BAHRAIN Law and Practice Contributed by: Noor Radhi, Mohamed Ali Shaban and Mohamed Altraif, Hassan Radhi & Associates
5.2 Course of the Liquidation Procedure Upon the initiation of voluntary or compulsory liquida - tion proceedings, the debtor ceases to have control over its assets and operations. The debtor’s manage - ment and directors are replaced by the appointed liq - uidator, who assumes control of the debtor’s business and assets. The directors must co-operate with the liquidator and provide all necessary information and documents related to the debtor’s affairs. In compulsory liquidation, the debtor is prohibited from making any payments or disposing of any assets without the liquidator’s approval. The debtor’s legal capacity is limited to the extent necessary for the liq - uidation process. The liquidator acts as an independent officer of the court and owes duties to all stakeholders in the liqui - dation process, with a focus on maximising the value of the debtor’s assets for the benefit of creditors. In a compulsory liquidation, the court plays a super - visory role, overseeing the liquidator’s actions and ensuring compliance with the Bankruptcy Law. The court has the power to: • appoint and remove the liquidator; • approve the liquidator’s fees and expenses; • resolve disputes between the liquidator and credi - tors or other parties; and • approve the final distribution of assets to creditors. Moreover, in compulsory liquidation, the court may appoint a creditors’ committee to represent the inter - ests of creditors and supervise the liquidator’s actions. The committee’s role is to: • consult with the liquidator on matters related to the liquidation; • review the liquidator’s reports and accounts; • approve certain actions proposed by the liquidator, such as the sale of significant assets; and • bring any concerns or issues to the court’s atten - tion. The initiation of liquidation proceedings does not automatically terminate pre-insolvency agreements, such as contracts and leases. However, the liquida -
ance with the debtor’s constitutional documents (eg, articles of association). The debtor must appoint a liquidator to oversee the liquidation process and notify the MOIC of the commencement of liquidation. Applicability Voluntary liquidation applies to both corporate entities and individual merchants registered in Bahrain. The procedure is not available to individuals who are not engaged in commercial activities. Compulsory Liquidation Formal and material criteria Compulsory liquidation is initiated when a debtor is insolvent and unable to pay its debts as they fall due. The debtor must have ceased making payments on debts exceeding BHD5,000 for more than 30 con - secutive working days due to financial distress or instability. Initiation of the procedure Compulsory liquidation can be initiated by: • the debtor, who must file for liquidation within 15 days of becoming insolvent; • any creditor, by filing a petition with the court after notifying the debtor of the debt and the debtor fail - ing to pay within 30 days; and • the court itself, if it determines that the debtor is insolvent during the course of other proceedings, such as restructuring. The court will review the petition and supporting evi - dence and decide whether to accept or reject the liq - uidation filing. If accepted, the court will appoint a liquidator to manage the liquidation process under the court’s supervision. Applicability Compulsory liquidation applies to both corporate entities and individual merchants registered in Bah - rain. The procedure can also apply to individuals who are not engaged in commercial activities if they meet the insolvency criteria and have debts exceeding BHD5,000.
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