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Kuwait is the latest GCC country to change its bankruptcy legislation

Kuwait is the latest GCC country to change its bankruptcy legislation. Sam Habbas and Brenda Ntambirweki examine the key changes which include the establishment of a specialist bankruptcy court and committee. “In October 2020 Kuwait amended its insolvency regime passing the long awaited Bankruptcy Law or Kuwait Law No. 71/2020,” States Sam Habbas.

” This law mainly focuses on bankruptcy proceedings intended to maximise the value of a debtor for the benefit of the creditors, and provide debtors with an option for reinstatement of pre-bankruptcy rights on the discharge of a bankruptcy order. As the explanatory memorandum to the Law, states legal and juristic developments over the last 40 years, practical application of the Financial Stability Law, Kuwait Law No. 2/2009 and the state’s approach to improving its existing business environment in order to transform Kuwait into a regional financial centre have all been taken into account in this new piece of legislation,” Habbas adds.

Key Changes to Bankruptcy Law

“The enactment of Kuwait Law No. 71/2020, has resulted in the repeal of most of the previous regulatory regime, including the Financial stability Law, Kuwait Law No.2 2/2009 which was put in place after the 2008 financial crisis,” Brenda Ntambirweki states.

“This law was introduced to provide stability to the financial sector and in particular benefit solvent, creditworthy banks and investment companies. However, court mandated debt restructuring plans now appear to extend to companies outside the financial sector. In addition, the new regime appears to decriminalise a failure to pay debt by an individual trader by repealing certain clauses under the Civil and Commercial Procedures Law, Kuwait Decree-Law No. 38/1980.”

“Under this Law a default on a debt by an individual was considered an offence which would lead to a jail term. Criminal offences in relation to bankruptcy proceedings under the new Law now appear to be limited to bankruptcy related fraud. However, it is possible that jail terms for default on a debt could be provided for under the Implementing Regulations which are yet to be published,” Ntambirweki adds.

“As a result of Article 238 of Kuwait Law No. 71/2020 the use of set off in insolvency is also now more restricted compared to the repealed insolvency
regime,” states Ntambirweki. “Under the old regime, after a person was adjudged bankrupt, set-off could not be effected between a bankrupt’s rights and obligations unless they were inter-related. However, the new Law appears to state there will be no set off once bankruptcy procedures have commenced, unless it is provided for under a composition or debt restructuring plan. It is also expected the Implementing Regulations will provide further clarity on this issue.”

“In addition, Article 294-308 of Kuwait Law No. 71/2020 has introduced debtor rehabilitation,” Ntambirweki adds. “This will allow debtors to emerge from bankruptcy and have all their pre-bankruptcy rights reinstated following a discharge from bankruptcy. While the reinstatement of rights in some cases is automatic on the lapse of a year from the discharge of bankruptcy, in other cases, the period within which a company or individual debtor can apply for rehabilitation will depend on whether or not the debtor has committed any bankruptcy offences under the Law and for example if they have met the terms of any composition or debt restructuring plans. A discharge order and any rehabilitation order will be issued by the new Bankruptcy Court.”

Article 1 of Kuwait Law No. 71/2020
The provisions of this Law will apply to bankruptcy. Anything which is not specifically provided for in this Law, will be covered by the 
Criminal Procedure and Trial Law, the Civil and Commercial Procedure Law or the Law on Evidence in Civil and Commercial Matters.
(Source: Lexis Middle East Law)

“It is possible as a result of the rehabilitation option, the new insolvency regime could lead to more entities being rescued as going concerns, achieving a better result for company’ creditors as a whole than would possibly be the case if a company were to be liquidated finally on an adjudication of bankruptcy.”

New Specialist Bankruptcy Court

“One of the key changes in the regime is a new specialist bankruptcy court which has original jurisdiction over any bankruptcy and insolvency related matters has been formed under Article 4 of Kuwait Law No. 71/2020,” Habbas adds.

“Under the relevant repealed provisions of the Commercial Code, Kuwait Decree-Law No. 68/1980, a petition for declaration of bankruptcy was previously presented to the Court of First Instance in the debtor’s commercial or residential area.”

“The Bankruptcy Court will be led by a specialist Bankruptcy Judge who will have similar standing to a chief judge in Kuwait,” Habbas continues.
“It will also consist of a number of judges who will be determined by the court’s general assembly and three deputies and several auditors who will be selected from the auditors registered with the Capital Markets Authority. The Bankruptcy Judge, the judges appointed by the general assembly and the deputies will constitute the Bankruptcy Department of the Bankruptcy Court. Under Article 9 of Kuwait Law No.71/2020 the Bankruptcy Department’s role is largely administrative,” Habbas explains.

“They will receive and cross-check applications, serve notices and issue Bankruptcy Judge resolutions.” “They will also supervise the management of a debtors’ funds, businesses and bankruptcy proceedings and meetings with creditors to discuss the Bankruptcy Judge’s proposals.”

“Under Article 11 of Kuwait Law No. 71/2020, a Bankruptcy Committee will also be established which will include experts from the financial, legal and economic sectors,” Habbas adds.

Kuwait: Bankruptcy Law Approved 2020-08-20_20
Kuwait’s National Assembly has approved a bankruptcy law which will help troubled companies, give them legal protections and provide them with 
various options before they declare bankruptcy. It specifies two main ways out of trouble for a defaulting company or merchant. The first is a 
preventive settlement with the agreement of the creditor and debtor. The second is the creation of a plan for restructuring before declaring 
bankruptcy. Even where bankruptcy is declared, only a corrupt bankrupt will be punished.

“This will be appointed by the Commerce and Industry Minister and will be able to ask experienced, competent individuals to assist them They will also supervise bankruptcy proceedings in Kuwait, provide opinions on these proceedings and prepare fee schedules for officials involved in bankruptcy proceedings such as inspectors and trustees.”

“In addition, they will select officials who will be involved in bankruptcy proceedings such as inspectors and trustees, prepare periodic reports for the Commerce and Industry Minister and propose amendments to the Implementing Regulations and resolutions on implementation of the Law,” Habbas explains.

Disposals During Bankruptcy Proceedings

“Article 158 of Kuwait Law No. 71/2020 also now provides for a three-month preference or suspect period under which certain disposals can be set aside during bankruptcy proceeding”, Ntambirweki explains.

“Under the previous law, the preference period was determined by the court as running from suspension of payments to adjudication of bankruptcy.”

“The date of suspension of payments was a matter of fact to be determined by the court. This meant the court had discretion to set a provisional date, which could not be longer than two years before the adjudication of bankruptcy. As a result, this is a positive change as the suspect period has now been clarified.”

Bankruptcy Proceeding Changes

“Another difference under the previous insolvency regime, was that insolvency proceedings could be initiated by a debtor, creditor or public prosecutor,” Habbas states.

“However, Article 16 of Kuwait Law No. 71/2020 now permits regulators to initiate bankruptcy proceedings for entities which they supervise once evidence is provided that a regulated entity is unable to pay its debts.” “This is an area where the Implementing Regulations are expected to provide details on the thresholds which will constitute an inability pay debt together with the relevant regulators.”

Sector Specific Rules

“Article 3 of Kuwait Law No. 71/2020 also requires that certain entities will have to make applications to the Bankruptcy Department after notice has been given to that entity’s regulator,” states Habbas.

“For example, if a public authority or institution owns half or more of its share capital of an entity, it will be necessary to first give notice to the relevant Minister. In addition, insurance companies will also have to give notice to the Insurance Unit at the Commerce and Industry Ministry and Boursa Kuwait, while clearing agencies, collective investment schemes with legal personality and companies which are regulated by the Capital Markets Authority will first have to give notice to the Capital Markets Authority,” Habbas explains.”

“Banks and investment companies also have to give notice to the Central Bank. These regulators are expected to set out regulations governing the insolvency of the entities they regulate.”


“Article 263 of Kuwait Law No. 71/2020 also provides specific protections for SMEs by excluding them from certain bankruptcy proceedings,” states Ntambirweki. “This includes the formation of a creditor’s committee and on liquidation to discharge the SME entirely from further claims from individual creditors to settle debts which have not been settled from distributions on liquidation following the adjudication of bankruptcy.”

Implementing Regulations

“The Law is expected to come into force once its Implementing Regulations have been published which are currently expected to be six months after the Law’s publication,” states Habbas.

“It remains to be seen what impact the new legislation will have on the insolvency regime and if companies and individuals in economic distress will take advantage of these new protections once it is in force. It is too early to say what the impact of this legislative change will have as the Law is not yet in force,” states Habbas.

“It is not retrospective so will not apply to any existing bankruptcy proceedings under the existing regime which has now been repealed. Bankruptcy and any debt restructuring proceedings which have been brought under the Financial Stability Law which are now before the courts will continue to be heard by them.”

“However, the Implementing Regulations will hopefully provide further detail on how the proceedings which are to be brought in the interim period will be handled once Kuwait Law No. 71/2020 comes into force.”

Sam Habbas

Sam Habbas
Senior partner
T: +965 2292 2700
E: shabbas@asarlegal.com

Brenda Ntambirweki

Brenda Ntambirweki
Senior associate
T: +965 2292 2700
E: bntambirweki@asarlegal.com

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