BAHRAIN Law and Practice Contributed by: Noor Radhi, Mohamed Ali Shaban and Mohamed Altraif, Hassan Radhi & Associates
Bankruptcy Trustee The bankruptcy trustee has the primary responsibility to investigate the debtor’s transactions and to identify any that may be subject to challenge. The trustee can file an application with the court to set aside or annul a transaction or transfer. Individual Creditors Individual creditors may also file an application with the court to set aside or annul a transaction or transfer if they believe it to be fraudulent or preferential. How - ever, if the bankruptcy trustee decides not to pursue a claim, the creditors must obtain the court’s permission to proceed with the claim themselves. Claims to set aside or annul transactions or transfers can be brought in both restructuring and insolven - cy proceedings. In restructuring proceedings, such claims can be used to maximise the assets available for the restructuring plan. In insolvency proceedings, the claims can be used to increase the pool of assets available for distribution to creditors. If a claim to set aside or annul a transaction or transfer is successful, the court will order the reversal of the transaction or transfer. The specific result depends on the nature of the transaction or transfer. Transfer of Property If the challenged transaction involves the transfer of property, the property will be returned to the debtor’s estate. The ownership of the property will not revert to the individual who brought the claim, but rather will be used to satisfy the claims of creditors in accordance with the priority established by law. Payment of Money If the challenged transaction involves the payment of money, the court will order the recipient to return the money to the debtor’s estate. The returned funds will be used to satisfy the claims of creditors in accord - ance with the priority established by law.
fraudulent or preferential. The following conditions apply. • Judicial authority – the court must be involved in setting aside or annulling a transaction or transfer. The bankruptcy trustee or the creditors must file an application with the court to challenge the transac - tion or transfer. • Contractual obligations – transactions that the debtor was contractually obliged to make can still be set aside or annulled if they are found to be fraudulent or preferential. The mere existence of a contractual obligation does not protect the trans - action from being challenged. • Identity of the other party – the identity of the other party to the transaction or transfer matters. Transactions with related parties, such as direc - tors, officers, or shareholders of the company, are subject to greater scrutiny and are more likely to be set aside or annulled if they are found to be detri- mental to the interests of creditors. • Look-back period – the Bankruptcy Law provides for a look-back period of two years prior to the date of the bankruptcy judgment. Transactions or transfers made within this period can be chal - lenged if they are found to be fraudulent or prefer - ential. Fraudulent transactions are those made by the debtor with the intention to defraud creditors or to conceal assets from them. Preferential transactions are those that give an advantage to certain creditors over oth - ers, such as paying one creditor while others remain unpaid or granting security to a creditor for a pre- existing unsecured debt. 8.2 Claims to Set Aside or Annul a Transaction or a Transfer Under the Bankruptcy Law, both the bankruptcy trus - tee and individual creditors have the right to initiate claims to set aside or annul fraudulent or preferential transactions or transfers.
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