Barriers to trade and investment
Enforcement orders against shareholders, directors and authorised signatories of companies
As a lawyer, I have participated in various discussions with government entities and private sector companies regarding Oman’s investment climate. In particular, I have discussed laws and practices that, in my opinion, act as barriers to trade and foreign investment. The underlying theme emerging from such discussions is that there is a need to revise certain laws and practices to attract foreign and local investors.
It is true to say that a lot has been done to improve the investment climate in Oman. However, there continue to be a few issues which should be addressed in order to attract investment, including the revision of certain laws and regulations, removal of red tape, and bureaucracy, simplifying government’s decision making processes and addressing the unavailability of skilled labourers in Oman. The list often grows depending on the person you are talking to. On this occasion I would like to highlight an issue which may not be as obvious as those mentioned above. Although this issue may be considered by some to be a minor issue, I believe it has profound implications when it comes to “doing business” in Oman. The issue in question is enforcement of judgments under Oman law.
According to usual court procedures, a party who succeeds in a litigation matter is required to apply for the enforcement of the judgment, if the losing party fails to comply with the terms of the judgment issued by the court. The losing party will be notified by the court and will be given seven days to comply with the judgment order or challenge the enforcement application. If, for whatever reason, the losing party fails to do so, the judge will issue an order to freeze the party's assets and/or instruct the authorities to arrest the losing party if an individual, or the shareholders, directors or authorised signatories if a company. All border crossings will be notified so that the person in question is restricted from travelling. In the case of bank accounts, the court usually writes to the Central Bank of Oman to instruct the relevant bank to freeze the account of the indebted party. For properties, the Ministry of Housing will be approached. For vehicles, the Royal Oman Police will be asked to refuse transfer of ownership for any vehicles owned by that party.
According to the law, if a party fails to comply with an enforcement judgment, then the court has the authority to decide if any of the actions set out above should be enforced against the defaulting party. However it appears that in practice, courts issue arrest warrants as a first resort, not as a last one. This places shareholders, directors and authorised signatories of a company at risk of being arrested for liabilities incurred by the company. Not only does this contravene the general principle of commercial law which states that limited liability companies and joint stock companies are considered as a separate legal entity and the shareholders, directors and authorised signatories should not be held personally liable for liabilities of the company (except if the liability arises due to negligence or fraud etc), it also discourages investors from undertaking any business opportunities in Oman.
On many occasions, shareholders, directors or authorised signatories come to know about the arrest warrant at the time of travelling either at the airport or other border crossings, a matter which causes unnecessary embarrassment and inconvenience. In the case of shareholders and directors, they may not even be aware that a court case exists, let alone an enforcement order. Sometimes the case for which the enforcement order was issued involves a small amount, which could easily be satisfied by a mere request to the company's bank to transfer the judgment amount to the court.
Obviously, if an authorised representative of a company has actively obstructed the enforcement of a judgment or a court order which has been issued against the company, then in this case that representative should be held personally responsible. However, often this is not the case. I have heard numerous stories from clients and friends who have had to face such incidents and the general view is that arrest warrants should be issued as a last resort and only if the company has been provided with sufficient notice that if it fails to comply with an enforcement order, then an arrest warrant will be issued to ensure compliance.