Proposed law aims to reinstate arrest of debtors

• A draft law prepared by the “Fatwa and Legislation” aims to amend the “Civil and Commercial Procedures Law.”

• It was submitted to the “Justice” Ministry in preparation for its approval by the Council of Ministers.

• The “Bankruptcy” law enabled the debtor to avoid the measures taken against him, obstructing the payment of his debts.

In response to what was published by Al Jarida, the General Department of Fatwa and Legislation, today, has submitted a draft law to the Minister of Justice, proposing amendments to the Civil and Commercial Procedures Law issued by Decree Law No. 38 of 1980, in preparation for its submission to the Council of Ministers.

The draft law stipulates the reinstatement of the arrest and detention of debtors in financial cases, which was previously abolished by the Bankruptcy Law, leading to creditors’ inability to recover their dues.

The explanatory memorandum of the draft law, a copy of which was obtained by the newspaper, stated that the practical application of the implementation rules in the Civil and Commercial Procedures Law issued by Decree-Law No. 38 of 1980, and the cancellation of provisions related to debtor imprisonment under the Bankruptcy Law, have revealed instances where financially capable debtors were able to evade procedures intended to enforce debt repayment.

The debtor employs various methods to evade asset seizure procedures, including transferring funds to individuals under his authority or control. As a result, the creditor is unable to enforce the executive instrument, rendering the debt uncollectible and turning it into a bad debt.

The memorandum added that the rising rate of bad debts, whether civil or commercial, has serious consequences not only for creditors who have gone through the effort of obtaining an executive instrument but also for the country’s economic environment and its ability to attract foreign investments. Addressing this issue is crucial for Kuwait’s goal of becoming a regional financial and commercial hub and achieving its “New Kuwait” vision.

Therefore, a legislative amendment to the Civil and Commercial Procedures Law was proposed to address existing shortcomings and enhance enforcement mechanisms, ensuring that solvent debtors are urged to fulfill their obligations while minimizing obstruction to debt repayment. At the same time, the amendment seeks to protect insolvent debtors facing genuine financial distress by exempting them from executive procedures and punitive measures. The goal is to establish a fair balance between the creditors’s right to recover debts recognized by an executive instrument and the debtor’s financial limitations, while preventing fraudulent claims regarding financial incapacity.

The explanatory memorandum stated that following the Amiri Order issued on 10 May 2024, which stipulates in Article (4) that laws shall be issued by decrees with the force of law, this draft decree was prepared. Article 1 of the draft law proposes replacing the term used in Article (214) of the Civil and Commercial Procedures Law, ensuring that the cancellation of an objection or suspension of its implementation is considered a decision rather than a judgment, aligning it with the terminology in Article (59) of the law.

Additionally, the draft introduces a provision removing the effect of suspension due to an objection if the court orders a criminal suspension of the lawsuit under Article (70) of the law.

Furthermore, recognizing that the fine imposed on those who raise objections that delay execution is currently insufficient to deter misuse, the draft law proposes revising the fine amount to reflect current economic conditions. It suggests raising the minimum fine to 50 dinars and the maximum to 300 dinars, compared to the lower amounts set when the law was originally enacted in 1980.

The draft law addresses shortcomings revealed through the practical application of the existing provisions, particularly the challenges faced by banking institutions and clearing agencies in seizing a debtor’s funds. Under the current system, seizure notifications and reports on the debtor’s assets often arrive when no funds are available in the designated account, allowing debtors who delay payment to transfer or withdraw funds before they can be seized, thereby obstructing the payment process. To close this loophole, the draft law proposes replacing Paragraph Two of Article (227) and Clause (e) of Article (230), introducing an obligation for the entity holding the seized assets to also seize any additional funds or credit balances that become available after the initial report.

To streamline the implementation procedures, it was decided to assign the responsibility of reporting what is owed to the implementation department handling the case, rather than the current process, which requires reporting to the clerk of the general court. Consequently, Article One of the draft law proposes replacing the text of Article (293) of the Civil and Commercial Procedures Law to reflect this change.

It was highlighted that in its second article, the draft law proposes the addition of new articles numbered (204) bis, (204) bis, 292, 293 bis, 294, 295, and (296), which reintroduce the system of arrest, detention, and imprisonment for debtors who delay payment. This system was abolished by Law No. (71) of 2020, which, by eliminating it, led to the cancellation of all related orders, without distinguishing between bankrupt debtors—whose inability to pay is proven—and solvent debtors who refuse to pay. The reintroduction of this system is seen as a crucial tool for creditors to pressure solvent debtors into fulfilling their financial obligations.

The adoption of the arrest and detention system for debtors does not violate international agreements ratified by the State of Kuwait, as these agreements prohibit the imprisonment of a debtor who is unable to fulfill their obligations.

For instance Article (11) of the International Covenant on Civil and Political Rights, ratified by Kuwait through Law No. (12) of 1996, stipulates that “No person may be imprisoned merely on the ground of his inability to fulfill a contractual obligation”.

Similarly, Article (18) of the Arab Charter on Human Rights, ratified by Kuwait through Law No. (84) of 2013, states, “It is not permissible to imprison a person whose insolvency has been proven to be incapable of fulfilling a debt arising from a contractual obligation.” The draft law aligns with these principles and ensures that the issuance of arrest and detention orders is accompanied by guarantees, primarily the debtor’s solvency and ability to pay, which must be based solely on funds that can be seized.

Moreover, Article (204) bis outlines the procedures that the Director of the Execution Department or their assistants, including judges, may take against debtors who refuse to pay. This includes requesting the disclosure of any movable or immovable property or other financial rights, whether present or future, held with government agencies, banking institutions, investment companies, clearing agencies, or others.

The disclosure may pertain to periods both before and after the issuance of the executive instrument, aiming to reveal the disposition of these assets and the identity of any transferees. This allows the creditor to pursue appropriate legal action if there is reason to include these assets in the general guarantee for creditors. However, the collection of debt and tracking of disposed funds must not exceed what is necessary to reveal this financial information, in order to protect privacy and data confidentiality. Consequently, the draft law does not permit the disclosure of data for periods prior to the event that created the debt.

Additionally, the article authorizes the Enforcement Department to notify the Credit Information Company about the non-fulfillment, ensuring that this information is recorded in the debtor’s credit record to reflect their creditworthiness when dealing with legal entities, particularly companies and commercial institutions that provide credit facilities.

Article (204) bis (a) addresses situations where the debtor attempts to weaken their financial position by disposing of assets in a way that harms the creditor, often to appear insolvent and avoid enforcement procedures. It grants the Execution Department the authority to halt transactions involving the debtor’s assets if they are disposed of without compensation or at a price significantly lower than the market value. This provision applies whether the transaction occurred before or after the issuance of the executive instrument, as long as the disposal took place after the debt originated that is now being collected.

The project stipulates a procedural penalty by treating the order to suspend dealings as though it had never been issued if the creditor fails to file a lawsuit to invalidate the transactions within a week from the day following the issuance of the order. This penalty also applies if the lawsuit is filed and dismissed, ruled as if it had not been issued, or if the dispute is dropped or expired.

The explanatory memorandum clarified that the suspension of dealings with funds, when its conditions are met, does not imply that the person to whom the funds were transferred will be deprived of them. The primary objective is to halt the chain of transactions and their entanglement until the substantive lawsuit concerning the funds is resolved. The competent court is also authorized to lift the suspension order at any stage of the lawsuit.

The key addition made by the project to the previous regulation regarding debtor imprisonment was the reinstatement of Articles (292, 294, 295, and 296) and the introduction of Article (293) bis to the Civil and Commercial Procedures Law. This provision requires the prison administration to implement the imprisonment order separately from criminal prisoners to avoid mixing debtors with them. Additionally, it mandates the prison administration, in cooperation with the Execution Department, to prepare measures that enable the debtor to promptly pay or settle their debts.

The issuance of an imprisonment order is prohibited if the debtor is under twenty-one years of age, as they have not yet completed the legal capacity year. Additionally, female debtors who are pregnant or individuals who are physically unable to bear imprisonment are exempt from such orders.

Moreover, a debtor cannot claim an inability to pay if they have disposed of or hidden their assets with the intent to harm the creditor, making it impossible for the creditor to enforce the debt. Article Three of the draft decree-law calls for the cancellation of any provisions that contradict its terms, and Article Four mandates that the ministers, each within their jurisdiction, enforce its provisions, with the law becoming effective upon its publication in the Official Gazette.