with the creditor. In practice, some execution files have the tendency to become dormant when a period of time lapses without any activity or payment being made by the debtor.
The MOJ has expressed that this feature of the Law factors the practical considerations for the operation of commercial companies, and that the prescribed Settlement Period of twenty-one days (in contrast with ten days for individuals in accordance Article 25) provides debtor companies with some space to come to an agreement with the creditor without significantly impeding its commercial activity, which is a view also expressed by the Legislative and Legal Affairs Committee of the Shura Council.
Financial Disclosure & Insolvency
Articles 47 and 48 introduce procedures where the debtor is unable to arrive at a settlement or otherwise deliver full performance of an obligation within the Settlement Period. The debtor is then required to disclose financial information to the Execution judge on the company’s financial position as of the date the case was initiated or the date Execution Deed and whether their liabilities exceed their assets, or if the same is (un)able to pay its debts. In that case, the debtor may act under the rules of the Bankruptcy Law within fifteen (15) days by filing a case before the High Civil Court (Seventh Circuit) to initiate insolvency proceedings.
In accordance with Article 47, where the debtor fails to do this, the Execution judge is given the power to undertake the necessary procedures under Chapter Two of the Execution Law applying to individuals and juristic persons. We address those procedures and their implications under Knowledge Series: Vol. III.
This suggests that Bahraini legislators are seeking to prevent the dormancy of execution files by granting the Execution judge further powers to undertake the necessary Chapter Two procedures where the Settlement Period and the obligation to disclose financial information are not followed by the debtor. It is interesting to note that disclosure seems to be framed as a mandatory obligation through the wording of Article 47, however the Law sets out in Article 48 that the Execution judge may undertake the Chapter Two procedures as a consequence and exception to the position expressed under that Chapter. The Chapter Two procedures are relatively severe, and the Law tries to deter company debtors from their failure to be transparent through disclosure by outlining what may occur within the first twenty-one days after the creditor begins execution of the Execution Deed.
More on ‘Disclosure’
The debtor is required to disclose all of the assets held by the same including any bank accounts and to do so accurately and completely in the form prescribed the MOJ which is available on its website. Failure to do so attracts the criminal sanctions under Article 58 and 59 of the Law. We address these at greater length under Knowledge Series: Vol. VI.
Disclosure for commercial company debtors requires the disclosure of: (i) all bank accounts, (ii) 100% owned assets in Bahrain, (iii) fully or partially-owned real estate inside and outside Bahrain, (iv) unregistered property owned by debtor in Bahrain, (v) all Execution Files opened in favour the debtor (i.e. under which the debtor is entitled to receive funds) as well as the available funds under the same, (vi) cryptocurrencies (their type and value), (vii) shares held in companies, (viii) loans taken out by the company, and (ix) debts bonds issued in favour of the company, among several other aspects. The requirement to disclose cryptocurrencies is a remarkable and welcome component of the disclosure form for company debtors.
Brief Summary of Execution Timeline for Commercial Company Debtors
As the Law outlines multiple steps to the execution against company debtors, it is best to consolidate these as follows:
- An initial seven days following the creditor’s Execution Application (as a precondition to an Execution File opened by the creditor). We address this under Knowledge Series Vol. II; then
- Twenty-one days under the Article 46 Settlement Period for the debtor to submit any evidence of settlement to the Court of Execution, failing which the debtor is required to submit a disclosure of funds/assets on the day after the lapse of the Settlement Period; then
- If no settlement is made within the Settlement Period, the Court of Execution shall implement the Chapter Two procedures immediately upon expiry of the twenty-one days.
Execution Against Financial Institutions
Chapter Four of the Execution Law envisages the right to execute against financial institutions licensed by the Central Bank of Bahrain (“CBB”) and Financial Institutions Law promulgated by Law No. 64/2006 (“CBB Law”). Where the debtor falls under the category of licensees under the CBB Law, an Execution File must still be opened under the Execution Deed. After the Execution File has been opened, the matter shall be promptly referred to the CBB to follow its legal procedures. The MOJ has clarified that once the Execution File has been opened, the Settlement Period is also applicable to financial institutions. Once this period has lapsed, the CBB may undertake the necessary executory procedures against the funds and assets of the debtor as per the powers conferred under the CBB Law.
On 6 and 10 March 2023, the MOJ and the CBB issued Resolution No. 35/2022 Specifying the Category of Licensees to which the Provisions of the CBB Law Apply Regarding Execution Deeds and Resolution No. 10/2022 on the Rules and Procedures for Enforcing Execution Deeds issued against CBB Licensees, respectively.
CBB licensed banks are specified as the category of licensees to which the CBB law applies in respect of enforcing Execution Deeds. Article Three of Resolution No. 10 stipulates that the CBB Licensee is given a period of no more than twenty-one (21) days from the Execution Application to deliver performance of the Execution Deed or provide evidence of settlement with the judgment creditor, thereby confirming that the standard Settlement Period is applicable to CBB Licensees.
Next on the Raees + Co Knowledge Series
Volume V of our Knowledge Series shall address the provisions relating to Provisional Attachment, the remit of the Urgent Matters Court and when this remedy may be used. We draw upon the jurisprudence of the Bahraini Court of Cassation to provide some background into the use of this remedy.
For more information, please contact us on [email protected].