Boursa Securities Company (the “Exchange”), established in 2014, operates the Kuwait Stock Exchange, the national stock market of Kuwait.  The Exchange is regulated by the Kuwait Capital Markets Authority (“CMA”), an independent regulatory body established with the passing of Law No. 7 of 2010, and is tasked with management of the Kuwait Stock Exchange.

The rules governing the stock exchange are compiled in the Exchange’s rulebook (“Rules”).[1]  On 18 December 2022, the CMA issued Resolution No. (194) of 2022 resolving for the newest addition to the Rules — Chapter 12: Mandatory Execution on Securities.  This law update provides a summary of the newly added Chapter 12 of the Rules and how it impacts the enforcement of forceful closures on Securities[2] in Kuwait.

It is not uncommon for a party in possession of Securities to mortgage or pledge their Securities to mitigate risks or offer surety to investors or creditors.  Historically, when deals have gone sour, foreclosing on those Securities in Kuwait carried a number of uncertainties, including the method and process of enforcing a foreclosure.  Chapter 12 intends to provide a consistent and binding set of procedures and rules, in hopes to streamline and regulate such enforcement procedures.

Chapter 12 applies to Securities attached to a writ of execution.  A writ of execution, pursuant to Law No. 38 of 1980, includes:

• Final decisions issued by a competent court in Kuwait
• Declarations notarized by the Ministry of Justice
• Settlement agreements approved by a competent court in Kuwait
• Other papers characterized as such by law

The start of a mandatory execution on Securities begins with a request made to the Exchange’s General Department of Execution along with the applicable application fee.  Within sixty (60) days following receipt of the required application and applicable additional documents requested by the Exchange, the Exchange determines a date of sale for the Securities in question and publishes the same ten (10) days prior to the actual sale date, including the date and time of the sale, the name and quantity of the Securities to be sold, the medium of sale, and any terms of sale.

One or more sales conductors appointed by the Exchange are tasked with the actual selling of the seized Securities and will implement the sale through the Exchange Trading System for listed Securities, or by auction on the OTC Trading Platform or otherwise for unlisted or suspended Securities.  The Exchange may also specify other mediums of sale, whether listed, unlisted or suspended, but will announce the date of the sale at least ten (10) days prior on its website.  The appointed sales conductor(s) determine appropriate pricing and proceed with the sale for ten (10) days or until the Securities are sold.  If the Securities are not sold within the ten (10) day period, the process repeats until they are sold.  The sales conductor(s) should try to sell only enough Securities to cover the debt in question; any excess would be reverted to the debtor (or other creditors, if applicable).  With regard to unlisted Securities sold through the regular bidding process on the Exchange, the same is dependent on court approval.

Following the sale, the Clearing Agency must take the settlement and clearing procedures, make the necessary amendments to the registration, and deposit the sale proceeds in the treasury of the General Department of Execution, after deducting the expenses of executing the sale process.  The General Department of Execution then distributes the proceeds according to applicable law.

The lawyers at GLA & Company have direct experience with the Exchange, including instances where a creditor seeks to enforce a lien or to foreclose on a debtor’s Securities.  Many of our Kuwaiti lawyers in particular enjoy distinguished relationships with the local authorities, which has always helped support a smooth transactions for our clients.

[1] It is important to note that the provisions of the CMA’s Executive Bylaws take precedence over the Rules.

[2] A Security is defined as any instrument – in any legal form – that evidences ownership of a share in a financial transaction and that is negotiable pursuant to a license issued by the CMA to practice one of the security activities.

Author: Ahmad Saleh, Senior Associate

For further information, please contact Alex Saleh (alex.saleh@glaco.com).