• Chapter 6 Chapter 6 Protection of Debtholders' Interests

    • 1. General

      1.1 This Chapter shall apply where a corporation or any other entity makes to the public an offer of Debt Securities or an invitation to subscribe for or purchase Debt Securities.
      1.2 In this Chapter, a corporation is related to another corporation if it is deemed to be related to that other corporation by virtue of the Commercial Companies Law, or any equivalent laws and regulations.

    • 2. Appointment of a Trustee

      2.1 Subject to Article (162) of the Commercial Companies Law, every corporation and every other entity which makes an offer or invitation to the public in respect of Debt Securities shall make provision in those Debt Securities or in a trust deed relating to those Debt Securities for the appointment of a trustee corporation as trustee for the holders of the Debt Securities within one month from the allotment date.
      2.2 Subject to Article (162) of the Commercial Companies Law, without permission of the Agency, a trustee corporation shall not be appointed, hold office or act as trustee for the holders of Debt Securities of a borrowing corporation if that trustee corporation is:—
      (a) a shareholder who beneficially holds shares in the borrowing corporation;
      (b) beneficially entitled to monies owned by the borrowing corporation to it;
      (c) a corporation that has entered into a guarantee in respect of the principal debt secured by those Debt Securities or in respect of interest thereon; or
      (d) a corporation that is related to:—
      (i) any corporation referred to in paragraphs (a), (b) and (c); or
      (ii) the borrowing corporation.
      2.3 If default is made in complying with this requirement, the corporation and every officer of the corporation who is in default shall be guilty of an offence and shall be liable on conviction to a fine as stated in Articles (361) or (362) of the Commercial Companies Law, as the case may be.

    • 3. Retirement of Trustees

      3.1 Without prejudice to the generality of Article (162) of the Commercial Companies Law, a trustee for the holders of Debt Securities shall not cease to be the trustee until a corporation qualified for appointment as trustee for the holders of the Debt Securities has been appointed to be the trustee for the holders of the Debt Securities and has taken office as such.
      3.2 Where provision has been made in the Debt Securities or in the relevant trust deed for the appointment of a successor to a trustee for the holders of the Debt Securities upon retirement or otherwise, the successor may be appointed in accordance with such provision.
      3.3 Where no provision has been made in the Debt Securities or in the relevant trust deed for the appointment of a successor to a retiring trustee, the borrowing corporation may appoint a successor which is qualified for appointment.
      3.4 Notwithstanding anything in the Commercial Companies Law or in any Debt Securities or trust deed, a borrowing corporation may, with the consent of an existing trustee for the holders of the Debt Securities, appoint as successor to the existing trustee any corporation which is qualified for such appointment.
      3.5 Where the trustee for the holders of the Debt Securities has ceased to exist or to be qualified, or fails or refuses to act or is disqualified, the court may, on the application of the borrowing corporation or the trustee for the holders of the Debt Securities or the holder of any of the Debt Securities or the Agency, appoint any corporation qualified to be the trustee for the holders of the Debt Securities in place of the trustee which has ceased to exist or to be qualified, which has failed or refused to act as trustee, or which is disqualified.
      3.6 Where a successor is appointed to be a trustee in place of any trustee, the successor shall within one month after the appointment submit to the Agency notice in the prescribed form of the appointment.
      3.7 Any person who fails to comply with the requirements of 3.6 above shall be guilty of an offence and shall be liable on conviction to a fine as stated in Articles (361) or (362) of the Commercial Companies Law, as the case may be.

    • 4. Contents of a Trust Deed

      4.1 Pursuant to Article (164) of the Commercial Companies Law, where a corporation or any other entity makes an offer or invitation in respect of Debt Securities for subscription, the Debt Securities or the relevant trust deed shall contain a limitation on the amount that the borrowing corporation may, pursuant to those Debt Securities or that deed, borrow and shall contain covenants by the borrowing corporation, or if the Debt Securities do not or the trust deed does not expressly contain those covenants, they or it shall be deemed to contain covenants by the borrowing corporation, to the following effect:
      (a) that the borrowing corporation will use its best endeavours to carry on and conduct its business in a proper and efficient manner.
      (b) That, to the same extent as if the trustee for the holders of the Debt Securities or any approved issuer's auditor appointed by the trustee were a director of the borrowing corporation or such person of the borrowing corporation as the Agency may approve in writing, the borrowing corporation shall:—
      (i) make available for its or his inspection the whole of the accounting or other records of the borrowing corporation; and
      (ii) give to it or him such information as it or he requires with respect to all matters relating to the accounting or other records of the borrowing corporation; and
      (c) Subject to Article (163) of the Commercial Companies Law, that the borrowing corporation will, on the application of persons holding at least 10% in nominal value of the issued Debt Securities to which the covenant relates delivered to its registered office, by giving notice:—
      (i) to each of the holders of those Debt Securities at his address as specified in the register of Debt Securities; and
      (ii) by an advertisement in at least 2 local daily newspapers, one each published in the Arabic and English languages addressed to all holders of those Debt Securities.
      Summon a meeting of the holders of those Debt Securities to consider the accounts and balance sheet which were last submitted to the trustee for the holders of the Debt Securities by the borrowing corporation and to give to the trustee directions in relation to the exercise of the trustee's powers, such meeting to be held at a time and place specified in the notice and advertisement under the chairmanship of a person nominated by the trustee or such other person as is appointed in that behalf by the holders of those Debt Securities present at the meeting.

    • 5. Power of the Court in Relation to Irredeemable Debt Securities

      5.1 Without prejudice to the generality of Articles (146), (156), (163) and (164) of the Commercial Companies Law and notwithstanding anything in any Debt Security or trust deed, the security for any Debt Securities which are irredeemable or redeemable only on the happening of a contingency shall, if the court so orders, be enforceable, immediately or at such other time as the court directs if, on the application of the trustee for the holders of the Debt Securities or (where there is no trustee) on the application of any holder of the Debt Securities, the court is satisfied that:—
      (a) at the time of the issue of the Debt Securities the assets of the borrowing corporation which constituted or were intended to constitute the collateral or the security therefore were sufficient or likely to become sufficient to discharge the principal debt and any interest thereon;
      (b) the collateral or the security, if realised under the circumstances existing at the time of the application, would be likely to bring not more than the percentage specified by the Agency of the principal sum of monies outstanding (regards being given to all prior charges and charges ranking pari passu, if any); and
      (c) the assets covered by the collateral or the security, on a fair valuation on the basis of a going concern after allowing a reasonable amount for depreciation are worth less than the principal sum and the borrowing corporation is not making sufficient profit to pay the interest due on the principal sum (where no definite rate of interest is payable) or interest thereon at such a rate as the court considers would be a fair rate to expect from a similar investment.
      5.2  5.1 above shall not affect any power to vary rights or accept any compromise or arrangement created by the terms of the Debt Securities or the relevant trust deed or under a compromise or arrangement between the borrowing corporation and creditors.

    • 6. Duties of Trustees

      6.1 Without prejudice to the generality of Articles (156), (162), (163) and (164) of the Commercial Companies Law, a trustee for the holders of Debt Securities:—
      (a) shall exercise reasonable diligence to ascertain whether or not the assets of the borrowing corporation and of each of its guarantor corporations which are or may be available, whether by way of collateral or security or otherwise, are sufficient or are likely to be or become sufficient to discharge the principal debt as and when it becomes due;
      (b) shall satisfy itself that each prospectus relating to the Debt Securities does not contain any matter which is inconsistent with the terms of the Debt Securities or with the relevant trust deed;
      (c) shall ensure that the borrowing corporation complies with Chapter 5 of the Commercial Companies Law, or its equivalent rules and regulations, so far as it relates to the Debt Securities and is applicable;
      (d) shall exercise reasonable diligence to ascertain whether or not the borrowing corporation and each of its guarantor corporations have committed any breach of the covenants, terms and provisions of the Debt Securities or the trust deed;
      (e) except where it is satisfied that the breach will not materially prejudice the collateral or the security, if any, for the Debt Securities or the interests of the holders of the Debt Securities, shall take all steps and take all such actions as it is empowered to do to cause the borrowing corporation and any of its guarantor corporations to remedy any breach of those covenants, terms and provisions;
      (f) where the borrowing corporation or any of its guarantor corporations fails when so required by the trustee to remedy any breach of the covenants, terms and provisions of the Debt Securities or the trust deed, may place the matter before a meeting of holders of the Debt Securities, submit such proposals for the protection of their interest as the trustee considers necessary or appropriate and obtain the directions of the holders in relation thereto; and
      (g) where the borrowing corporation submits to those holders a compromise or arrangement, shall give to them a statement explaining the effect of the compromise or arrangement and, if it or he thinks fit, recommend to them an appropriate course of action to be taken by them in relation thereto.
      6.2 Where, after due enquiry, the trustee for the holders of the Debt Securities at any time is of the opinion that the assets of the borrowing corporation and of any of its guarantor corporations which are or should be available whether by way of collateral or security or otherwise, are insufficient, or likely to become insufficient, to discharge the principal debt as and when it becomes due, the trustee may apply to the Agency for an order under this Chapter.
      6.3 Without prejudice to the generality of Articles (146) and (164) of the Commercial Companies Law, the Agency, on such application:—
      (a) after giving the borrowing corporation an opportunity of making representations in relation to that application, by order in writing served on the corporation at its registered office in Bahrain, may impose such restrictions on the activities of the borrowing corporation, including restrictions on advertising for deposits or loans and on borrowing by the corporation as the Agency considers necessary for the protection of the interests of the holders of the Debt Securities; or
      (b) may, and if the borrowing corporation so requires, shall direct the trustee to apply to the court for an order; and the trustee shall apply in accordance with the court order.
      6.4 Where:—
      (a) after due enquiry, the trustee at any time is of the opinion that the assets of the borrowing corporation and of any of its guarantor corporations which are or should be available, whether by way of collateral or security or otherwise, are insufficient or likely to become insufficient, to discharge the principal debt as and when it becomes due; or
      (b) the borrowing corporation has contravened an order made by the Agency under 6.2, the trustee may, and where the borrowing corporation has requested the trustee to do so, shall apply to the court for an order.
      6.5 A trustee in making any application to the Agency or to the court shall have regard to the nature and kind of the collateral or the security given when the offer or invitation in respect of the Debt Securities was made to the public, and if no security was given shall have regard to the position of the holders of the Debt Securities as unsecured creditors of the borrowing corporation.
      6.6 A trustee may rely upon any certificate or report given or statement made by any advocate and solicitor, auditor or officer of the borrowing corporation or guarantor corporation, if it has reasonable cases for believing that such advocate and solicitor, auditor or office was competent to give or make the certificate, report or statement.

    • 7. Powers of the Trustee to Apply to Court

      7.1 Pursuant to Articles (146) and (164) of the Commercial Companies Law, a trustee for the holders of Debt Securities may apply to the court:—
      (a) for directions in relation to any matter arising in connection with the performance of the functions of the trustee; or
      (b) to determine any question in relation to the interests of the holders of Debt Securities.
      7.2 The court may:—
      (a) give such directions to the trustee as the court thinks fit; and
      (b) if satisfied that the determination of the question will be just and beneficial, accede wholly or partially to any such application on such terms and conditions as the court thinks fit or make such other order on the application as the court thinks just.
      7.3 The court may, on an application under this Chapter, order a meeting of all or any of the holders of Debt Securities to be called to consider any matters in which they are concerned and to advise the trustee on those matters and may give such ancillary or consequential directions as the court thinks fit.
      7.4 The meeting shall be held and conducted in such manner as the court directs, under the chairmanship of a person nominated by the trustee or such other person as the meeting appoints.

    • 8. Obligations of Borrowing Corporation

      8.1 Subject to Chapter 5 of Part 5 of the Commercial Companies Law, where there is a trustee for the holders of any Debt Securities of a borrowing corporation, the directors of the borrowing corporation shall:—
      (a) at the end of a period not exceeding 3 months ending on a day (being a day after the date of the issue of the relevant prospectus) which the trustee is hereby required to notify the borrowing corporation in writing; and
      (b) at the end of each succeeding period thereafter, being a period of 3 months or such shorter time as the trustee may, in any special circumstances allow, prepare a report that relates to that period and complies with the requirements of 8.2 below, and within one month after the end of each such period submit a copy of the report relating to that period with the Agency and with the trustee.
      8.2 The report referred to in 8.1 above, shall be signed by not less than 2 of the directors on behalf of all of them and shall set out in detail any matters adversely affecting the collateral or security or the interests of the holders of the Debt Securities and, without affecting the generality of 8.1 above, shall state:—
      (a) whether or not the limitations on the amount that the corporation may borrow have been exceeded;
      (b) whether or not the borrowing corporation and each of its guarantor corporations have observed and performed all the covenants and provisions binding upon them respectively by or pursuant to the Debt Securities or any trust deed;
      (c) whether or not any event has happened which has caused or could cause the Debt Securities or any provision of the relevant trust deed to become enforceable and, if so, particulars of that event;
      (d) whether or not any circumstances affecting the borrowing corporation, its subsidiaries or its guarantor corporation(s) or any of them have occurred which materially affect any collateral or security or charge included in or created by the Debt Securities or any trust deed and, if so, particulars of those circumstances;
      (e) whether or not there has been any major change in the nature of the business of the borrowing corporation or any of its subsidiaries or any of its guarantor corporation(s) since the Debt Securities were first issued to the public, which has not previously been reported upon as required by this Chapter and, if so, particulars of that change; and
      (f) where the borrowing corporation has deposited money with or lent money to or assumed any liability of a corporation which is related to the borrowing corporation, particulars of:—
      (i) the total amounts so deposited or lent and the extent of any liability so assumed during the period covered by the report; and
      (ii) the total amounts owing to the borrowing corporation in respect of money so deposited or lent and the extent of any liability so assumed as at the end of the period covered by the report,
      distinguishing between deposits, loans and assumptions of liabilities which are secured and those which are unsecured, but not including any deposit with or loan to or any liability assumed on behalf of a corporation if that corporation has guaranteed the repayment of the Debt Securities of the borrowing corporation and has secured the guarantee by a charge over its assets in favour of the trustee for the holders of the Debt Securities of the borrowing corporation.
      8.3 Where there is a trustee for the holders of any Debt Securities issued by a borrowing corporation, the borrowing corporation and each of its guarantor corporation(s) which has guaranteed the repayment of the monies raised by the issue of those Debt Securities shall, whether or not any demand therefore has been made:—
      (a) in writing furnish the trustee, within 30 days after the creation of the charge, with the particulars of any charge created by the corporation or the guarantor corporation, as the case requires; and
      (b) when the amount to be advanced on the collateral or the security of the charge is indeterminate, in writing furnish the trustee, within 10 days after the advance, with particulars of the amount or amounts actually advanced.
      8.4 Where any such advance referred to in 8.3 (b) above is merged in a current account with bankers or trade creditors, it shall be sufficient for particulars of the net amount outstanding in respect of any such advance to be furnished every 3 months.
      8.5 The directors of every borrowing corporation and of every guarantor corporation shall cause to be made out and submitted to the Agency and with the trustee for the holders of the Debt Securities, if any:—
      (a) a profit and loss account for the first 6 months of every financial year of the corporation and a balance sheet as at the end of that period, not less than 3 months after the expiration of the period of 6 months; and
      (b) a profit and loss account for every financial year of the corporation and a balance sheet as at the end of that period, not later than 3 months after the end of that financial year.
      8.6 Where:—
      (a) the directors of a borrowing corporation do not submit to the trustee for the holders of Debt Securities a report as required by 8.1 above; or
      (b) the directors of a borrowing corporation or the directors of a guarantor corporation do not submit with the trustee the balance sheets and profit and loss accounts as required by 8.5 above, within the time prescribed,
      the trustee shall immediately submit notice of that fact to the Agency.

    • 9. Obligations of Guarantor

      9.1 Without prejudice to the generality of Article (156) of the Commercial Companies Law, and for the purpose of the preparation of a report that, by this Chapter, is required to be signed by or on behalf of the directors, or persons approved by the Agency, of a borrowing corporation or any of them, that borrowing corporation may, by notice in writing, require any of its guarantor corporations to furnish it with any information relating to that guarantor corporation which is, by this Chapter, required to be contained in that report.
      9.2 The guarantor corporation shall furnish the borrowing corporation with that information required under 9.1 above before such date, being a date not earlier than one month after the notice is given, as may be specified in that behalf in the notice.