Ministerial Resolution No. 1 of 2022 Issuing the Regulation on Distressed Projects at the National Fund for the Care and Development of Small and Medium Enterprises

Ministerial Resolution No. 1 of 2022
Issuing the Regulation on Distressed Projects at the National Fund for the Care and Development of Small and Medium Enterprises

Article One

The provisions of the Regulation on Distressed Projects at the National Fund for the Care and Development of Small and Medium Enterprises attached to this Resolution shall be applied.

Article Two

Resolution No. (24) of 2020 on the Regulation on Distressed Projects at the National Fund for the Care and Development of Small and Medium Enterprises, issued on 21/1/2020, and any other resolutions that contravene or conflict with the provisions of the Regulation referred to in the preceding Article and attached to this Resolution, are hereby repealed.

Article Three

All officials, each within his competence, shall implement this Resolution, which shall come into force from the date of its publication in the Official Gazette.

Regulation on Distressed Projects

Article 1

Definitions
In applying the provisions of this Regulation, the following words and expressions shall have the meanings assigned to each of them:
The Fund: the National Fund for the Care and Development of Small and Medium Enterprises.
The Board of Directors: the Board of Directors of the Fund.
The Chairman: the Chairman of the Board of Directors.
The Director General: the Director General of the Fund.
The Project: any project financed by the Fund or benefiting from any of the programmes or services provided by the Fund.
The Register: the register for recording distressed projects financed by the Fund, kept at the Distressed Projects Department.
The Distressed Projects Department: the department entrusted with handling the projects of distressed initiators, which keeps the Register in which the distressed projects financed by the Fund are recorded. It assesses the risks surrounding such projects, each according to its activities and size, reschedules financing operations when necessary, determines how the risks are to be addressed, and, where required, appoints a manager for the distressed project; a subsequent decision shall be issued by the Director of the Fund regulating the definition, powers and cost of the manager of a distressed project. The Department shall also have other powers in accordance with the tasks assigned to it by Resolution of the Minister of Commerce and Industry No. 479/2018 issued on 8/8/2018.
The Committee (the Distressed Projects Committee): the committee that takes the final decision regarding distressed initiators after reviewing the recommendation of the Distressed Projects Department and studying the case.
The Instalments: the payments that the owner of a distressed project is required to make periodically against the financing amount due to the Fund.

Article 2

Cases of Distress
A project shall be considered distressed in the following cases:
1- If it stops paying the instalments of the loans due from it on the date set for payment for a period that is liable to harm the project.
2- If the financial statements submitted by the project owner show that its financial position is unstable.
3- If a final court judgment is issued declaring its bankruptcy.
4- If it stops carrying on its activity permanently or partially
5- If it defaults in paying the financial dues owed to the companies and traders dealing with it for two consecutive months, where applicable.
6- If some of its fixed assets are sold to obtain liquidity.
7- If the project suffers successive losses for two years, such that this conflicts with the credit period of the project.
8- If the project is late in meeting its obligations and this results from a deterioration in its financial position.
9- Other cases may be added by the Director General by a decision issued by him, with the Board of Directors being notified of such cases.

Article 3

The Register
A register for recording distressed projects shall be established at the Fund, and a distressed project shall be recorded in this Register in one of the following ways:
1- At the request of the project owner.
2- By a decision of the Board of Directors.
3- By a decision of the Director General based solely on the opinion of the Distressed Projects Department.

Article 4

The Distressed Projects Department
A department shall be established to manage distressed projects. The director of the Department shall run its work and shall be responsible for:
1- Supervising the continuous assessment of risks, classifying existing projects according to their activities and size, and recommending re-evaluation and the rescheduling of financing operations as needed and necessary.
2- Coordinating and facilitating internal and external audit operations, and implementing action plans to enhance the performance of financing operations in accordance with the required policies and procedures.
3- Setting the foundations and the programme of compliance with contracts for the owners of existing projects, and with the laws, rules and procedures adopted by the Fund, and supervising and monitoring implementation.
4- Supervising the periodic review of the compliance programme in light of changes in the needs of the Fund and the existing projects, and in light of the laws, policies, procedures and plans in force.
5- Leading the awareness process in clarifying the elements of the compliance programme, and ensuring that all employees and owners of existing projects are aware and informed of those elements.
6- Supervising the conduct of periodic risk assessments and response plans, receiving cases of breach of the compliance programme from the financial, legal or technical aspects, and referring them to the appropriate bodies for investigation.
7- Taking over projects that are distressed and unable to continue operating for any reason whatsoever, provided that the Distress Committee sets the standards and bases for taking over projects.
8- Taking decisions to restructure project operations where required.
9- Appointing managers for projects where required.
10- Submitting the recommendation to terminate and liquidate the project to the Director General, who shall take the necessary action.
11- Proposing steps to merge certain distressed projects in a manner that leads to the removal of their distress and to their success.
12- Taking the necessary preventive measures to prevent the distress of projects, for projects that are on their way to distress.
13- Taking the necessary measures in accordance with the legal and accounting rules, controls and procedures set by the Board of Directors of the Fund.
14- Preparing a proposal for distress policies and implementing plans to address them.
15- Submitting recommendations to the competent committees regarding distressed initiators and the ways of addressing their situation.
16- Conducting studies of the causes of distress and submitting reports in order to benefit from experience.
17- Proposing mechanisms and products to improve the situation of distressed initiators.
18- Proposing the determination of the criteria for calculating provisions and the categories of distressed initiators.
19- Studying distressed projects and making the necessary recommendations to remove the causes of distress.

Article 5

The Board of Directors
The Board of Directors may, regarding a distressed project, take any of the following measures:
1- Setting the bases for calculating provisions in light of the credit and financing risks facing the distressed project.
2- Setting the legal and accounting controls and procedures to be followed in cases of the distress of the project that ensure the preservation of the rights of the Fund and the project owner.
3- Placing the distressed project under the management of the Fund, or entrusting its management to specialised companies for a consideration under its supervision and in the name and for the account of the initiator, where the project is considered distressed in accordance with the two cases provided for in Clauses (1, 2) of Article (2) of this Regulation. The Board shall authorise the Director General to supervise distressed projects.
4- Issuing decisions relating to the liquidation of the distressed project upon the proposal of the Director General, if it is impossible to remove the causes of distress.
The Board of Directors may authorise the Director General to take any or all of the foregoing measures when necessary.

Article 6

The Director General
The Director General shall have the following powers regarding a distressed project:
1- Submitting to the Board of Directors a statement of the distressed projects whose causes of distress cannot be removed. The Director General may return the project to its owner if the causes of its distress have been removed, provided that he notifies the Board of Directors of this decision.
2- Submitting to the Board of Directors the legal and accounting controls, rules and procedures to be followed in cases of the distress of the project that ensure the preservation of the rights of the Fund and the project owner.
3- The Director General may decide to liquidate the project or take other appropriate measures in the following cases:
– If its losses reach three quarters of the value of the financing plus the value of the project owner’s contribution.
– If it is impossible to remove the causes of distress referred to in Article (2) of this Regulation.
– If the project owner breaches his obligations set out in Article (14) of the Executive Regulations of Law No. (14) of 2018 on the National Fund for the Care and Development of Small and Medium Enterprises, issued by Ministerial Resolution No. (51) of 2018, which are as follows:
The project owner shall be prohibited, without obtaining the approval of the Fund, from the following:
1- Taking any material decision that would affect the fate of the project during the period of the Fund’s care for it.
2- Reducing the capital of the project, merging it into another project, liquidating it, selling it, or assigning the contract in whole or in part to third parties.
3- Changing the legal form of the project or amending the objectives or the approved plan.
4- Publishing information relating to the project by any media outlet except after obtaining the written approval of the Director General.
5- The initiator shall provide correct data about the project, and shall transfer any funds relating to the project to the account approved by the Fund, and shall be prohibited from transferring funds relating to the project to any other account not approved and consented to by the Fund. He shall also provide correct and faithful budgets and all financial data requested by the Fund, and the Fund may take criminal and civil legal action against him if he provides any incorrect information involving fraud, deception or deliberate concealment of data.
6- Amending, adding or cancelling any of the provisions of the Company Contract of the company under the care of the Fund.
If the Fund approves a request to assign the contract, the new project owner shall replace the original project owner in all the rights and obligations set out in the contract and shall become liable before the Fund.

Article 7

The Committee
The Director General shall issue a decision forming a committee of not fewer than seven members, including among its members specialised legal, technical and financial experts from inside and outside the Fund, a representative of the Existing Projects Department and a representative of the Evaluation Department. The Committee shall carry out its work regarding distressed projects, and shall be re-formed every two years. It is the committee that considers the cases of distressed projects and also considers the recommendations submitted by the Distressed Projects Department. The Committee may seek the assistance of whomever it deems appropriate among persons of experience and expertise to give an opinion on any of the matters submitted to it, without their having the right to vote.
A meeting of the Committee shall not be valid unless attended by a majority of its members, including the chairman or the vice-chairman. The Committee shall issue its decisions by a majority of those present, and in the event of a tie, the side including the chairman of the Committee shall prevail. The Committee shall have the final decision regarding distressed initiators or distressed projects after reviewing the recommendations of the Distressed Projects Department, and the final decision of the Committee shall be issued within a period not exceeding 45 days.
The Committee may, among other measures, take any of the following options:
1- Setting a programme for paying the outstanding debt in accordance with the collection mechanism.
2- Handing over projects to external companies.
3- Referral to the Legal Department to take its legal and judicial measures to collect the debt in cases that so require.
4- Returning projects to the Existing Projects Department.
5- Proposing approval of returning the project to its owners if the causes of distress are removed, provided that the decision is approved by the Director General of the Fund.
6- Preparing the necessary periodic reports on distressed projects, and also on those whose causes of distress cannot be removed, and preparing and submitting the necessary reports on them for presentation to the Director General.
7- Proposing an increase in the financing amount for projects after measuring the performance of the projects and the extent of their entitlement to increased financing in accordance with the rules and regulations, and also extending the grace period relating to payment.
8- Considering the value and number of instalment payments.
9- Applying the approved legal and accounting procedures to be followed in cases of the distress of the project that ensure the preservation of the rights of the Fund and the project owner.

Article 8

The Instalments
The owner of a distressed project shall pay the instalments due from him against the financing amount in accordance with the following mechanisms:
1- Monthly instalments.
2- Quarterly instalments.
3- Semi-annual instalments.
4- An instalment mechanism proposed by the Committee and approved by the Director General.
The value of each instalment shall be calculated on the basis of the financial ability of the owner of the distressed project, according to his main income in addition to all other sources of income he receives.
The Committee shall adopt the following bases and criteria when setting the value of the instalment and the payment mechanism:
1- The value of the project in addition to the administrative fees.
2- The payment period permitted by law.
3- The offer submitted by the initiator regarding the debt payment mechanism.
4- The financial position of the initiator and his ability to pay.
5- Assessing whether or not the initiator is serious in cooperating to pay the debt.
6- Examining the causes of the project’s distress and classifying them as to whether they were beyond the will of the initiator, intentional on his part, or due to gross negligence.
7- The accuracy and value of the amounts spent by the initiator on the project.
8- The initiator’s willingness and ability to pay a first payment of the financing value as a settlement down payment.
9- Valuing the project’s assets, if any, and how and whether they may be considered part of the debt payment, in coordination with the initiator.
10- The assessment of the competent members, including financial experts, accountants and specialists in the market and finance, and their proposals on how to calculate and set a payment mechanism.
11- Studying the causes of the project’s distress and whether it is a case of intentional distress out of a desire to end full-time commercial dedication, or due to neglect of the project, or due to a dispute between the partners.
These instalments due to the Fund shall have the lien provided for in Article (1073) of the Civil Code, in accordance with Article (4) of Law No. (98) of 2013 on the National Fund for the Care of Small and Medium Enterprises.
The Distress Committee may assess the financial situation of the distressed initiator and set the mechanism for his payment of the instalments due from him, without exceeding the time limit permitted by law or in accordance with the contract concluded with the initiator.

Issued on 2 June 2022 and published in the Official Gazette Kuwait Al-Youm on 12 June 2022.