BAHRAIN Trends and Developments Contributed by: Mohamed Ali Shaban and Sayed Mohsin Alalawi, Hassan Radhi & Associates
and it has largely met its goal of a faster, more effec - tive enforcement regime. The Ministry of Justice has highlighted this initiative as part of a broader Eco - nomic Recovery Plan to improve the business climate by speeding up access to justice and enforcement. For businesses and lenders, the rise of PEOs means that a court victory can translate much more quickly into actual recovery of money or assets, rather than being tied up in procedural delays. Integration with the Benefit Company (credit bureau): transparency and lender protection Another breakthrough development in Bahrain’s enforcement landscape is the integration of the judg - ment execution system with the national credit bureau, known as the Benefit Company. It is licensed by the Central Bank of Bahrain, and is the Kingdom’s official credit reference bureau, maintaining credit reports on individuals and companies. Historically, credit reports captured a person’s debts and defaults with banks and financial institutions, but court judgments for unpaid debts (so-called non-banking debts) were outside this purview. A person could owe significant sums under a civil court judgment – for example, unpaid trade invoices or damages awarded in a lawsuit – and still potentially obtain new loans from banks, as the banks had no visibility of those court-ordered debts. The new execution law addressed this gap by man - dating greater financial transparency through credit reporting. Under the law, if a judgment debtor’s known assets are insufficient to pay the debt, the execution court judge will order an annotation (mark) to be placed on that debtor’s credit report for a period of seven years. In practice, the court’s system is electroni - cally linked with the Benefit Company, so that such judgments in execution are reported into the credit bureau’s database. All banks and lenders inspecting that person’s credit will thus see the outstanding judg - ment noted on the report, much like they would see a defaulted loan or credit card balance. This simple step has far-reaching effects in improving transparency and protecting lenders from hidden risks, such as through the following. Visibility of non-bank debts Lenders now get a holistic picture of a borrower’s obli - gations. The credit report annotation ensures that even
debts arising outside the banking system (eg, a court- ordered payment to a private business or individual) are visible. This prevents scenarios where a debtor heavily in arrears on court judgments could appear “clean” on credit checks. It addresses an information gap that previously existed in the financial sector. Responsible lending decisions Armed with this information, banks and other credi - tors can make more informed lending decisions. They can factor in court-recorded debts when assessing creditworthiness, which helps with avoiding new loans to already over-indebted borrowers. In essence, the integration helps protect financial institutions from inadvertently extending credit to someone who has a history of non-payment of civil debts. This reduces the risk of future loan defaults and contributes to the overall stability of the lending environment. Pressure on debtors to pay The prospect of a seven-year mark on one’s credit report provides a strong incentive for debtors to settle any amounts due via court judgments promptly. Bor - rowers are aware that failing to settle amounts due via a court judgment will hurt their credit score and ability to obtain financing or even certain services. For businesses, a public credit report annotation could affect their trade credit and reputation. Therefore, this measure encourages voluntary compliance – debtors are more likely to settle or negotiate payment to avoid long-term credit consequences. This behavioural impact complements the direct enforcement by PEOs, creating a twofold approach (legal and financial) to encourage payment. Transparency and trust On a macro level, linking execution cases with the credit bureau promotes a culture of transparency and accountability. It signals to the market that Bahrain is serious about debt enforcement and credit discipline. Over time, this can lead to more prudent borrowing and lending practices. Creditors – especially in the banking sector – have welcomed the change as it mitigates the risk of debtors piling up unsustainable debt across different sectors, which was a concern before. By making court judgments part of one’s finan - cial record, Bahrain is aligning with best practices that
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