How reforming Qatar’s bankruptcy law could help drive development

August 8, 2022

As Qatar seeks to grow and diversify its economy through innovation, it must accept that risk is inevitable, and with risk there is the possibility that a company or individual could face economic failure.

Against this backdrop, a possible reformation of the country’s bankruptcy law is one way of helping to balance risk and reward, by promoting a culture of sustainable investment regime. The way I see this reform taking place is first to have a single Qatar bankruptcy code. Second, certain new provisions to protect both creditors and debtors should be added.

Currently, most of the bankruptcy provisions can be found under the 2006 Trade Law, with provisions concerning liquidation in the 2015 Commercial Law and the 2004 Civil Code containing provisions on the effects of bankruptcy. This situation causes confusion and is not aligned with the practices of various jurisdictions, such as in the United States.

Introducing a single bankruptcy code would help ensure that the provisions are streamlined and easily accessible

But my proposal is about more than just changes to the current form. At its heart is this premise: Qatar’s bankruptcy law should provide greater, but measured protection to debtors.

Under the existing law, financially distressed companies can create a new plan and timeline to repay their creditors in full, or file for liquidation and end their business. I believe that debtors should have a third option, such as reorganisation, where they have a fresh start and can repay creditors less than the full amount.

This approach, which many countries have adopted, would breathe new life into the economic activities of distressed debtors, and consequently encourage entrepreneurship and new business creation — with the ultimate outcome being to support the diversification and growth of Qatar’s economy.

It is clear that any reform to protect debtors would need rules to be put in place to prevent fraudulent claims of bankruptcy, as financially sound companies should not be able to use bankruptcy law to ‘game the system’.

There would be a robust and extensive court oversight of the allocation of the debtor’s assets to creditors. Such oversight would involve increased resources for the courts to ensure both the creditors and the debtors are treated on par with each other.

Yes, there would be an increased workload on the courts, but this would not be an issue as Qatar has recently introduced an Investment and Commercial Court, and the mandate of this court covers bankruptcy cases. My third concern about the current situation rests in Article 626 of the 2006 Trade Law, under which individuals who are declared bankrupt may not be a ‘voter or a member of the Shura Council, or the Central Municipal Council, or the Qatar Chamber of Commerce and Industry of Qatar or associations, nor may he be a manager or a member of the board of directors or director of any company.’

This is a harsh approach which stigmatises debtors, effectively pushes them to the point where they lose all their personal assets to repay their debts. De-personalising bankruptcy should be a priority — this is an economic process, not an individual one.

Finally, Qatar should follow the Qatar Financial Centre (QFC) by adopting aspects of a widely recognised, although not widely adopted, United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross Border Insolvency. This step would help attract foreign investment to Qatar and support local companies which have assets abroad. If adopted, one particular benefit would be that Qatar courts would coordinate with other courts to ensure fairness for all parties to a dispute.

To ensure these proposed reforms protect creditors as well as debtors, there are measures that can be introduced, such as limiting the number of times a debtor can file for bankruptcy and strict judicial oversight of the process.

Ultimately, I believe these revisions to Qatar bankruptcy law would increase confidence in the Qatari business climate and help increase economic activity in Qatar.

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