The Kuwaiti parliament has approved a law to increase protection for troubled businesses and provide two new options before they are forced to declare bankruptcy, a parliamentary committee report showed.
Under the 40-year-old previous law, failure to make debt repayments meant automatic bankruptcy and the defaulter faced penalties, including imprisonment, deprivation of political rights and travel bans.
The new law does not treat failure to pay debt as a criminal offence, unless it is fraudulent. It also allows bankruptcy to be avoided either by a settlement with creditors or a restructuring plan.
This law is “one of the most important laws supporting improving the business environment and attracting foreign investment,” the committee report said. “It contains clear legal rules and standards that preserve the rights of investors and achieves a balance between the creditor and the debtor.”
Parliamentary committees have debated the law for about a year, but the COVID-19 pandemic, which has had a heavy impact on the oil-exporting nation, made the legislation more urgent.
Crude prices sank in April to two-decade lows as lockdown-related travel restrictions crushed fuel demand and Kuwait faces a deficit of 14 billion dinars ($46 billion) in the current fiscal year, which began on April 1.
The law ushers in a philosophy of helping debtor businesses and saving them from default, the parliament’s finance and economic committee said in the report, citing the trade and industry minister.
It is “not only to protect the troubled (businesses), but to protect creditors and the national economy as a whole,” the report quoted the minister as saying.
The law provides for the creation of a specialised bankruptcy court to expedite cases. It also gives special protection to small and medium enterprises and in some cases waives part of their debt.