Legal Update: Major Reforms to the Law of Execution

Hisham AlMansoor – Associate ([email protected])

Decree Law 22/2021 Issuing the Execution Law in Civil and Commercial Matters (the “Execution Law”) is a groundbreaking legal development in the Kingdom of Bahrain. The Execution Law aims to enhance the process by which creditors may enforce judgments or otherwise procure debtors’ performance under an executable document. The Law has deferred further detail on the implementation of certain provisions to Ministerial Resolutions which were published within six months following the enactment of the Law, which came into force on 17 March 2022. By 17 February 2022, the Ministry of Justice Islamic Affairs and Endowments (the “Ministry”) issued a total of ten Ministerial Resolutions (the “Resolutions”) on various elements of the Execution Law. We address each of these in this legal update.

Existing Execution Files

Resolution 19/2022 with respect to Establishing the Mechanism for the Reconciliation of Existing Execution Files Prior to the Effectiveness of the Provisions of the Execution Law in Civil and Commercial Matters stipulates two separate reconciliation routes for existing files depending on the debtor in question. The said reconciliation routes set out below are however subject to any settlement agreement which may be reached between the creditor and debtor in respect of the debt the subject of the execution deed.

Where the debtor is an individual or a juristic person – other than commercial companies and financial institutions – execution measures will follow the procedures set out in Chapter Two of the Execution Law except for: (i) procedures for the sale of real estate by public auction already initiated; and (ii) procedures for the sale of moveable property where a person has already been appointed to undertake the sale of such moveables by public auction, where the provisions of Chapter Eight of Decree Law 12/1971 Issuing the Civil and Commercial Procedures Law (the “CCPL”) will continue to apply. Debtors are required to comply with the disclosure requirements set forth in Article 24 of the Execution Law.

Where the debtor is a commercial company (established pursuant to Decree Law 21/2001 Issuing the Commercial Companies Law) or a financial institution (licensed pursuant to Decree Law 64/2006 Issuing the Central Bank of Bahrain and Financial Institutions Law), execution measures will follow the procedures set out in Chapter Three of the Execution Law except for: (i) procedures for the sale of real estate by public auction already initiated; and (ii) procedures for the sale of moveable property where a person has already been appointed to undertake the sale of such moveables by public auction, where the provisions of Chapter Eight of the CCPL will continue to apply. Execution measures ((i) and (ii) above) taking against commercial companies or financial institutions shall not cease or pause except where the company: (i) makes full disclosure of its financial position with supporting documents in accordance with the requirements of Article 24 of the Execution Law; (ii) submits a declaration on its ability to pay its debts or that its liabilities exceed its assets; and (iii) proceeds with filing a case or a case is filed by its creditor seeking the commencement of reorganisation and banking procedures in respect of the debtor company under Decree Law 22/2018 Issuing the Reorganisation and Bankruptcy Law (the “RBL”).

Private Execution Officers

Resolution 4/2022 with respect to the Regulation of Private Execution Officers provides the criteria for licensing private execution officers as well as the roles that may be performed by the same. Private executers may be individuals or registered companies, and their fees may be agreed with the executing party provided that the fee is a minimum of BHD100 and does not exceed 5% of the value specified in the executable document. In accordance with Resolution No. (3), a license application fee of BHD500 is payable by the Private Executor (company) which includes up to three individual officers. Where the company chooses to have more individuals acting as private execution officers, a further BHD100 is payable per person.

Annotation of Debtor’s Credit Record

Resolution 21/2022 with respect to the Annotation of the Debtor’s Credit Record stipulates that where the debtor’s monies are insufficient to settle the debt amount subject of the execution deed, the Execution Court will proceed with issuing an order to licensed credit information centers to place an annotation on the debtor’s credit record for a period of seven years indicating the total amount subject to execution (including court fees and interest). Annotations may only be lifted by: (i) an order of the Execution Court judge following satisfaction of the amount subject to execution; or (ii) upon the lapse of seven years from the annotation taking place, as the case may be.

Specific Performance

Unlike the previous Execution regime under the CCPL, Resolution 26/2022 with respect to Determining the Rules and Procedures of Specific Performance stipulates that the order for specific performance against the debtor occurs automatically once the creditor’s application to execute is accepted by the Execution Court. Prior to the Execution Law, said procedures took place manually wherein the creditor would need to apply for specific performance and other executory procedures against the funds and assets of the debtor. Private execution officers may assist in procuring specific performance where execution requires eviction of premises by the use of force or the removal of property.

Notification of Debtors’ Performance under Execution Files

Resolution 20/2022 with respect to the Conditions for the Notification of the Debtor to Perform requires the party seeking execution to notify the debtor prior to proceeding with execution and the submission of such notification to the Execution Court.

The following information must be included in the notice served by the creditor upon the debtor to perform: (i) details of the creditor (or the person undertaking such notification), the debtor or its attorney; (ii) a copy of the execution deed; (iii) demand performance in full of the execution deed; and (iv) confirmation of the date of the notification. Such notification may only be sent after the judgment to be executed has become final or after the date set in the execution deed for performance has fallen due and may be sent using electronic means or by registered mail with receipt acknowledgment.

Debtor’s Application to Deliver Performance

Resolution 22/2022 with respect to the Procedures for the Application to Seek Performance of the Execution Deed permits debtors to commence execution procedures on their own initiative. It prescribes a time limit of one week from the date of the debtor’s application to fully pay its debt to the creditor or procure the complete performance of the obligation in question, failing which that execution file shall be closed and the fees paid by the debtor will be irrecoverable.

Attachment of Real Estate, Moveable Property and Distribution of Sale Proceeds

Resolution 23/2022 with respect to Establishing the Rules Relating to the Manner of Attaching the Debtor’s Real Estate, its Sale and Distribution of the Sale Proceeds outlines in detail the procedures pertaining to the attachment, and sale of the debtor’s real estate. It is worth noting in this respect that where the value of the execution deed exceeds Bahraini Dinars ten thousand attachment of the debtor’s real estate will take place automatically upon acceptance of the execution application. In all other cases – subject to any contrary decision from the Execution Court – the attachment of real estate will only take place after the lapse of fifteen days from acceptance of the execution application.

Meanwhile, Resolution 25/2022 with respect to Establishing the Rules Relating to the Manner of Attaching the Debtor’s Moveable Property, its Sale and Distribution of the Sale Proceeds sets out detailed rules pertaining to the attachment, and sale of the debtor’s moveable property. The Resolution sets out different timeframes for the attachment to take place taking into consideration the value of the execution deed and type of moveable property in question.

It is worth noting in this respect that where the value of the execution deed exceeds Bahraini Dinars three hundred attachment of the debtor’s moveable property will take place automatically upon acceptance of the execution application. In all other cases – subject to any contrary decision from the Execution Court – the attachment of real estate will only take place after the lapse of fifteen days from acceptance of the execution application.

Filing Grievances Against Execution Courts’ Decisions

Resolution 24/2022 with respect to the Procedures for Seeking the Performance of Execution Deeds and Grievances Against Orders of the Execution Court Judge permits parties to file grievances against any measures pertaining to attachment of the debtor’s monies, sale of property, distribution of sale proceeds or court fees.

Minimum Balance in Debtors’ Accounts

Resolution 36/2022 with respect to Determining the Minimum Amount which may not be Executed Against in the Debtor’s Bank Accounts sets out a minimum balance of Bahraini Dinars four hundred which may not be attached or executed against except in very limited cases.

Raees + Co Knowledge Series

Raees + Co’s Knowledge Series is an extension of the firm’s efforts to bridge the knowledge gap in the field of law. As a part of this series, our expert lawyers will pick complex & relevant law-related topics & break them into simple yet in-depth volumes. This will enable us to share our expertise with our clients while empowering them with a clear understanding of significant & complicated laws. 

Our first and upcoming Knowledge Series will explain the Law of Execution in six volumes. Volume I & II will discuss the Execution Law’s general provisions on executionary procedures. Volume III will elaborate on execution against individuals and juristic persons. Volume IV will further delve into Companies and CBB Licensees. Volume V will highlight Attachment in the context of urgent matters while VI will throw light on Criminal Liability. All volumes of the Knowledge Series will draw upon the feedback of various public bodies in Bahrain on the Execution Law, including the Ministry of Justice, the Council of Representatives, the Shura Council and Legislative and Legal Opinion Commission.

For more information, please contact us on [email protected].