January 25, 2017
Bahrain is building on its reputation as a regional financial services hub through the introduction of two new laws: Legislative Decree No. (23) of 2016 on Trusts and Legislative Decree No. (22) of 2016 on Protected Cells Companies – becoming the first country in the MENA region to implement the laws nationwide.
Driven by the Central Bank of Bahrain, Bahrain’s sole regulator, both laws meet the needs of the financial services sector and are based on international best practice. The two laws will enhance the Kingdom’s commercial climate by offering companies the ability to create new funding mechanisms and structures that promote investment.
Legislative Decree No. (23) of 2016 on Trusts regulates and provides a comprehensive framework on the creation and administration of a trust. The law also governs the recognition of trusts governed by foreign law.
The law provides protection in ensuring that the trust is being handled in accordance with the settlor’s instructions and that the beneficiary of the trust is protected. Trusts can be used for numerous purposes which can include pension trusts, securitization trusts, investment vehicles and etc.
Trusts would play a beneficial role in the financial sector as companies within the sector can utilise the law to embrace expansion opportunities and enhance their investment development.
Protected Cell Companies Law
Legislative Decree No. (22) of 2016 on Protected Cells Companies regulates the creation of, and conversion of existing companies into protected cells companies. The structure of a protected cells company allows the established protected cell company to create cells, in which the rights and liabilities under that cell are completely segregated from any other cell or the protected cell company.
This plays a fundamental role in the financial sector as it strengthens investors’ rights by separating private assets from the protected cell company and legally regards each cell individually. Investors can also rely on limited creditor exposure between cells and the protected cell company, which prevents the insolvency of one cell from affecting either the protected cell company or other cells.
Protected cell companies are flexible. They are easy to administer, with fast set-up and liquidation and low running costs.