Commercial bankruptcy is one of the fundamental issues in the business environment, as it has a direct impact on market stability and investor confidence. This topic is of particular importance in the Sultanate of Oman today, especially as the country seeks to reinforce market competitiveness within a fair environment and an attractive investment climate under Oman Vision 2040. Legally, commercial bankruptcy is a condition that applies to a trader who ceases to pay commercial debts due to business disruption, necessitating procedures that protect him from legal pursuit and liability. Bankruptcy proceedings are intended to safeguard both debtor and creditor through debt restructuring or asset liquidation in the Sultanate. This article provides comprehensive insights into commercial bankruptcy and its causes under Commercial Law No. (55/90), issued in 1990, which addressed various commercial practices, including bankruptcy and other related matters. What is the Legal Framework for Bankruptcy in the Sultanate of Oman? In 2019, the Sultanate issued Royal Decree No. 53/2019, which came into effect in July 2020. It sets out provisions related to bankruptcy, including applicable procedures and the rights of stakeholders. The law represents a significant step toward strengthening the business environment and ensuring legal protection for all parties involved. It aims to: Regulate bankruptcy procedures transparently. Provide opportunities for bankrupt or distressed companies to restructure rather than liquidate. Protect the rights of stakeholders (creditors and debtors) under the provisions of preventive composition. Develop and stimulate the business environment by reducing the stigma associated with bankruptcy. What Are the Causes of Commercial Bankruptcy? The rapid evolution of business methods and marketing techniques, coupled with the inability of some companies to adapt, is among the leading causes of bankruptcy. Other factors include the deterioration of the financial position of companies and institutions, fluctuating oil prices in recent years, and reductions in government spending budgets, all of which directly and indirectly affect projects, especially small and medium enterprises. These factors also restrict liquidity in the market. Crises such as COVID-19 further disrupted supply chains, which had a negative effect on the Omani markets. Companies and institutions face additional challenges from rising operating costs, including high rents, electricity and water bills, and licensing fees. These burdens are especially difficult for start-ups. Interest rates on commercial loans have also increased, causing many small and medium enterprises to default on debt repayment. Bounced checks have become a daily occurrence as commercial activity slows and market movement weakens. Market studies in Oman point to weak administrative capacity and lack of skills among entrepreneurs and business owners in small and medium enterprises. This is reflected in the absence of clear financial planning, poor cash flow management, and excessive borrowing, all of which rapidly erode capital. Key consequences include weak internal control, lack of accountability, and failure to meet the requirements of sound leadership and governance, which are critical to addressing financial crises at an early stage. Structural challenges in the business environment also reveal shortcomings in the financial system, particularly regarding the payment of dues and the provision of liquidity required for project management. This exacerbates unfair competition, especially in the face of foreign companies supported by strong financial and logistical resources, which undermine the ability of local firms to compete and reduce their market share. Although the new bankruptcy law exists, its effectiveness is limited in practice due to a lack of legal awareness among many entrepreneurs, especially regarding the mechanisms available to protect them, such as settlement or restructuring. It is clear, therefore, that the causes of commercial bankruptcy are complex, with structural roots in the Omani market. They include financial, institutional, and socio-cultural factors, all of which directly contribute to bankruptcy in the absence of stronger institutional development in this area. What Are the Bankruptcy Procedures under Omani Law? Omani law provides procedures designed to protect stakeholders in cases of bankruptcy. A party facing bankruptcy must take legal and financial measures to limit and prevent damage. The process begins with submitting a restructuring request to the Ministry of Commerce, Industry and Investment Promotion, the competent authority. This is followed by a settlement stage, where the debtor and creditor attempt to reach an agreement on repayment terms that balance the interests of both parties. The second stage is filing a request for preventive composition. The third stage, if no settlement is reached, is the filing of a bankruptcy declaration lawsuit in court. At this point, the court identifies and assesses the debtor’s assets, which are liquidated to repay debts in order of priority. These procedures are designed to protect all stakeholders, as the law was enacted to safeguard their interests and preserve opportunities for negotiation. The legal procedures rest on three main rules: Restructuring as an opportunity for rescue, Preventive composition, Declaration of bankruptcy, after which all other means and solutions are exhausted. What Are the Implementation Challenges in Applying the Bankruptcy System? Despite the legislative progress embodied in Bankruptcy Law No. 53 of 2019, implementation of the system still faces several challenges, the most significant being economic. This remains the central obstacle to the development of entrepreneurial environments and the cornerstone of a stable business climate. Addressing it is key to protecting institutions from bankruptcy. The challenges can be summarized as follows: Practical Challenges in Applying the Bankruptcy System in the Sultanate of Oman Weak legal awareness: Limited knowledge among business owners about available legal procedures such as preventive settlement and restructuring, along with the continued negative perception of bankruptcy. Shortage of judicial and professional expertise: Insufficient number of specialized judges and insolvency trustees handling bankruptcy and restructuring cases. Slow judicial procedures: Delays in processing applications and slow procedures result in missed opportunities to rescue distressed companies in time. Weak cooperation of creditors: Financing entities and creditors often do not respond to restructuring plans due to concerns about losing their entitlements. Absence of restructuring support institutions: Lack of specialized entities to help companies prepare realistic and well-designed rescue plans. Need for creditor settlement mechanisms: Providing companies with a grace period to re-enter the market and operate, either by introducing a new partner or allowing existing partners additional time, while suspending creditor claims until dues can be paid. What Is the Impact of the Bankruptcy Law on the Business Environment? Bankruptcy Law No. 53 of 2019 has brought a qualitative shift to the structure of the business environment in Oman. It has helped establish a balanced legal framework that protects the interests of both creditors and debtors. This new legislative framework has strengthened the confidence of local and foreign investors by setting clear rules for managing financial distress without resorting immediately to liquidation. The law has redefined bankruptcy in line with recent developments and changes in the Omani market, as well as financial and social needs. It provides opportunities for restructuring rather than terminating commercial activity, encouraging distressed business owners to disclose their financial crises early and seek legal protection instead of concealing them or resorting to evasive measures. The law has also reinforced competitive fairness, particularly in the distribution of assets during bankruptcy, by prioritizing essential rights such as employee dues and taxes. These measures are important steps in the broader development of the system. Tools such as preventive settlement and restructuring have allowed viable companies to survive when they might otherwise have disappeared. Over the long term, the law contributes to improving Oman’s ranking in the Doing Business reports and reflects its commitment to transparency and equal opportunity, strengthening its position as an attractive investment destination in the region. Realizing the law’s full potential, however, depends on effective implementation and on overcoming challenges related to awareness, human capacity, and digital infrastructure. This makes the bankruptcy law a promising tool that still requires a strong institutional framework to achieve a real transformation in the business environment. What Are the Future Reforms? As Oman continues its economic transformation under Vision 2040, the bankruptcy law is expected to serve as a strategic tool to regulate the market and balance the protection of creditors’ rights with the continuity of institutions. With the growing number of start-ups and entrepreneurial ventures, the need for a flexible and fair legal environment is increasingly urgent. The next phase requires not only the existence of the law but also quality in its application, accessibility, and a clear understanding among stakeholders. Proposals to Enhance the Effectiveness of the Bankruptcy Law: Legal: Launch media and awareness campaigns to Inform entrepreneurs and accountants about mechanisms of settlement, restructuring, and their legal rights. Judicial: Train judges, lawyers, and accountants on bankruptcy cases Cooperation with legal and professional institutes to strengthen skills in managing complex commercial cases. Digital: Develop a unified electronic platform to manage bankruptcy files, Facilitate submission of applications, track case progress, and improve transparency and efficiency. Financial: Establish a specialized committee of banks, the Central Bank, and relevant entities to find solutions for distressed companies to support restructuring plans instead of pushing toward bankruptcy or liquidation. Legislative: Require banks to implement restructuring according to the recommendations of the specialized committee ensure alignment with the bankruptcy system and simplify procedures related to liquidation or restructuring. Commercial bankruptcy is a critical stage in the life cycle of institutions, with a direct impact on market stability and investor confidence. The enactment of Law No. 53/2019 marked a turning point in Oman, introducing mechanisms such as preventive settlement and restructuring that provide legal protection for both debtor and creditor. Yet structural challenges, such as weak legal awareness, lack of specialized expertise, and slow procedures, continue to limit the law’s effectiveness in practice. In light of Oman Vision 2040, the next phase requires a set of reforms, ranging from strengthening judicial and digital infrastructure to developing tools for economic reintegration and enhancing the capacity of support institutions. The objective is to build a flexible bankruptcy system that supports the business environment, promotes transparency and competitiveness, and enables stakeholders to carry out their commercial activities with greater confidence and resilience.
