Al Markaz Law Firm
	Managing The Global Financial Crisis

The current financial and economic crisis, rated by many as the worst since the Wall Street Crash of 1929 and the ensuing Great Depression of the 1930’s, has been truly global in its impact. Beginning with the collapse of the US investment bank, Lehman Brothers last year, its effects have been felt everywhere; no region of the world and no global business sector has been spared.

Kuwait, along with all of its GCC partners, has suffered badly as well. Historically sound and reputed businesses of every kind within the country have been powerless to resist the collapse of the region’s stock markets and diversified investment portfolios, especially those based in the real estate sector.

The price of oil has been depressed for some time now, a direct reflection of the world wide slump in demand for energy as the global economy spiraled downwards and the international financial system verged on complete collapse.

Revenues from the sale of hydro carbon fuels and their derivatives, principally natural gas have for more than five decades underpinned the economies of Kuwait and the rest of the GCC, insulating these countries from earlier economic downturns around the world; indeed, this resource has enabled the region to prosper while the rest of the world suffered.

Across the globe, the crisis has had two principal effects on business: a) a severe shortage of bank finance, as lenders have either refused to lend or have done so at very high rates of interest, and b) very material declines in balance sheet values of borrowers, since investor demand for assets has evaporated. Without readily available funding, no economy can thrive and even the best run companies face default on their credit lines and demands from their creditors to repair depleted collateral. Widespread borrower default as has been seen so far in this crisis, in turn puts pressure on the lenders, who need their customers to perform so that they in turn can service their money market obligations. This truly is a vicious circle.

The governments of all the leading economies, including those of the GCC, have adopted very significant measures to inject cash into their public and private sectors, usually, or at least predominantly, through the provision of special funding to their financial institutions.

The Kuwaiti Government announced its own rescue plan some months ago. Both here and in some other leading economies, there are vague signs that, through encouraging the banks to lend again, such measures are beginning to have the intended effect, but at the time of writing, it is too soon to say that the crisis is past.

Until true recovery can be established (both here in Kuwait and in the rest of the world), there is going to be a correlative vacuum, stretching (so some predict) as far ahead as 2012 or 2013. In that vacuum, borrowers will seek to restructure their credit lines with their lenders: offering equity participation, controlled disposal programs and diversified collateral in return for extended periods in which to repay and softer margin requirements.

International and local businesses compromised by the crisis

The firm has a diverse client base, comprising both Kuwaiti companies and businesses and international enterprises which have trading operations in the country. Many of all of these have experienced similar difficulties from the onset of the financial crisis and seek urgent assistance in attending to these.

Al Markaz is already advising a large number of clients, including some of the largest investment companies in the country, on business strategies to deal with the impact of the financial crisis. Many of those clients have appointed special financial advisors to handle the development of comprehensive restructurings of their debt service obligations and the firm has extensive experience of liaising with those advisors on bringing the restructuring proposals to fruition.

The firm originated as a legal practice with a strong concentration on commercial litigation. The first reaction of many international and local lenders to the onset of the financial crisis was aggressive and led them either to initiate or to threaten to initiate legal proceedings where their customers encountered commercial difficulties. With a strong provenance in the area of commercial litigation, Al Markaz has therefore found that its knowledge and experience are in great demand at this time.

So, in summary, overall where do we feel we can most easily add value to clients facing the restructuring process or otherwise to enable them to manage the continuing effects of the financial crisis? We believe that the following are some of the principal reasons why we are well placed to assist:

1. Our wide experience to date of representing clients that face creditor action following defaults or potential defaults under credit lines and collateral obligations

2. The firm’s proven track record since the onset of the crisis in successfully defending various clients, including some of the largest investment companies in the country, before the courts of Kuwait in numerous actions brought by local and international creditors for the recovery of monies and the realization of collateral (in addition to representing some of the same clients in (a) proceedings brought by them against state regulators and Government agencies, and (b) actions initiated in turn against the client by the same regulators and agencies on matters of governance and compliance

3. Close familiarity with the application of the measures introduced during the course of 2009 by the Kuwait Government and the principal regulators, including the rescue plan sponsored by the Central Bank of Kuwait and the new legislation relating to Kuwaiti corporate and securities law

4. Informed awareness of the interaction of other legal systems, principally those in the United States and the European Union, with relevant provisions of local law, so far as these affect the respective rights of creditors and debtors

5. Wide experience of the defensive options available to Kuwaiti companies and businesses before the Kuwaiti courts, where those companies and businesses face recovery and foreclosure action from their creditors

6. Recent in depth handling of the negotiation of restructuring programs for several clients as the client and its creditor group seek to arrive at a mutually satisfactory basis for continuing to work together in the future.

As mentioned, several of the clients we currently represent or have represented in the recent past are very large business undertakings. But the impact of the financial crisis is not confined to such companies alone. We also welcome the opportunity to assist individuals and also business clients of any size who in turn face problems at the present time, adding value and helping them to achieve commercial rehabilitation by the means available to us, some of which we have identified above.

If you feel that we can help your company or business in this important area, please contact us. Existing clients are invited to refer to their usual contact here at Al Markaz.

Other clients looking to acquire or restructure compromised businesses  

It is easy to overlook the fact that the financial crisis is and can be a source of business opportunity for investors, both local and also from outside Kuwait, seeking to build for the future, for the years ahead when the current period of financial, economic and commercial turmoil is passed and the world economy returns to growth and relative stability. 

We mentioned a commercial vacuum flowing from the financial crisis and its fallout, with that vacuum extending several years ahead from now. And the significant recent fall in realizable values of a wide category of asset, including local real estate and shares quoted on the Kuwait Stock Exchange present potentially attractive investment opportunities.

We are already receiving new instructions from both local and international buyers for such assets and we believe that investment interest will continue to grow as the business climate maintains its recent improvement.

Within the Corporate Advisory Group at Al Markaz, we have lawyers with significant, in depth local and international experience which will enable each of them to advise existing an potential clients in this area. Our ability to provide a quality service to clients in this area, we believe, stems mainly from the following:

1. The knowledge and experience which the firm has derived from advising clients in the areas described in the earlier part of this section

2. Up to date knowledge and awareness of the new legislative framework in Kuwait, introduced to deal with the financial crisis, and its implementation and impact

3. Comprehensive familiarity with the statutory and regulatory regime in Kuwait applying to the acquisition of companies, businesses and assets

4. Long standing expertise in attending to the initial phase of any potential acquisition: due diligence and verification of the target assets and the sellers of those assets

5. Meticulous attention to the need for succinct, responsive and accurate, and properly negotiated documentation to achieve the desired objectives of the client as investor, within and beyond the client’s expectations

6. Extensive experience among our partners and staff of dealing with and attending to the business needs of clients drawn from a broad variety of different commercial environments and cultures, both within and beyond the Gulf region

7. The firm’s fundamental service philosophy – that the lawyer engaged on a transaction for a client should seek always to deliver a service that reflects best value for money and that at all times places the interests and commercial priorities of the client first.

If you feel that we at Al Markaz can help your company or business achieve its objectives at this time or in the future, please contact us. Existing clients are invited to refer to their usual contact at the firm.