Liquidation of Companies: Oman vs. UK Law - Essay Sample

Introduction

Companies exist to make a profit and serve their interests as far as marking, and trading are concerned. Any extension of credit involves a risk that the debtor may not be in a position to repay the debt in due course or within the agreed time. In this case, the creditors are empowered to have the assets of the defaulting debtor seized and sold as a way of covering the unpaid debt. Such measures are essential in a free market economy since if they did not exist, there would be no need for lending as companies would borrow from others and refuse to pay. In a case where a corporate debtor refuses to pay or is unable to pay multiple debts for a long period of time, they become financially unstable and are considered as unable to run on their own. The inability to run on their own may then result in the dismemberment of the debtor's business. Due to the existing corporate insolvency law, it becomes possible for the transformation of creditor's rights from individual to collective. In this manner, the incentives of the creditors are removed from engaging in such wasteful behaviour.

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The corporate industry has been governed by laws to ensure that issues of credit and debts are amicably solved. Besides, the making of laws has been one of the key factors that have contributed to corporates' understanding of how they can reduce or minimise the costs of financial distress. The operations of companies in the UK and Oman is subject to the existing laws. Laws that were used twenty years ago may be different from the ones in use today. This means that the operations of companies has changed significantly and is subject to the existing laws. For example, in Oman, the government issued the Commercial Companies Law (Royal Decree No. 18/2019) previously, and this has affected how companies operate. This law has been vital in the implementation of several changes which modernise and increase the efficiency of commercial practice in Oman. This law provides new provisions that relate to liquidation and cite the liquidation process as well as the responsibilities of the parties involved in the liquidation process. This has been touted as making the procedure more clear and organised. In addition, the new provisions establish more stringent or new deadlines to hasten to the liquidation process. This is meant to limit the time within which liquidation should be done as the previous laws seemed to take a lot of time.

Different countries develop company laws that are specific to them and which serve the purposes of the people. Thus, it is possible to find a company law in Oman that is different from another in the UK. However, there might also exist similarities in laws between different countries. This research sought to compare the company laws in both Oman and the UK.

Justifications

The choice for Oman and the UK was motivated by their vast differences in terms of location, economic growth, and population. It is to be noted that there exist more companies in the UK than in Oman, and this provided a viable platform for comparison. In addition, it was necessary to compare these two countries since they are located in different regions and determine how company laws of one region compared with those of another region. Oman is a country that borders Saudi Arabia and Yemen. It occupies the Southern Coast of the Arabian Peninsula and has a significantly low GDP. The economic freedom score for Oman is 63.6, and it is ranked the 75th freest at the moment.

Contrarily, the UK has a huge GDP of about USD 3020 billion. It has an economic freedom score of 79.3 and is ranked the seventh freest economy at the moment. These distinctions between Oman and the UK made it necessary to compare their company law and determine whether the company law for bigger economies is similar to that of smaller economies.

Law is not static and keeps on changing based on the prevailing circumstances. This has been more rampant in laws such as company law since these are institutions that keep on changing now and then. Thus, when the companies and organisations change the way that they operate it, results in a change in the laws governing them. The Oman Law on Liquidation of Companies has been going through various changes, which makes it necessary to discuss them in this research. It is necessary to look at those changes and find out how this has affected and will continue to affect the operations of companies and organisations.

The same case applies to the Company and Insolvency Law in the UK on liquidation of companies. The way companies operate is governed by the existing laws. Since these laws change with time, it is necessary to look at what the new rules state and how the laws are applied to businesses and companies.

Liquidation process needs to take the shortest time possible to protect companies from adverse economic impacts. The new provisions under the Royal Decree No. 18/2019 provide the responsibilities of the liquidators and the reasons for dissolution. Besides, it establishes stringent deadlines for the execution of the liquidation process. This is necessary to ensure that companies do not have to wait for too long. These changes make the premise for this research to investigate and assess how much economic impact they have on companies and decide whether they are appropriate or not.

Preliminary Investigation

Preliminary investigation involves performing an indepth analysis of the topic at hand before doing the actual research. Law is a topic that touches on every sector, and its analysis leads to a better understanding of the concerned sector. The conduction of this study involved the choice of the topic and the extent that the topic should cover. Since the law is a broad term, the researcher decided to concentrate on company and insolvency law on the liquidation of companies. This is an appropriate topic since businesses are the backbones of the economies of nations. Thus, when some companies are liquidated, it could lead to loss of jobs for many people as well as the loss of government income through tax. Companies that provide utilities such as water and electricity will also find themselves affected by such a move. Based, on this, this topic was found to be the most favourable.

The researcher also decided on a topic that is relevant to the current times. This is a time that the world is affected by the COVID-19 pandemic, which has affected businesses negatively. Some businesses have closed, others have laid off their workers, and others are not sure whether they will survive the next few months if the pandemic does not go away. In addition, many companies have been unable to pay the creditors risking liquidation. To address this, governments have been forced to change the existing laws for some time to enable businesses to survive these hard times without the risk of liquidation.

The researcher also decided on the most appropriate sources of data for this study. Credible sources of data were decided on, which assisted the research to obtain the necessary information for the performance of this research.

Primary Questions

This study sought to answer several research questions related to the topic of Company Law in both Oman and the UK related to the Insolvency and Liquidation of companies. The research questions were as follows;

• What are the provisions of the Company Law (Act 18/2019) in Oman?
• What are the impacts of the changes done in Oman Law to companies and businesses?
• What are the provisions of the Company and Insolvency Law in the UK?
• How has the UK and Oman governments adjusted their laws amid COVID-19 pandemic to cushion businesses against liquidation?

Literature Review

Meaning of Insolvency

The use of the word insolvency is common in business circles but uncommon in ordinary use. Viewed from a wider perspective, insolvency may mean the inability of a company to pay its creditors. This may be caused by financial hiccups or the economic tides which the company may undergo. However, from a closer perspective, insolvency may be termed based on the different types that exist. These are the cash-flow insolvency, balance sheet insolvency, and bankruptcy, among others. However, for this context, it will not be sapient to go through all the types of insolvency but to provide an understanding of what it entails.

In the making of laws on insolvency, the balance sheet insolvency may be considered alongside others to define the laws that suit best. In this regard, insolvency means that the book values of the assets of a company are lesser than its liabilities. This may make it hard for the company to operate normally besides paying its creditors. However, this is different from cash flow insolvency, which refers to the inability of a firm to pay its debt when they are supposed to be paid. In the UK law, such an inability to pay the debtors by the company may invoke the court to give drastic measures against the company to enable the creditors to regain their debts.

Meaning of Liquidation

The terms liquidation and reorganisation are mostly used by companies. Liquidation arises from the fact that a company or firm is in financial distress. In such a situation, the firm may be forced to convert into cash, through sale, of its assets. This means that the company has to sell its assets in order to be able to repay the debt. Liquidation may occur in administrative receivership. The law in both the UK and Oman provides different avenues through which liquidation may occur. It can be through the sale of the entire business, including both intangible and the goodwill, or through what is referred to as a "break-up" basis. In the latter, the assets are sold piecemeal. While solvency may be considered a factual condition, liquidation may be considered a factual event. When a company fails to fulfil its obligation with the creditors, it is considered insolvent. This may mean two things. The first one is that the company has been unable to pay the debt that it owes the creditor or the company that has been repaying the debt as agreed has reached a point that it is unable to continue repaying the debt.

Legal Insolvency Procedures

While the discussion on insolvency procedures may appear plain on a normal discussion, it becomes more specific when discussion under legal terms. The English law provides four corporate insolvency procedures. These are administrative receivership, administration, compromises and arrangements, and winding-up. Ibrahim stated that unlike other countries such as the US, the UK insolvency proceedings do not take place in court but outside. Despite this, they are heavily regulated.

An out-of-court enforcement is referred to as receivership and is common in the UK. As stated earlier, there exist two types of receivership under UK law. The first one is administrative receivership, while the second one is fixed charge receivership. Administrative r...