A new bankruptcy law that came into effect from 17 July revokes all seizure and summons decisions that had been issued against nearly 80,000 defaulting debtors in the country.
The new ‘Preventive Settlement, Restructuring and Bankruptcy Law’ reorganizes the legal framework for bankruptcy provisions and the rules for restructuring debts, and protecting indebted companies. The new law aims to reform and restructure prevailing laws on indebtedness so as to make them consistent with international best practices and legal provisions.
The new law also brings it in accordance with the International Covenant on Civil and Political Rights (New York Convention) and the Arab Charter on Human Rights, as well as in tandem with legal practices in most developed countries, where the imprisonment of individuals due to civil or commercial debt is no longer practiced.
Scrapping of the previous bankruptcy provisions and introduction of a new law governing indebtedness, does not change the fact that Kuwait continues to have the most indebtedness among residents in the region, and in the wider Arab world.
A new report by the Switzerland-based global investment bank and financial services firm, Credit Suisse, shows residents in Kuwait stood in second spot in the Arab world when it came to indebtedness.
Though it declined by 16.5 percent from a year earlier, the average per capita debt of people in Kuwait stood at US$12,160. This amount was topped by only Qatar, where the average per capita debt was pegged at $16,900. Residents of the UAE, with an average per capita debt of $9,400 came in third spot among the six-nation Gulf Cooperation Council (GCC) states.
Bahrain residents came in fourth place with an average debt of $7,236, down 10.5 percent from a year earlier, followed by residents of Saudi Arabia, with an average of $4,445, down 7.8 percent from the previous year.
The new law is expected to have a salutary effect on citizens and residents engaged in trade, as a bonafide bankruptcy will no longer be treated punitively. A bankrupt person or firm will now be allowed to operate freely without being shackled by fears of prosecution and prison terms, giving them the opportunity to repay their debt and start a new beginning.
However, opponents of the law point out that the Preventive Settlement, Restructuring and Bankruptcy Law, abolishes Article 292 of the Procedure Code, which served as a deterrent to defaulters. They note that seizure, subpoena and imprisonment of debtors were important means of pressurizing debtors to repay what they owe, and that without such deterrents, people would become lax when it came to repaying debts.
However some legal experts say that though most of the deterrents that pressured debtors to repay dues at the earliest have been removed with the new law, there were still many effective enforcement procedures that could be applied against debtors, such as the seizure of bank accounts, travel bans, vehicle seizures, real estate seizures, and movables and shares seizures.
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