The legal and regulatory landscape is constantly evolving, meaning businesses have to remain agile in order to continue to progress. The past 12 months have been a true testament to the importance of adapting to unprecedented situations as the COVID-19 pandemic wreaked havoc on entire economies. Arsalan Tariq discusses the trends and changes impacting businesses and legal teams in Oman.
The Government of Oman has introduced new laws to promote the economy and to ensure minimal disruption to businesses during in these difficult times. Many business owners and their in-house legal teams seek relief and protection from the implications of coronavirus. The recent measures issued by Omani authorities are an effort to ensure that business goes on as usual. Oman has refined its legislative framework to focus on its private sector, local business owners, and foreign ones. Some of the key updates are provided below. BANKRUPTCY LAW The Bankruptcy Law implemented in July 2020 regulates preventative compositions, restructurings, and bankruptcies, as well as making positive updates to the previously existing law. While preventative compositions and bankruptcies were already covered by the existing law, the restructuring concept is new to Oman's law.
The new restructuring concept requires a business to file a petition with the Ministry of Commerce and Industry (MOCI) for a meeting to identify issues in the petition. The legal team must go through the report prepared by the restructuring committee and implement the restructuring plan within five years.
For an agreed settlement, the relevant creditors and the business's legal team must carry out a settlement agreement and submit it to court for approval. In case the settlement is not agreed upon, the petition will be rejected.
The restructuring procedure brings all interested parties together, providing a different approach for uninterrupted one-on-one negotiations with all creditors.
PUBLIC-PRIVATE PARTNERSHIP (PPP) LAW
The PPP Law intends to encourage participation in the development of the private sector as part of the national economy. This allows private businesses to have first priority of expansion before government companies conduct any business activity.
With this law, a project initially meant for government ownership can be reconstructed as a PPP project. Businesses benefit from the law as it encourages negotiations and regulates partnerships where the bidding partner has to be from the private sector. As a result, it excludes those businesses with 40 per cent or more of government holding share capital.
Furthermore, the partnership contract between the two parties allows their legal teams to negotiate who will be the project company to own, finance, establish, operate, and maintain the project. Regardless of who owns the structure, under this law, the PPP projects' assets will automatically confer on the government without the consideration of payment on expiry or early termination of the contract.
Even if a contract doesn't generally stray from this position, the partner must involve their legal teams and discuss if they should exclude some assets from this automatic provision or if the government entity should pay an amount for the reversal to the State.
This law applies to any government-owned public project transferred to a private individual by the Council of Ministers. It could either be in the form of ownership or management of the public project.
Businesses or individuals who successfully bid for a public project's privatisation must transfer all the project's assets and liabilities by creating an Omani common stock company. There could be a pre-privatisation restructuring in the form of relevant asset transfer to this new joint company.
The Privatisation Law protects employees since it's a priority for the government of Oman. The employees vulnerable to the post-privatisation "rationalisation" measures, like those transferred to the stock company, cannot be dismissed within the first five years.
According to Omani law, you cannot recruit non-Omani employees in certain sectors. Sales promoters and sales representatives are now also included in this prohibited sector list. Omanisation requirements apply to the roles and sectors that are open to foreign workers.
The 2020 updates to Oman's Ministry of Manpower increase the Omanisation rates throughout Oman's industrial, logistics, and tourism sectors, which is met positively by the public to increase the involvement of the Oman workforce.
The MOF requires government and private companies to refer to the National Center for Employment before publishing notices and advertisements for employment opportunities. While this move allows more employment opportunities for Omani employees, it limits the private businesses from making their own decisions regarding recruitment.
COMMERCIAL COMPANIES LAW (CCL)
The CCL was introduced to update the law for Omani companies. It introduced some significant changes to governance rules like other constitutional amendments.
For starters, it ensures that limited liability companies that conduct business in Oman can easily join preliminary incorporation vehicles with one corporate shareholder or natural person. This is mainly applicable to GCC companies, citizens, or the Omani Government's investment arms, who can use a legal entity with one shareholder.
These modern provisions, along with other subtle changes, aim to enhance transparency and corporate governance.
Companies are required to comply with the set requirements and regulations within a year.
If they fail to implement changes related to party transactions and conflict of interests, or fail to file these changes within seven days, the Ministry of Commerce will hold them to account. Furthermore, the responsible individuals will face civil or criminal sanctions.
Other companies benefit from the creation of these single-person companies as they can move their minority ownership of share capital to a majority share ownership with the Ministry of Commerce and Industry's consent.
FOREIGN CAPITAL INVESTMENT LAW (FCIL)
The FCIL enforced last year modifies the activity of foreign investment activities in Oman. Previously, foreign entities could only invest if they had a company or establishment with a license from the Ministry of Commerce and Industry.
FCIL greatly relaxes these restrictions on foreign ownership. Foreigners can now create their single proprietor or limited liability company unless restricted to foreign investment.
Previously, foreign businesspeople operated in the Omani market through a commercial agent or a joint venture with a local partner. Now the new law will give these foreign businesses a permanent and better structuring option.
Before FCIL was implemented, local ownership was generally a minimum of 30 per cent in order to set up a limited liability company. This law, however, allows foreign businesspeople to set up on their own without the involvement of a local partner.
Omani businesses or individuals who could previously benefit from acting as the local partner of a foreign entity, now risk losing out on their possible share from such structures.
Joint-stock companies whose balance sheets have over 25 per cent of share capital losses need to restore their profits (under the CCL). For over 50 per cent of these losses, the company's shareholders must approve the management's measures for restoration.
Companies can absorb balance sheet losses with a reduction in share capital, though this doesn't guarantee a solution.
Additionally, businesses and their legal teams must know that if the company's share capital falls below the law stated minimum level due to share capital reduction, the company will undergo recapitalization.
Businesses that fail to comply with the law within twelve months will be dissolved.
THE IMPACT OF THE PANDEMIC
Many companies are bound to face solvency and liquidity issues due to the pandemic, making them more likely to renegotiate their arrangements and debt facilities with their commercial counterparts.
As previously discussed, businesses can use the Bankruptcy Law for these negotiations to have a fruitful settlement. On the other hand, some companies will seek new equity finance from third parties or existing shareholders to overcome the negotiation challenges.
The economic downturn and the consequent challenges require business owners and their legal teams to be prepared for settlement issues and fire sales of assets to overcome them. Some companies might apply to Omani courts for dissolution or preventative composition, and it is essential to be mindful of company liabilities in duties in such cases.
IN A NUTSHELL
The Omani government has introduced updates in its legislative framework to refine its business approach due to the economic challenges faced by businesses throughout the COVID-19 pandemic.
Whether the business owners are local or foreign, they can benefit from complying with the new laws that focus more on the private sector. Businesses have suffered significantly during the pandemic, and it is through these new measures that they can restore their profits and overcome the disruptions they have had to face.
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