Early 2009 saw the introduction in Kuwait of Law Decree No 2
of 2009 On Enhancing State Economic Stability, otherwise known
as the Financial Stability Law. Its aim was to assist the
country's banks and investment companies, many of whom had been
badly affected by the global economic crisis that had begun
with the collapse of Lehman Brothers in September 2008. This
briefing covers assistance to investment companies; a future
one will cover assistance to banks.
In Chapter Three, the Law prescribes two mutually exclusive
treatment procedures: i) under section 1 of the Chapter, an
out-of-court procedure driven by Kuwait's Central Bank (CBK),
and ii) under section 2, a company initiated and court
sanctioned procedure based upon a debt restructuring plan
devised by the company and its advisers.
The choice of which procedure should be adopted will be
dictated mainly by whether or not the company has retained the
support of its creditors. Section 1 envisages a joint (company
and creditors) application to the CBK, whereas a key component
of the section 2 procedure is the immediate stay of all court
and creditor recovery action as the court gives initial
endorsement to the company's restructuring proposal, subject to
approval by the CBK and final blessing from the court.
For either procedure to be available, the applicant company
must have been balance-sheet solvent as of December 31 2008.
Ultimately the outcome of the two procedures will be the same:
a restructuring of the company's debt over a period of time
carrying, in the case of section 1, a CBK guarantee of a
proportion of the company's debt to local creditors.
Recourse to the Law has been very limited. Global Investment
House, a leading Kuwait investment company, defaulted on some
of its debt at the end of 2008 but has since successfully
restructured without the need to use the legislation. This firm
is acting for the only investment company to use section 2 to