Important revisions to the insolvency legislation in the Qatar Financial Centre ("QFC") came into effect on 22 December 2013.
The QFC is a virtual free zone in Qatar with its own laws and judicial system. While insolvency laws in many jurisdictions in the region are inadequate and outdated, the QFC has been keen to position itself as a leading financial centre in the Middle East. Shortly after it was established in 2005, the QFC introduced Insolvency Regulations which followed parts of the UK Insolvency Act (as it stood prior to the Enterprise Act reforms in 2002) and made provision for administration, winding up (voluntary and compulsory) and arrangements.
The QFC has now revised its Insolvency Regulations and implemented some of the Enterprise Act amendments to the UK Insolvency Act (with some adaptations), while also modifying certain terminology and addressing some gaps in the original Regulations.
The most significant revisions are as follows:
- Pursuant to article 7, an administrator must perform their functions with the objective of:
- rescuing the company, or some or all of its undertaking, as a going concern;
- achieving a better result for creditors than would be likely if the company were wound up – but only if the first objective cannot be received or this objective would achieve a better result for the creditors as a whole; or
- realising property in order to make a distribution to secured creditors – but only if it is not reasonably practicable to achieve the other objectives and the interests of the creditors as a whole will not be harmed unless necessary.
An administrator must also act in the interests of the company's creditors as a whole (subject to sub- paragraph iii above) and as quickly and efficiently as reasonably practicable.
These amendments require an administrator to focus on rescuing a company – which implies putting it in a sound financial and operating position – rather than simply seeking its "survival" as was the case under the old Regulations. The interests of creditors as a whole are also given more prominence than they previously had.
- The administrator's obligation to do all things necessary for the proper management of the company's affairs, business and property is no longer open-ended but is limited to the extent that they are necessary to carry out the administration (article 31(1)). This amendment assists administrators as it means that they can focus on the job at hand – namely attempting to rescue a company as quickly and efficiently as is reasonably practicable – without being required also to take on the general management obligations of the company.
- The onerous property which can be disclaimed by a liquidator during a winding up now includes "any unprofitable contract" (article 92(2)). On its face, this may appear to be a very broad power and to permit liquidators to disclaim (i.e. to terminate the company's rights and liabilities under) contracts which may be unfavourable for various reasons so long as the contracts can be characterised as "unprofitable". However, the equivalent provision in the UK has been interpreted narrowly, and it is likely that the QFC Civil and Commercial Court, which has jurisdiction over insolvencies in the QFC, would interpret article 92(2) in a similar way in order to avoid abuse of this power.
- Detailed provisions for proofs of debts and payments to creditors have been introduced (part 5, sections 8 and 9). Both matters must now be dealt with in a more rigorous and open manner.
- The Court generally has greater powers to oversee and, where necessary, intervene in an insolvency. For example, it may now examine the conduct of administrators and liquidators and impose penalties, terminate their appointment and order the payment of compensation if appropriate (article 141A).
- Pursuant to article 185(2), the QFC Authority may make rules for the registration of insolvency practitioners, which it has done in the QFC Insolvency Rules, which also came into effect on 22 December 2013.
The recent amendments to the QFC Insolvency Regulations bring them into line with international best practice. While it appears that very few companies have had to resort to insolvency procedures in the QFC to date (as there are currently only two registered insolvency practitioners, and neither of them is based in Qatar), the amended legislation should provide company creditors and shareholders with increased confidence that any insolvency will be conducted in a transparent manner.