BAHRAIN Law and Practice Contributed by: Noor Radhi, Mohamed Ali Shaban and Mohamed Altraif, Hassan Radhi & Associates
Sixth Level Claims for taxes and fees due to foreign governments are included in the sixth level. Seventh Level The seventh level covers unsecured claims to com - pensate owners for late payments due to them from the debtor. Eighth Level Shareholders’ claim of their ownership of shares in accordance with the priority prescribed for each one is covered by the eighth level. 2.3 Secured Creditors Secured creditors can take various types of liens or security interests over the debtor’s assets. This includes the following. • Real estate – mortgages over land and buildings. • Equity shares – pledges over shares in companies. • Movable property – possessory pledges or regis - tered security interests over tangible assets, such as equipment, inventory, or vehicles. • Intangible property – security interests over intangi - ble assets, such as bank accounts, receivables, or contractual rights. Outside of a restructuring or insolvency context, secured creditors have the right to enforce their secu - rity interests in accordance with the terms of the secu - rity agreement and the applicable laws. Enforcement mechanisms may include: • selling the secured assets and applying the pro - ceeds to satisfy the secured debt; • taking possession of the secured assets and using them to generate income to repay the debt; and • initiating legal proceedings to obtain a court order for the sale or foreclosure of the secured assets. 2.4 Unsecured Creditors Outside of a restructuring or insolvency context, unsecured creditors have various rights and remedies available to them under Bahraini law. They include the following.
Pre-Judgment Attachments Unsecured creditors may apply to the court for an order to attach the debtor’s assets before obtaining a judgment if they can demonstrate a prima facie case and a risk that the debtor may dissipate assets. Retention of Title Suppliers of goods may include retention of title claus - es in their contracts, allowing them to retain owner - ship of the goods until the debtor has paid for them in full. If the debtor defaults on payment, the supplier can reclaim the goods subject to the retention of title Unsecured creditors may have the right to set off mutual debts owed between themselves and the debtor, subject to certain conditions. Set-off can be exercised outside of a restructuring or insolvency con - text, provided that the debts are due, payable, and of the same nature. clause. Set-Off Unsecured creditors can also initiate legal proceedings to obtain a judgment against the debtor and then seek to enforce the judgment through various means, such as attachment of the debtor’s assets, garnishment of the debtor’s bank accounts, or a court-ordered sale of the debtor’s property. 3. Out-of-Court Restructuring 3.1 Out-of-Court Restructuring Process Formal requirements for entering into consensual out- of-court restructurings do not exist under Bahraini law. These restructurings are not specifically regulated, allowing parties the flexibility to agree on the contrac - tual terms of the arrangement. Entering into consensual restructuring negotiations is not mandatory before initiating formal insolvency processes. However, banks and financial institutions in Bahrain are open to amicable restructuring agree - ments, which often involve the debtor and creditors entering into a protocol where creditors set up a com - mittee to supervise the debtor’s management for a period to ensure continuity and income flow.
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