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 date.