ARTICLES & UPDATES

According to the general principle, all assets owned by a debtor guarantee the repayment of their debts. Accordingly, a share in a company or shares owned by a partner form part of the debtor’s financial estate, and a creditor is entitled to enforce against such shares and recover their right from them.

It should be noted that enforcement against a partner’s share in a company does not give the creditor the status of a partner merely because the share has been attached. Rather, the creditor’s right remains limited to the financial value of the share. In this context, the legislator balances the creditor’s right to enforcement with the personal considerations existing between partners. Therefore, the transfer of shares pursuant to attachment is subject to legal and regulatory restrictions, such as the rule that the share of a non-Kuwaiti must not exceed 49% of the company’s capital. In addition, the partners or the company may have pre-emption rights or specific procedures for transferring shares.

In capital companies, shares are by nature transferable and negotiable. Therefore, they may be attached and sold according to the legally prescribed procedures, so that the share is transferred to the buyer with all related rights and obligations.

It must be noted that the subject of attachment is the share itself, not the company’s assets. This is because the company has an independent legal personality separate from the financial liability of its shareholders. Accordingly, a personal creditor of a partner may not enforce against the company’s assets, property, or bank accounts due to a personal debt owed by the partner. The creditor’s right is limited to the partner’s shares or financial rights arising from them, such as profits and dividends, and does not extend to the company’s assets. Any mixing between the partner’s liability and the company’s assets would violate the principle of legal personality and harm the rights of the company’s other creditors. Accordingly, the company is not obliged to pay the personal creditor of a partner except within the limits of the partner’s financial rights.

Article (43) of the Companies Law confirms this principle regarding general partnership companies, stating that the personal creditors of a partner may not attach the company’s assets, but may only attach the debtor’s share. If a creditor starts enforcement against a partner’s share, they may agree with the debtor and the company on the method and conditions of sale. In this case, the transfer of the share is carried out according to the company’s articles of association, and the transfer must be registered according to the law. If no agreement is reached within fifteen days from the date of attachment, the share must be offered for public auction, and its value is assessed by one of the audit firms approved by the Capital Markets Authority.

In limited liability companies, if a creditor begins enforcement against a partner’s share, the same procedures apply. An agreement may be made with the debtor and the company on the method and conditions of sale. If no agreement is reached, the share must be sold through public auction under the Civil and Commercial Procedures Law. The partners may participate in the auction, and they may also redeem the share under the same conditions at which it was sold, provided that the full price is deposited with the court treasury within seven days from the date of the auction.

A creditor may also attach the profits due to the partner from the company, considering these profits as a debt owed by the company to the partner. In this case, the company is treated as a third party holding the funds and must not pay the partner any amounts after being notified of the attachment according to the Civil Procedure Law. This method is considered less harmful to the company than selling the share, which requires valuation and public auction.

In conclusion, attaching a debtor’s share in a company represents a balance between the creditor’s right to recover their debt and the company’s right to maintain its legal independence and business stability. This measure applies the principle that all assets of the debtor serve as general security for creditors. However, this right is not absolute and is governed by legal considerations related to the separate legal personality of the company, the protection of other partners, the rights of the company’s creditors, and the stability of the company.

This article was recently published in Arabic in Al-Jarida newspaper. You can view the original newspaper clipping here – https://www.aljarida.com/article/135152

Advocate / Abdulrazzaq Abdullah E-mail: azq@arazzaqlaw.com