Kuwait Considers New Insolvency Legislation

Kuwait is now considering a new law that will bring its bankruptcy and insolvency legal regime closer to Chapter 11 of Title 11 of the United States Bankruptcy Code.

The proposed Law on Bankruptcy (the "Draft Law") is currently being reviewed by the Department of Legal Opinions & Legislation of the State of Kuwait.

In certain jurisdictions, the bankruptcy process is one in which a debtor may have the option to obtain economic relief from the burden of debt so that it may continue its business, such as the case under the US legal system. On the other hand, certain other jurisdictions emphasize the protection of creditors and emphasize liquidation rather than the restructuring of the debtor entity. The current bankruptcy regime in Kuwait falls under the latter category.

The current bankruptcy regime in Kuwait is governed by Articles 555 to 800 of the Kuwait Law of Commerce (No. 68 of 1980) (the "Current Law"). Under the Current Law, bankruptcy proceedings begin when the debtor, a creditor, the court or the public prosecutor initiate proceedings in the Kuwaiti courts with a petition. When a debtor is adjudged bankrupt, it can no longer manage or dispose of its assets

With a push from the business community as well as legislators, Kuwait is now considering bankruptcy and insolvency legislation that will give debt stricken and failing businesses the opportunity to rehabilitate themselves under court protection, rather than be liquidated and shutdown. Similar to Chapter 11 of the Bankruptcy Code in the US, the Draft Law will allow Kuwaiti businesses the opportunity to continue their business activities and pay their debts to creditors through a court approved reorganization plan.

THE NEW DRAFT LAW

The Draft Law applies to both legal persons (companies) and individuals. It does not however apply to the following:

Insurance Companies; Banks governed by the Central Bank of Kuwait; Institutions, departments or governmental bodies; and Companies partially or fully owned by the State of Kuwait that do not engage in commercial activities. Under the Draft Law, a debtor may utilize the processes available for restructuring if it stops meeting its debt obligations or it is not able to cover its liabilities. The procedures will begin in the same manner as the Old Law, however, under the Draft Law, as mentioned above, a debtor may restructure its liabilities and the Bankruptcy Court will supervise a plan for the restructuring of the debtor's...