BAHRAIN Law and Practice Contributed by: Noor Radhi, Mohamed Ali Shaban and Mohamed Altraif, Hassan Radhi & Associates
Secured Creditors Secured creditors have a higher level of protection in liquidation compared to unsecured creditors. They have the right to enforce their security interest and realise their collateral to satisfy their claims. Pre- insolvency attachments, retention of title, and set-off rights are generally respected in liquidation, subject to certain limitations. Secured creditors are not subject to the automatic stay on enforcement actions that applies to unsecured creditors. However, the court may impose a temporary stay on the enforcement of security interests if it is necessary for the orderly conduct of the liquidation process or to protect the interests of other creditors. Unsecured Creditors Unsecured creditors’ rights are more limited in liqui - dation. They do not have the benefit of any security interest and will only receive a distribution from the debtor’s remaining assets after the secured creditors have been paid. Pre-insolvency attachments, retention of title, and set- off rights may be subject to challenges by the liquida - tor if they were obtained in the period leading up to the insolvency and are deemed to be preferential or detrimental to the interests of other creditors. Unsecured creditors are subject to the automatic stay on enforcement actions upon the commencement of liquidation proceedings. They cannot initiate or con - tinue any legal actions against the debtor or its assets without the permission of the court. Unsecured creditors can participate in the liquidation process by submitting their claims to the liquidator for verification and admission. They may also form a creditors’ committee to represent their interests and supervise the liquidator’s actions. However, unse - cured creditors have limited ability to disrupt or block the liquidation process, as long as the liquidator acts in accordance with the law and the court’s orders.
tor has the power to disclaim or terminate onerous contracts that are not beneficial to the debtor’s estate. The counterparties to these contracts become unse - cured creditors for any damages resulting from the termination. 5.3 The End of the Liquidation Procedure(s) The liquidation procedure in Bahrain can end in dif - ferent ways, depending on the availability of funds to If there are sufficient funds to pay all the creditors in full, the liquidator will distribute the proceeds accord - ing to the statutory order of priority. Once all the credi - tors have been paid and any remaining assets have been distributed to the shareholders, the liquidator will prepare a final report and account of the liquida - tion process. The liquidator will then apply to the court for an order to close the liquidation proceedings. Upon the court’s approval, the liquidation is considered complete, and the debtor entity is dissolved. Insufficient Funds If there are insufficient funds to pay all the creditors in full, the liquidator will distribute the available proceeds to the creditors according to the statutory order of pri - ority. Secured creditors have priority over unsecured creditors and will be paid from the proceeds of their collateral. If there are any funds remaining after paying the secured creditors, they will be distributed to the pay the creditors. Sufficient Funds unsecured creditors on a pro-rata basis. 5.4 The Position of Shareholders and Creditors in Liquidation In liquidation, shareholders’ rights are subordinate to those of creditors. Shareholders are not entitled to receive any distribution of the debtor’s assets until all the creditors have been paid in full. If there are any remaining assets after paying the creditors, the shareholders will receive a distribution in proportion to their shareholding. However, in most insolvency cases, shareholders do not receive any distribution, as the debtor’s assets are usually insufficient to fully satisfy the creditors’ claims.
55 CHAMBERS.COM
Powered by FlippingBook