Newly introduced bankruptcy law in Bahrain to stimulate foreign investment

Bahrain’s new bankruptcy law, introduced on Wednesday, is a significant boost for the Arabian Gulf’s smallest economy, as it will help lure foreign investment and support small businesses in the kingdom.

The law will bolster Bahrain’s “drive for diversification, and in particular nurturing the start-up and SME market and increasing its footprint in the fintech space”, said Rad El Treki, head of corporate structuring for Bahrain at law firm Al Tamimi & Company.

It is based on Chapter 11 insolvency legislation in the US, which provides companies in financial difficulty with an opportunity to restructure under court supervision, said Bahrain Economic Development Board, the country’s inward investment agency.

“It will introduce measures to allow company reorganisation, where the management is allowed to remain in place and continue business operations during the administration of a case,” said Khalid Al Rumaihi, chief executive of Bahrain EDB.

Governments in the Gulf have begun introducing modern bankruptcy legislation following a three-year oil price slump that has crippled some businesses and made bank financing more difficult, particularly for small and medium businesses.

The UAE’s bankruptcy law took effect at the end of 2016, while Saudi Arabia enacted its legislation this summer.

One of the intended outcomes of Bahrain’s banktruptcy law is the promotion of good governance and investor confidence, said Buthaina Amin, director of legal affairs at Bahrain EDB.

“With a forward-looking restructuring mechanism, we are looking at the likelihood of a decrease in the possibilities of liquidation,” she told The National.

“Ultimately, this should foster greater access to credit, which is vital to all entrepreneurs, start-ups and SMEs looking at launching and growing their businesses.

“With positive reforms that promote increased transparency and provide for restructuring options, the economy would expect to get a boost as a result of debtor and investor confidence, further encouraging innovation.”

Bahrain’s foreign investment levels have increased dramatically over the past year as the countrty aims to continue ramping up inward investment by refreshing corporate legislation and strengthening its business environment.

Bahrain EDB reported a record $810 million of foreign direct investment during the first nine months of the year, compared to $733m in the whole of 2017.

However Bahrain remains fiscally weak after it was hit hard by the slowdown in the regional economy since 2014 and external borrowings soared.

Bahrain last week signed a financial support package from its Guld neighbours the UAE, Saudi Arabia and Kuwait, which is expected to ensure fiscal stability of its financial institutions.

In 2011, the GCC agreed a $20 billion aid package for Bahrain and Oman to support their economies over a 10-year period following the global financial crisis.

Bahrain’s bankruptcy law was included in a package of legal reforms that was announced on Wednesday.

This is intended to strengthen the regulatory climate for current and prospective investors, as well as shoring up the overalleconomy as a conequence.

Bahrain is also introducing a personal data protection law intended to govern the processing of data for commercial use, a competition law to prevent the formation of monopolies and new health insurance legislation.

“The reforms demonstrate that Bahrain continues to create a regulatory environment that is in line with international standards and best practices.

“The intention is to remove stigmas and deterrents, and provide more reassurance to investors and companies operating in and looking to invest in the kingdom,” Mr El Treki said.