BAHRAIN Law and Practice Contributed by: Noor Radhi, Mohamed Ali Shaban and Mohamed Altraif, Hassan Radhi & Associates
Secured Creditors’ Rights Secured creditors enjoy a higher level of protection in the restructuring process compared to unsecured creditors. They are entitled to priority in the distribu - tion of proceeds from the sale of their collateral. However, secured creditors’ rights may be subject to modification under the restructuring plan, such as an extension of maturity dates or a reduction in interest rates. Such modifications require the approval of the affected secured creditors’ class and must be fair and equitable. Unsecured Creditors’ Rights Unsecured creditors’ rights are subject to the terms of the restructuring plan. They may receive a reduced distribution or have their claims restructured over a longer period. The plan must provide unsecured credi - tors with at least as much as they would receive in a liquidation scenario. Unsecured creditors vote on the plan as a separate class and can object to the court if they believe the plan is unfair or discriminatory. 5. Statutory Insolvency and Liquidation Procedures 5.1 The Different Types of Liquidation Procedure The Bankruptcy Law provides for two main types of liquidation procedures: voluntary liquidation and com - pulsory liquidation. Voluntary Liquidation Formal and material criteria Voluntary liquidation can be initiated by a solvent debtor who wishes to wind up its business and dis - tribute its assets to creditors and shareholders. The debtor must have sufficient assets to pay off all its debts and liabilities. The decision to initiate voluntary liquidation is typically made by the debtor’s share - holders or owners. Initiation of the procedure The debtor’s shareholders or owners can initiate vol - untary liquidation by passing a resolution in accord -
turing plan, and raising objections to the court if they believe their rights are being unfairly prejudiced. Stay on Enforcement Actions Upon the commencement of restructuring proceed - ings, the Bankruptcy Law imposes an automatic stay on all enforcement actions against the debtor. This stay prevents creditors from initiating or continuing any legal proceedings, enforcing judgments, or seiz - ing the debtor’s assets. The stay remains in effect throughout the restructur - ing process, unless lifted by the court. The court may grant relief from the stay to a creditor if the debtor’s assets are not necessary for the restructuring or if the creditor’s interests are not adequately protected. Trading of Claims The Bankruptcy Law does not explicitly regulate the trading of claims against the debtor during the restructuring process. In practice, claims may be traded subject to the general rules of contract and assignment under Bahraini law. The transfer of a claim would typically be implemented through an assign - ment agreement between the original creditor and the new creditor. The debtor and the bankruptcy trustee should be noti - fied of the assignment for it to be effective. The court may require disclosure of claim transfers to ensure transparency and fairness in the restructuring process. Shareholders’ Rights and Retention of Ownership The Bankruptcy Law does not specifically address the rights of existing equity owners or shareholders in the restructuring process. In general, shareholders’ rights are subordinate to those of creditors, and they may not receive any distribution under the restructuring plan until all creditor claims have been satisfied. However, the restructuring plan may provide for share - holders to retain some ownership or other property rights in the reorganised debtor, subject to the approv - al of creditors and the court. The plan must be fair and equitable to all classes of creditors and shareholders.
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