In order to safeguard the state economy from the adverse effects of global recession, the State of Kuwait has taken some effectual steps by passing Law decree No.2/2009 on enhancing the state economic stability on 2nd April 2009 in line with the Central Bank of Kuwait’s recommendations.
The beneficiaries of the Law are the Kuwaiti banks and the investment companies up to the prescribed extent. The executive regulations define the procedures to be followed in the implementation of this enactment.
Article 2 obliged the banks to take all necessary measures to ensure the collection of dues and obtaining the securities related to the credit facilities and financing portfolio, that the State will guarantee the amount of deficit and to reduce the size of the deficit proportionally.
The State may guarantee the deficit in the credit facilities portfolio, financial investment and real estate investment portfolios, outstanding with banks as of 31st December 2008, for fifteen years. The banks shall comply with terms and controls imposed by CBK regarding the disposal of the components of the above portfolios, covered by such guarantee.
CBK, on behalf of the State, shall issue a guarantee policy for each bank and such banks shall take effective measures to treat their deficit in order to reduce the value of guarantee annually at the rate of 8% p.a, with effect from 31st December 2011. The banks shall pay an annual guarantee issuance commission at the rate of 1% p.a at the end of each year. This will be credited to the State Public Reserve.
In case any bank is unable to mobilize capital to meet its financial requirements, Investment Public Authority (IPA), may purchase bonds issued by bank bound to be converted into shares or subscribe to preferred shares or any other financial instrument as per Islamic Shari’a in order to support the rights of shareholders.
Article 8 stipulated The state shall guarantee 50% of new finance provided by local banks to productive local business sectors, to be used locally, up to a limit of KD.4 Billion for both 2009 and 2010 subject to certain conditions.
Article 9 stated that in case of debtor’s default in repayment of new finance, the State guarantee amount shall not exceeding 50 % of the net amount. The Ministry of Finance may, on behalf of the State, issue bonds and sukuk covering the value of such guarantee, valid less than five years.
The Investment Companies shall be classified as per their financial situation. CBK may nominate one or more experts to ascertain the company’s financial condition and to report the recommendations and remedies on company’s expense. Such assessment shall be considered as the company’s real financial situation for the purpose of this law.
CBK shall prescribe the proper actions for such needy and qualified companies as follows:
1. The State guarantee 50% of new finance extended by the local banks for 2009 and 2010, to be utilized for the purpose of:
· Settlement of its outstanding liabilities as of 31st December 2008 to all local parties except local banks.
· Rescheduling its debts to foreign banks and financial institutions, upon the condition that cash settlement shall not exceed 25% of total debt, the rest to be rescheduled for suitable duration and terms.
2. Providing proper support to the company from its shareholders or through Investment Public Authority (IPA) by facilitating subordinated loans or finance or issuance of convertible or non-convertible bonds or preferred shares or other financial instruments as per Islamic Shari’a.
CBK shall assign the manager bank to conduct rescheduling the debts of companies, whose situation treatment approach requires so. The manager bank shall coordinate and negotiate with the creditor banks, financial institutions and other creditors to determine the financial requirement and the collaterals it shall submit in order to reschedule the debts.
The company shall obtain the prior approval of the concerned general assembly to implement the treatment measures and actions to improve its financial situation such as redeploying national work force, provided the strength of national manpower shall not be less than 50%, reduction of expenses including allocations for top management, remuneration, bonuses etc., change in technical and administrative structure, merger with other company / companies etc.
Chapter II deals with the judicial procedures as per the Law. A special circuit shall be established at the Court of appeal with exclusive jurisdiction to hear the restructuring requests in summary manner. CBK or the company, facing difficulties shall put up the request for restructure before the Circuit. The Circuit may stay all the civil and commercial proceedings and execution measures relating to company’s liabilities, until its merits are adjudicated by the circuit of competent jurisdiction.
Upon receipt of notice regarding stay any party, having interest on it shall submit their reasonable and causative grievance before circuit of competent jurisdiction within fifteen days. The circuit shall render its judgment on the grievance, cancelling or continuing the stay, which shall be final and unchallengeable.
Upon the acceptance of the request of restructuring as per Article 17 of the law, the circuit shall study the financial situation of the company. CBK shall submit a report, based on the opinion of the experts, appointed by CBK to the circuit within 4 months. The circuit shall have a session to hear the merits of the request.
The judgment shall be pronounced on the merits of the request, ratifying the restructuring plan; continue staying all the judicial and executive actions until the elapse of the period specified for execution of the restructuring plan. The judgment shall be considered as final and unchallengeable with an objective to end the disputes at once without prolong the matter due to unwanted formalities.
CBK shall supervise and monitor the execution of company’s restructuring plan. If the company fails to comply with the plan, CBK shall refer the subject to the circuit, in order to render a judgment declaring the plan as null and void, including cancellation of the stay order. Each party having interest shall take necessary actions, which they deemed just and appropriate.
With an objective to protect the public fund, the Law decree provides strict penalties and punishments for the unscrupulous people who willfully misuse the provisions of this law. Without prejudice to any penalties stipulated by any other laws, anybody hiding the truth or making up a debt or document, or any disposal, with malicious intention to benefiting the provisions of this Law decree, shall be punished with imprisonment for a term not exceeding five years and with a fine not exceeding KD.5000.
Anyone misleading the Judiciary or any competent authority, fabricating any wrong information with malicious intention to benefiting the provisions of this Law decree or anyone disclosing or exploiting any information, that came to his knowledge regarding the application of the provisions of this Law decree, shall be punished with imprisonment for a term not exceeding one year or with a fine not exceeding KD.3000 or with both. The convict shall be liable to be expelled from the service, if he/she is a public servant.
The general and final provisions (Chapter 5) provided that a specific purpose company shall be established for issuing the sukuk as per the procedures stated in the executive regulations. The maximum amount to be used for the purpose of applying the provisions of Law decree shall be KD.1.5 billion and all necessary expenses, provided from the State’s public reserve.
Beneficiary parties shall submit a declaration as per Article 30 of the Law decree, to the Ministry of Commerce and Industry, within three months.
The Government shall submit half yearly / yearly detailed reports to National Assembly and State Audit Bureau on the matter.
For More Information ,Yoy can contact :
The Law Firm Of Labeed Abdal
WEBSITE: WWW.LALAW.COM.KW
EMAIL: INFO@LALAW.COM.KW
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