BAHRAIN Law and Practice Contributed by: Noor Radhi, Mohamed Ali Shaban and Mohamed Altraif, Hassan Radhi & Associates
Invoking the Restructuring The restructuring agreement is binding on the credi - tors who are parties to the agreement, as it forms a contractual obligation. Participating creditors are required to adhere to the terms of the agreement, such as modifying repayment terms, providing new financing, or refraining from enforcing legal actions against the debtor. Dissenting creditors who do not participate in the consensual restructuring are not bound by the agree - ment. They retain their rights to pursue legal remedies against the debtor under the general law, such as filing for the debtor’s bankruptcy or enforcing their claims through court proceedings. The debtor is bound by the terms of the restructur - ing agreement as a contractual obligation. The debtor must comply with the agreed terms, such as making payments according to the modified schedule, provid - ing information to creditors, and seeking approval for certain actions affecting its assets. The contractual nature of the restructuring agree - ment means it is generally not binding on third parties who are not signatories. However, if the restructuring agreement is ratified by the court under the Bankrupt - cy Law, it may gain legal recognition and enforceability against third parties, depending on the terms of the ratification order. 4. Statutory Restructuring, Rehabilitation and Reorganisation Proceedings 4.1 Opening of Statutory Restructuring, Rehabilitation and Reorganisation Initiating the Procedure The Bankruptcy Law allows the debtor or any credi - tor to file for the opening of bankruptcy proceedings, which include restructuring and reorganisation. The debtor must file for bankruptcy within 30 days of ceas - ing to pay debts exceeding BHD5,000 due to financial distress or instability. Failure to file within this period may result in liability for the debtor’s management. Creditors may file for the debtor’s bankruptcy at any time, provided the debt owed is at least BHD5,000
Relations between the debtor and creditors in a con - sensual restructuring are governed by the contractual terms agreed in the restructuring agreement or proto - col. In a typical arrangement, major creditors manage the debtor in co-ordination with smaller creditors. The protocol details the fees and management pro - cess, aiming to enhance the debtor’s financial posi - tion. Creditors closely monitor the debtor’s activities and may require approval for actions creating obliga - tions on the debtor’s assets. As consensual restructurings are contractual, dis - senting parties are not bound unless they agree to the terms. Dissenting creditors retain their rights to pursue legal remedies outside the restructuring. Par - ties cannot be forced to co-operate in a consensual out-of-court restructuring, as it is a voluntary process. Bahraini law does not specifically address holding parties liable for not co-operating or obstructing a consensual restructuring plan. However, general prin - ciples of contract law under the Civil Code and Law of Commerce would apply to the parties’ conduct in negotiating and implementing the restructuring agree - ment. The limited regulation of out-of-court restructur - ings provides flexibility but also means the process is largely dependent on the parties’ willingness to negotiate and reach a mutually acceptable agreement. Dissenting creditors’ rights and potential liability for obstructive conduct would be determined on a case- by-case basis in line with the specific circumstances and general legal principles. 3.2 Legal Status Legal Status of Out-of-Court Restructurings Consensual out-of-court restructurings in Bahrain are primarily contractual arrangements governed by the terms agreed upon between the debtor and partici - pating creditors. These arrangements are not specifi - cally regulated under Bahraini law, allowing flexibility in negotiating terms. However, the Bankruptcy Law allows for a contractual reorganisation plan agreed upon between the debtor and creditors to be submit - ted to the court for ratification, giving it legal recogni - tion.
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