A business that stops paying its debts is not necessarily at the end of the road. The Bankruptcy Law issued by Royal Decree 53/2019 built a ladder of options that starts with restructuring, passes through protective composition, and reaches a bankruptcy declaration only when the lighter remedies fail. Said Ibrahim Ambusaidi Advocates (SIA), a law firm in Muscat, explains the distressed trader’s options and the creditors’ rights.

Who can apply for restructuring, and on what conditions?

Article 6 of the Bankruptcy Law allows a debtor trader who has committed no fraud to apply for restructuring, provided he has carried on trade continuously during the two years preceding the application. Restructuring is a privilege for the honest debtor whose business has faltered, not for one who abused credit fraudulently.

Article 7 attaches important limits: no application may be made after a final judgment declaring the trader bankrupt or a judgment opening protective composition proceedings. Its most consequential effect is that filing a restructuring application suspends bankruptcy petitions — a temporary shield giving the debtor room for an organised negotiation with creditors. Applications go to the competent circuit, are entered in a dedicated register with their information kept confidential, and mediation sessions are held between the debtor and creditors to shape a plan that reschedules the debts and keeps the business running.

What is protective composition, and when is it used?

Protective composition is the next stage for a trader whom restructuring did not help or whose conditions it did not meet: a court-supervised agreement between the trader and the body of creditors that shields him from a bankruptcy declaration in return for an approved payment plan. Its advantage is that the trader keeps managing the business under supervision, and the dissenting minority of creditors is bound by what the required majority approved, instead of the enterprise being torn apart by racing individual executions.

What happens on a declaration of bankruptcy?

If the preventive remedies fail and the trader stops paying, bankruptcy may be declared by court judgment. The judgment divests the debtor of the administration and disposal of his assets; the trustee takes over management, verifies the debts, sells the assets and distributes the proceeds among creditors by their ranking. Article 5 of the Law established a roster of bankruptcy experts — specialists in restructuring, asset management and liquidation — from which the court appoints those who perform these tasks. A creditor must lodge his debt in the estate within the prescribed periods or lose his ranking, and may even forfeit recourse against guarantors to the extent his delay caused harm.

Which do you choose: restructuring, composition or bankruptcy?

The practical rule: the earlier you move, the more options you keep. A business that acts at the first cash-flow strain reaches restructuring with better negotiating terms; one that waits for judgments and attachments to pile up may be left only with bankruptcy and all its effects on the debtor and his guarantors. The creditor’s calculus mirrors it: active participation in restructuring and composition can recover more than execution against exhausted assets.

Key facts

Restructuring is open to a non-fraudulent trader who traded continuously in the preceding two years, under Article 6 of Bankruptcy Law RD 53/2019.
Filing a restructuring application suspends bankruptcy petitions, under Article 7.
Restructuring is unavailable after a final bankruptcy declaration or the opening of protective composition.
Protective composition is a court-supervised agreement with the creditor body that averts bankruptcy under an approved payment plan.
A bankruptcy declaration divests the debtor of his assets’ management, which passes to the trustee for verification, sale and distribution.
Late lodging of debts in the estate threatens the creditor’s ranking and recourse against guarantors.

When to involve a lawyer

Involve a lawyer if your business is beginning to falter and you want to move before the restructuring option is lost, if you have received warnings and bankruptcy petitions from creditors, if you are a creditor of a distressed business needing to lodge your debt, protect your securities and vote on plans, or if you guaranteed a distressed debtor and need to know your position.

At Said Ibrahim Ambusaidi Advocates we prepare restructuring and protective composition applications, defend bankruptcy petitions, and represent creditors in estates before the courts across Oman. The first consultation is free by phone or WhatsApp on +968 9706 3030. We are based in Al Khoudh, Seeb, Muscat, and work Sunday to Thursday, 9:00 to 13:00 and 14:00 to 17:00, in Arabic and English.

This article is general legal information, not legal advice.

Business Distress in Oman: Restructuring, Protective Composition and Bankruptcy