BAHRAIN Trends and Developments Contributed by: Noor Radhi, Mohamed Ali Shaban and Mohamed Altraif, Hassan Radhi & Associates
Hassan Radhi & Associates Office 91 & 92 Al Baraka Tower (A), 9th floor Building 372, Road 4611 Block 346, Manama, Sea Front
Kingdom of Bahrain Tel: +973 1753 5252 Fax: +973 1753 3358
Email: info@hassanradhi.com Web: www.hassanradhi.com
Nothing to Reorganise: How Bahraini Courts Apply the Law’s Objectives at Filing Introduction – judicial pushback against bad-faith filings Bahrain’s Reorganisation and Bankruptcy Law of 2018 introduced modern insolvency procedures intended to rescue viable businesses or liquidate failing ones in an orderly manner. However, recent cases reveal some debtors attempting abusive “asset-stripping” bank - ruptcy filings – where owners drain assets or have no genuine reorganisation plan, yet still file for bankruptcy to escape debts. Bahraini courts have not sat idly by. In fact, a clear judicial pattern has emerged: courts are rejecting bankruptcy petitions that appear designed to dodge obligations rather than rehabilitate the com - pany or benefit creditors. This article examines how Bahraini courts – from the specialised first-instance bankruptcy courts to the High Court of Appeal – have responded to such bad-faith filings under the 2018 law. It shows a judiciary actively committed to pro - tecting the law’s goals (even filling gaps in the stat - ute) by throwing out petitions that serve no legitimate purpose. Specific rulings illustrate judges’ reasoning, reliance on trustee investigations, and use of Article 31 of the law to safeguard the integrity of the bankruptcy process. We also consider whether mere dismissal of these cases is a sufficient deterrent, or if stronger measures are needed to dissuade would-be abusers. Law’s purpose versus bad-faith filings The 2018 bankruptcy law was a landmark reform, aim - ing to balance debtor rehabilitation with creditor pro - tection. The law’s stated objectives include maximis - ing the debtor’s assets’ value, reorganising rather than
liquidating when possible, ensuring transparent and swift procedures, equal treatment of creditors, and fair distribution of returns. In spirit, a bankruptcy filing should either rescue a business or equitably wind it down – not be a strategy to unjustly shield a debtor who has already siphoned away value. Yet the law did not explicitly enumerate what hap - pens if a debtor abuses the system (for example, by filing after stripping assets, with no intent to genuinely restructure). This is where the courts have stepped in. Article 31 of the law provides a critical safety valve: it allows the court, upon request of the insolvency trustee or any interested party (such as creditors), to dismiss a bankruptcy case that will not achieve a legitimate bankruptcy purpose. Bahraini judges have leveraged this provision to great effect. In practice, once warning signs of a bad-faith filing appear, the courts invoke Article 31 to protect the proceeding’s integrity. The result has been a series of dismissals of petitions deemed futile or abusive, reinforcing that the right to seek bankruptcy comes with an expectation of good faith and a genuine aim in line with the law’s objectives. Red flags – asset-stripping and sham plans How do courts identify an abusive bankruptcy peti - tion? Through recent cases, a common fact pattern has emerged. Typically, the debtor company is insol - vent – often deeply so – but what troubles the court is why and how insolvency occurred, and what the debtor seeks to accomplish through bankruptcy. Key red flags include the following.
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