BAHRAIN Trends and Developments Contributed by: Noor Radhi, Mohamed Ali Shaban and Mohamed Altraif, Hassan Radhi & Associates
Crucially, the power to dismiss comes from Arti - cle 31 of the Reorganisation and Bankruptcy Law. Under Article 31, if a case is not serving a legitimate bankruptcy objective, the court may terminate it at the request of the trustee, creditors’ committee, or any interested party. In practice, the sequence often unfolds as follows. • Trustee recommendation – after investigating, the court-appointed trustee formally requests the court to dismiss the case under Article 31, usually citing the specific ground that the proceeding would not achieve a lawful bankruptcy purpose (eg, no ben - efit to creditors, no prospect of reorganisation). • Hearing all sides – the court does not act in a vacu - um – it gives the debtor and creditors a chance to respond. In a recent case involving a struggling retail company, the trustee urged dismissal on the record and the court adjourned to allow all parties to voice their opinions on that request. Notably, in that case none of the creditors objected to drop - ping the bankruptcy; after all, they recognised that a bad-faith filing only wastes time and asset value. The debtor company’s management was left iso - lated in pushing for a process that clearly had no substance behind it. • Court evaluation and decision – after considering any objections (or the lack thereof), the judge will evaluate the evidence and the trustee’s conclu - sions. Consistently, Bahraini courts have sided with the trustee. Judges emphasise their broad author - ity to assess the case’s realities and evidence, and they have consistently found the trustees’ reports to be credible and well-founded. For example, in the retail company case, the court stated it was fully convinced by the trustee’s report (which was based on solid grounds) and “adopt[ed] it, carrying its reasoning”, proceeding to dismiss the petition accordingly. • Dismissal and consequences – once the court is satisfied that the petition is abusive or futile, it will formally dismiss the bankruptcy case. In some instances, this has involved rescinding a previ - ously made opening order. In one case, a court had initially approved commencing bankruptcy proceedings but after the trustee uncovered the true state of affairs, the court reversed course – it revoked the commencement order and dismissed
the case outright. Along with dismissal, courts typically order the debtor to bear the costs and fees. For example, the debtor may be required to pay the trustee’s fees and court expenses as a mild form of penalty. This ensures the bad-faith filing at least is not costing the creditors or public money; the wrongdoer bears some financial burden for the aborted process. Through these steps, Bahrain’s judiciary has crafted a de facto framework for filtering out abusive bank - ruptcy filings. Even though the law did not spell out a “bad faith filing” doctrine in detail, Article 31’s broad language – coupled with vigilant trustees and judges – has achieved a similar result. The message is clear: The insolvency framework is not a refuge from ordi - nary enforcement; where no value can be preserved or returned to creditors, proceedings are discontinued. The integrity of the new insolvency system is being guarded in the courtrooms. Judicial reasoning – protecting the law’s goals Importantly, the courts’ rulings make it evident that this is not a mere procedural formality – it is a princi - pled stand to uphold the bankruptcy law’s underlying purpose. Judges often refer back to the objectives of the 2018 law when explaining why a particular petition must be rejected. The logic can be summarised as fol - lows: The law is meant to facilitate real reorganisation or fair liquidation, not to provide an escape hatch for those who undermined their own company. Allowing an abusive filing to proceed would subvert the very goals the law is designed to achieve. In one High Court decision, the judge went so far as to articulate the statutory goals (maximising the value of the estate, rescuing the business if possible, and ensuring equitable treatment of creditors) and then contrasted those aims with the case at hand. The court found that none of the law’s beneficial aims would be served by letting the petition continue. There were no assets left to maximise, no business to save, and no prospect of a meaningful distribution to credi - tors. In fact, prolonging the case would only delay creditors from pursuing normal legal recovery against the individuals or entities that may have received the siphoned assets. As one court observed, creditors’ interests are better served by pursuing their claims
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