Bahrain's laws continue to evolve in response to the shifting economic landscape

Bahrain’s Bankruptcy and Composition Law, promulgated by Legislative Decree No. 11 of 1987, aims to establish a balance between creditor and debtor interests. Honest and unfortunate merchants who suspend payment of their commercial debts are eligible to file for bankruptcy and conclude a conciliation with their creditors. The law also protects creditors from any act taken by the merchant debtors that could harm their interests.

ADJUDICATION OF BANKRUPTCY: A petition for adjudication of bankruptcy may be submitted by the merchant who suspends payment of commercial debts to the petition writer of the high civil court within 30 days of the date of suspension of payment, explaining the reasons for suspension and providing substantive supporting evidence.

Creditors that are owed a mature payable commercial debt may submit a petition requiring that their merchant debtor be adjudged bankrupt if such merchant has suspended payment due to disorder of their financial affairs. If the court dismisses the creditor’s application for bankruptcy, the debtor will be entitled to seek compensation for the damages incurred from such application.

Once the petition is lodged the competent court may order that the necessary steps be taken for preservation or management of the debtor’s property, pending the court’s decision regarding the petition. A bankruptcy trustee will be appointed once the bankruptcy is adjudicated to undertake administration of the bankruptcy funds, and to act on behalf of the bankrupt party in all transactions required for such administration.

If on the date of adjudication no money is readily available to meet the expenses for adjudication of the bankruptcy judgment, such expenses will be paid from the court treasury and will have priority in repayment over all other creditors from the first monies received in the bankruptcy account.

EFFECTS: A bankruptcy order will have the following effects on the bankrupt, creditors and third parties:

• An adjudicated bankrupt may not leave the country upon the passing of the adjudication of bankruptcy except with permission from the bankruptcy judge.

• The court may at its own discretion – or at the request of the bankruptcy judge, public prosecution or bankruptcy trustee – order the placing of the adjudicated bankrupt under supervision, if they deliberately conceal their properties or refuse to perform any of the orders of the bankruptcy judge.

• An adjudicated bankrupt shall be prohibited from all types of administration and disposal of their assets except for those deemed necessary for safeguarding their interests. This prohibition shall not be extended to properties owned by third parties or the rights relating to the person of the adjudicated bankrupt, their personal status or minor children. An adjudicated bankrupt may also claim the value of a commercial paper on its maturity date, unless such is objected to by the bankruptcy trustee. An adjudicated bankrupt may also engage in a new trade using monies which are not part of the bankruptcy, provided that such is not detrimental to their creditors.

• Notwithstanding the above measures, the bankruptcy judge may determine payment of financial assistance to the bankrupt and his dependants from the assets of the bankruptcy.

• Unsecured creditors may be entitled to interim measures, such as obtaining an attachment order from the court over the debtor’s assets. The court may award the attachment if there are serious grounds justifying the issuance of the attachment order. Such serious grounds include the risk of the debtor disposing of his assets or acting in a way that would hinder the creditor’s right to recourse.

• The bankruptcy trustee must be joined in any criminal proceedings relating to the bankrupt if such proceedings involve financial claims.

DISCHARGE OF BANKRUPT: Except for bankruptcy through fraud, all rights due from the bankrupt that have been extinguished shall be reinstated two years after expiration of the bankruptcy.

However, the bankrupt merchant should be discharged if he settles all his debts, including all relevant expenses and interests, even if the two-year period has not expired.

COMPETITION LAW: Competition law aims to ensure there is fair competition between businesses. With businesses under constant pressure from other companies to offer the best possible range of goods at the best possible prices to consumers, they sometimes seek to relieve this by making certain arrangements in an effort to monopolise their business activities, restraining trade as a result.

These arrangements fall into four main areas: agreements between or among competitors; contractual arrangements between sellers and buyers; the pursuit or maintenance of monopoly power; and mergers and acquisitions.

Such behaviour can negatively affect consumers, as prices often rise and the involved companies will have less incentive for research and innovation in order to gain an advantage over their competitors: why waste time and resources if they have agreed on fixed prices or control the market?

To prevent such market behaviour, competition law serves to regulate trade and commerce by eliminating unlawful restraints, price-fixing and monopolies; promoting fair competition; and encouraging the production of quality goods and services at low prices. The primary goal is to safeguard public welfare by ensuring consumer demand will be met by the manufacture and sale of goods at reasonable prices. Often these laws are enforced by a specialised competition authority and/or a specialised court with the power and authority to impose sanctions which can be very high – for example, in June 2017 the European Commission fined Google €2.42bn for breaching EU antitrust rules.

Anti-competitive agreements – with an agreement often being very widely defined – include the manipulation of prices or restricting the freedom of the flow of products by the involved companies. Abuse of dominant market position entails businesses with significant market power unfairly exploiting their market positions by, for example but not limited to, imposing unfair trading terms or refusing to provide access to essential facilities to companies active in the same field. In such situations the law will establish the exact scope of the prohibition and detail the possible exceptions to the rule.

Competition, monopoly and related practices are governed by Chapter Four (Rules of Competition and Monopoly and Manifestations of Breach of Rules) of the Consumer Protection Law (Law No. 35 of 2012), which is supplemented by its implementing regulations (Resolution No. 66 of 2014). The regulatory authority that supervises the monitoring and enforcement of the Consumer Protection Law is the Consumer Protection Directorate (the Directorate) of the Ministry of Industry, Commerce and Tourism.

However, supply of medicines and health-related foods, and provision of services rendered by professionals involved in medicine, engineering, law, accounting and insurance, fall outside the ambit of the Consumer Protection Law.

The relevant provisions of the Consumer Protection Law put forth a non-exhaustive list of anti-competitive agreements that are prohibited in Bahrain. Such agreements include, among others, arrangements involving manipulation of prices of products without any justifiable cause, limiting or restricting the free flow of products to the market, artificially creating scarcity in the market and the concealment of products or information.

ANTI-COMPETITIVE ARRANGEMENTS: As an exception to the prohibition of non-competitive measures, an agreement that leads to a reduction of the costs or improves the conditions of production or distribution, and as such benefits consumers, such as lower prices and higher-quality products, shall be lawful. The rationale behind this exception is the recognition that certain contractual arrangements are far more advantageous to the consumer than the benefits an otherwise utopian competitive environment would ensure. However, specific approval must be obtained from the Directorate as a prerequisite for such an exception.

MONOPOLISTIC PRACTICES: The Consumer Protection Law also cracks down on the abuse of dominant market position and defines such monopolistic practices by citing examples. These include (i) selling products below the cost price; (ii) suppliers allying with each other to the detriment of the national economy and consumers’ interests; (iii) competitors agreeing to buy competing products and services from the market; (iv) refraining from, or reducing, the sale and supply of goods and services; and (v) where a supplier stipulates for the consumer to buy a product or service in addition to the related service or product to be obtained.

However, the Consumer Protection Law does not stipulate the required market share threshold to be seen as occupying a dominant position in a relevant market. Further, the term monopoly, which implies full and dominant control of a market, is only used in headings and by way of generic reference to monopolistic practices by businesses.

Instead, the Consumer Protection Law has adopted an overarching approach to deal with any anti-competitive and monopolistic practices irrespective of the market share of the contravening participants. As understood, the aim of the law is to regulate all economic concentrations.

The Directorate is tasked with monitoring market compliance with the Consumer Protection Law. In doing so, the Directorate takes appropriate action against contravening market participants both upon submission of complaints by the aggrieved party as well as on its own initiative.

The Directorate shall, upon conducting an investigation which establishes that a violation has been committed, instruct the violator to rectify its position and remove the violation either immediately or within a specified period of time.

In case of non-compliance with such instructions, the minister of industry, commerce and tourism may take such measures as deemed appropriate under the applicable law, including referring the matter to the Public Prosecution of Bahrain if justified in the circumstances of a given case.

With the aim of establishing a Gulf common market, the Supreme Council of the GCC has established a specialised committee to discuss and prepare the draft of a unified competition law for the GCC.

Such a move would have enormous benefits for companies doing business in the region, whether in terms of harmonisation of the substantive and procedural rules, reducing costs, or enhancing legal certainty and minimising the risk of inconsistent findings by more than one competition authority.

It is undeniable that the desired competitive market will not only benefit businesses, but that its perks will, ultimately, trickle down and work in the best interests of consumers too. Such a framework, especially a detailed one, could also inspire better local competition laws and their enforcement. For now, however, much work remains to be done.