Insolvency in Oman

Insolvency and Its Related Legal Procedures in Omani Civil Law

1. Preamble:

Financial transactions are among the basic pillars of life in various fields. With contemporary economic developments and global market instability, a large segment of society has been affected, leading to the insolvency of many debtors who are unable to fulfill their financial obligations. Civil insolvency is defined as “a factual condition arising when the debtor’s payable debts exceed his assets.” Theinsolvency claim is defined as “a lawsuit filed by a natural person who is unable to pay his debts to avoid seizure or imprisonment for enforcement, provided he presents evidence proving his insolvency.” Legally, insolvency is considered a delicate legal matter that lies at the core of the relationship between creditor and debtor and directly affects economic activity and social stability. Therefore, it is necessary to establish a comprehensive legal framework that balances the protection of the debtor with the preservation of creditors’ rights.

2. Conditions for Insolvency

The key conditions for establishing insolvency under Omani law are as follows:

1. The existence of a debt owed by the debtor that he is unable to pay.
2. The debtor must prove his inability to pay the debt, whether due to insufficient funds or force majeure circumstances such as illness or job loss.
3. The debtor must disclose all his assets and properties, whether owned individually or jointly with others.

3. Steps for Filing an Insolvency Claim

In Oman, insolvency proceedings consist of a series of steps that a debtor must follow if he wishes to file an insolvency claim:

1. The natural person (debtor) or his legal representative submits the insolvency claim to the Primary Court within the jurisdiction where the creditor resides.
2. The insolvent person must submit supporting documents proving his inability to pay, including: a certificate from the Central Bank, a certificate from the Ministry of Housing, a police certificate, and a certificate from the Wali’s Office.
3. The Primary Court, composed of three judges, has jurisdiction over insolvency cases.
4. The court issues its judgment confirming insolvency if, after investigation by the competent authorities, it is satisfied with the validity of the debtor’s claim.
5. The insolvency judgment is binding only between the parties to the case and cannot be invoked against third parties not involved in the proceedings.
6. If a detention order against the debtor exists, the insolvency judgment leads to the cancellation of that order. However, the court may issue a new detention order if it finds that the debtor has regained the ability to pay.

4. Main Procedures in Hearing an Insolvency Case

An insolvency claim is a legal procedure available to a natural person unable to pay his debts, aimed at suspending enforcement actions against him by providing sufficient evidence of inability to pay. The main procedures for hearing an insolvency case are as follows:

1. There must be a prior enforcement action against the person requesting the insolvency declaration.
2. The debtor submits the insolvency claim to the Primary Court composed of three judges.
3. The claim is not considered until the claimant completes disclosure of his assets and answers the court’s inquiries regarding his financial situation.

The insolvency claim can only be filed by a natural person (legal entities are subject to bankruptcy proceedings), either personally or through his legal representative, before the court within whose jurisdiction the defendant resides. The claim must be accompanied by documents proving the debtor’s inability to pay (Central Bank certificate, Ministry of Housing certificate, Police certificate, Muscat Bourse certificate, and Wali’s Office certificate). These documents are filed with the court registry. The Primary Court, composed of three judges, is competent to adjudicate insolvency claims. The court rules in favor of the claimant if it is satisfied, after investigation by competent authorities, that the insolvency is genuine. However, the ruling is only binding on the parties to the case and cannot be invoked against third parties who were not parties to the lawsuit, in application of the principle of the relativity of judgments.

A judgment confirming insolvency results in the cancellation of any imprisonment order against the debtor pursuant to Article (425) of the Civil and Commercial Procedures Law. However, it does not prevent the issuance of a new detention order if the court determines that the debtor has become capable of fulfilling his obligations upon the creditor’s request.

5. Legal and Sharia Foundations of Insolvency

Article (425) of Royal Decree No. 29/2002 issuing the Civil and Commercial Procedures Law provides:

“The court shall order the cancellation of a debtor’s imprisonment in the following cases:

 (a) If the creditor consents in writing to the cancellation.

 (b) If the debt for which he was sentenced is paid, or if his obligation, for which the imprisonment order was issued, is extinguished for any reason.

 (c) If he provides a capable guarantor or acceptable security to the creditor.

 (d) If sufficient evidence of the debtor’s insolvency is presented.

The debtor’s release after proven insolvency does not prevent a new imprisonment order upon the creditor’s request if the court finds that the debtor has become able to pay the adjudged amount.”

From the perspective of Islamic Sharia, Allah Almighty says:

“And if the debtor is in hardship, then [let there be] postponement until [a time of] ease.” (Surah Al-Baqarah, 2:280)

And Al-Harith ibn Hisham reported that the Messenger of Allah (peace be upon him) said:

“If a man sells goods to another who becomes insolvent before paying him, and he finds his goods intact, he is more entitled to them. If the buyer dies, the seller shares equally with the other creditors.”

Allah Almighty also says:

“O you who believe! When you contract a debt for a fixed term, write it down.” “And if you are on a journey and cannot find a scribe, then let there be a pledge taken (in hand).”

From these verses and hadith, it is clear that Islamic law has addressed insolvency and debt issues with compassion and humanity, unlike other legal systems such as Roman law, which permitted ownership or public humiliation of debtors who failed to pay. The cited verses and hadith are examples, not an exhaustive list.

6. Conclusion and Recommendations

From this study, it is evident that Oman lacks comprehensive legal provisions governing insolvency procedures, leading to major practical issues — most notably: Who has jurisdiction over insolvency cases? Is it the enforcement judge handling judgments, or the trial judge deciding the main dispute? What is the legal effect of an insolvency judgment? Does it grant the debtor protection, or does he continue to face civil or even criminal enforcement? Does the insolvency ruling remain valid indefinitely without a clear mechanism for rehabilitation or termination of insolvency?

These and other questions have become matters of judicial interpretation without a clear legislative reference, resulting in inconsistencies in rulings and legal uncertainty — contrary to the principles of swift and fair justice.

Accordingly, we make an explicit appeal to the Omani legislator to adopt a comprehensive Insolvency Law that reflects local particularities while benefiting from successful regional models, particularly those of neighboring countries, in order to achieve justice, safeguard rights, and strengthen confidence in the judicial and financial systems of the Sultanate.

Prepared by: Dr. Mohammed Gharbawi
Al-Alawi & Co – Lawyers and Legal Consultants
Muscat, Sultanate of Oman