Lending in Bahrain

The Central Bank of Bahrain (“CBB”) is the sole regulator of the financial services sector in the Kingdom of Bahrain (“Bahrain”). The key piece of legislation governing the financial services sector is Law No. 64 of 2006 promulgating the CBB and Financial Institutions Law, as amended (“CBB Law”). The CBB issues regulatory instruments that CBB licensees and other specified persons are legally obliged to comply with. These regulatory instruments are contained in the CBB Rulebook.

Any banking activities conducted in or from Bahrain is required to be conducted by a bank duly licensed by the CBB. That being said, where financing is provided by a foreign financial institution from outside Bahrain, all disbursements are made from outside Bahrain, repayments are made to an account outside Bahrain, and the foreign financial institution executes the relevant loan documents outside Bahrain (even if the local counterparty executes the documents in Bahrain), this should not be considered banking activities in or from Bahrain. The same analysis should apply to obtaining security over assets located in Bahrain.

Taking of security over assets located in Bahrain

There is no general requirement for a person to obtain a licence or regulatory approval solely for the purposes of taking security over assets situated in Bahrain or being the beneficiary of security granted by a Bahrain entity.

Notwithstanding the above, to acquire security interests over real estate located in Bahrain (expressly designated investment zone for foreign ownership under Legislative Decree No. 2 of 2001 with respect to the Ownership by Non-Bahrainis of Constructed Properties and Lands), a foreign bank or lender must appoint a CBB-licensed entity to act as a security agent. Foreign banks that are not established in Bahrain and therefore not licensed by the CBB can enter into security agreements as a security agent except in relation to mortgages of real estate located in Bahrain.

Pursuant to Law No. 7 of 1987 promulgating the Law of Commerce, as amended (“Law of Commerce”), parties may mutually agree the interest rate payable for a loan and financings, provided that the interest rate shall not exceed the limits set by the CBB as published on the CBB’s website (https://www.cbb.gov.bh/facilities-interest-rates/ and https://www.cbb.gov.bh/retail-banks-interest-rates/).

The concept of default interest is recognised under the Law of Commerce. Interest for delay of payment of commercial debts shall accrue upon maturity of such debts, unless the law or the agreement provides otherwise. For loans and other debts denominated in Bahraini dinars, total interest charged by the creditor shall not exceed the principal amount on the basis of which interest is calculated. This provision applies to debts with a repayment period not exceeding seven (7) years. Any contradictory contractual provisions shall be null and void. For loans and debts denominated in foreign currencies, total interest may exceed the principal amount of the debt.

There are no specific statutory restrictions under the published and gazetted laws of Bahrain, in force at the date hereof, as well as to the best of our knowledge the current policies and procedures applicable in Bahrain (“Bahrain Law”) on the disbursement of foreign currency loan proceeds into Bahrain or on the repayment of principal, interest, or fees in foreign currency from Bahrain.

For loans and debts denominated in foreign currencies, total interest may exceed the principal amount of the debt. There are no legal restrictions on the repayment of a loan in instalments or voluntary early prepayments under Bahrain Law. Foreign currency lending transactions are generally permitted under Bahrain Law, subject to compliance with the CBB’s regulatory framework. Parties are free to agree the currency of the loan and repayments in the loan documentation.

Yes security can be taken over these assets.

(i) Real property (land)

The form of security granted over real estate in Bahrain is a mortgage. A real estate mortgage is a contract under which the mortgagee acquires a security interest over the real estate to secure the mortgagor’s debt (Article 942, Law No. 19 of 2001 promulgating the Civil Code, as amended (“Civil Code”)). The mortgagee has priority over subsequent security holders and ordinary creditors.

A mortgage over real estate automatically covers any existing or future buildings, permanent fixtures, and structures erected on the land, and movable assets considered immovables by operation of law.

A mortgage over real estate must be created by a written mortgage agreement between the mortgagor (that is, the owner of the real estate) and the mortgagee (that is, the lender or a security agent). The mortgage agreement must be in Arabic or Arabic and English, include details of the mortgaged real estate and related title deed, and be notarised. For the mortgage to be perfected, the mortgage agreement must be registered with the Bahrain Survey and Land Registration Bureau (“SLRB”). The registration fee for the mortgage is between twenty Bahraini Dinars (BHD 20) and thirty Bahraini Dinars (BHD 30).

(ii) Plant, machinery, equipment and inventory

The most common form of security over tangible movable property is a business mortgage, which is granted over the borrower’s commercial business. The Law of Commerce defines a commercial business as a collection of tangible and intangible elements, which vary according to the circumstances and include goods, business furniture, industrial machinery, contracts with customers, goodwill, trade name, lease rights, trade marks, patents, drawings, designs, and related licences.

A business mortgage agreement must be executed in writing by the mortgagor and mortgagee, contain the detailed terms of the agreement, be either in (i) Arabic only; (ii) English only or (ii) dual language i.e., Arabic or English, and be notarised. The mortgage agreement must identify and list each asset secured by the mortgage. If not, the mortgage will only cover the business’s trade name, lease rights, contracts with customers, and goodwill. To be perfected, a business mortgage must be registered with the Ministry of Industry and Commerce (“MOIC”). The registration fee is between twenty Bahraini Dinars (BHD 20) and fifty Bahraini Dinars (BHD 50).

(iii) Receivables

Security can be created over rights and debts by way of assignment. To create security over receivables (including the right to receive rent from real estate property, insurance proceeds and rights under construction contracts, management contracts and commercial contracts). A creditor can assign its contractual rights to a third party unless prohibited by law, the contract, or due to the nature of the contract. An assignment does not require the debtor’s consent to be valid. To be enforceable against the debtor and third parties, an assignment must be accepted by, or notified to, the debtor and have an established date (Article 289, Civil Code). The assignment must identify the rights being assigned. For evidentiary purposes, it is recommended to notify the debtor by registered post in Bahrain and retaining the pink slip provided by Bahrain Post as evidence of delivery. If this is not possible, in addition to notifying the debtor, the assignor should obtain an acknowledgement of receipt from the debtor. An assignment agreement does not need to be in Arabic, notarised, or registered with any government authority.

(iv) Shares in companies incorporated in Bahrain

Security over shares is created by way of a pledge. A share pledge agreement must be executed in writing by the pledgor, pledgee, and (depending on whether the notary requires it) the company whose shares are being pledged, either in (i) Arabic only; (ii) English only or (ii) dual language i.e., Arabic or English, and notarised by a notary in Bahrain. The notarised share pledge agreement must be registered with the MOIC or the Bahrain Stock Exchange (“BSE”) (commonly known as the Bahrain Bourse) if the shares are listed on the BSE.

(v) Deposits in bank accounts

Security is created over the cash in a bank account and not over the account itself. To create a pledge over deposits in a bank account, a deposit pledge agreement would need to be entered into and notice of the pledge would need to be given to the account bank (if the account bank is not a party to the deposit pledge agreement). If the account bank is a party to the agreement, then the notice provisions are generally built into the agreement. The deposit pledge agreement can be in English only, does not need to be notarised or registered with any government entity in Bahrain.

Foreign law governed documents

Bahrain Law recognises the principle of freedom of contract and Article 4 (Agreement on the Choice of Applicable Law) of Law No. 6 of 2015 concerning the Conflict of Laws in Civil and Commercial matters involving a foreign party states that the parties may agree upon the choice of applicable law or choice of the international trade law and its conventions provided that it is proved as a matter of fact and not against public policy.

In relation to security documents with a Bahrain obligor or where assets are located in Bahrain, we recommend that Bahrain law is the governing law and the dispute resolution method selected is either Bahrain courts or arbitration because enforcement of these security documents would take place in Bahrain.

Security interests (whether a mortgage or pledge) can only be granted over assets that are ascertained and identifiable at the time of creating the security and cannot be granted over future assets. There is no concept of a floating charge under Bahrain Law.

In the event any additional assets are acquired by the security provider after the date the relevant security agreement, those additional will not be subject to the security interest or secured automatically be secured under the original security agreement. Therefore, if the secured party and security provider wish to extend the security to the additional assets, this is usually achieved by executing an addendum to the original security agreement between the parties.

No, a single security agreement cannot be used to take security over all of a company’s assets as Bahrain Law does not recognize the concept of a floating charge. Separate security agreements are required in Bahrain to create security over different types of assets.

(i) Real Estate Mortgage – A mortgage over real estate must be created by a written mortgage agreement between the mortgagor (i.e., the owner of the real estate) and the mortgagee (i.e., the lender or a security agent). The mortgagee is usually a financial institution licensed by the CBB. To acquire security interests over real estate in Bahrain, a foreign bank or lender must appoint a CBB licensed entity to act as a security agent. The mortgage agreement must (i) be in Arabic or in Arabic and English; (ii) include details of the mortgaged real estate and related title deed; and (iii) be notarised. If the real estate being mortgaged is owned by a third party, the mortgagor, mortgagee, and obligor must all be party to the mortgage agreement. For the mortgage to be perfected, the mortgage agreement must be registered with the SLRB. The registration fee is between twenty Bahraini Dinars (BHD 20) and thirty Bahraini Dinars (BHD 30).

(ii) Assignment – The receivables being assigned should be free from encumbrances and other restrictions or conditions on transfer by virtue of an agreement or under Bahrain Law. In the event that an agreement contains such restrictions or conditions, such restrictions or conditions must be waived. The assignment does not require the debtor’s consent to be valid. To be enforceable against the debtor and third parties, an assignment must: (i) be accepted by, or notified to, the debtor; and (ii) have an established date. The receivables being assigned must be identifiable and validly existing at the time of assignment – assignment of a future receivable or any asset that is not identifiable or where the identification is uncertain, will not be recognised under Bahrain Law. For the purposes of perfecting the underlying assignment, such acknowledgement can either, ideally be obtained from the counterparty or can be evidenced by an established date. If the acknowledgement from the counterparty is not being obtained (or if there is a concern as to obtaining the acknowledgment of the notice of assignment) then, for purposes of evidencing the established date, the notice of assignment can be sent by way of registered post and the pink slip in relation thereto can be retained. From an enforceability perspective, the pink slip essentially evidences the established date and that the notice has been sent and signed for and accordingly received by the relevant counterparty. If the notice of assignment is sent by registered post in Bahrain and the pink slip evidencing delivery is obtained, then no acknowledgement is required of the notice of assignment. If it is not possible to send the notice of assignment by registered post in Bahrain and obtain the pink slip evidencing delivery, then, in addition to sending the notice to the debtor, the assignor will be required to obtain an acknowledgement of the notice of assignment from the debtor. On this basis, no separate acknowledgment of the notice of assignment is required in this case. Please note that the “pink slip” in this context is the physical proof of delivery that Bahrain Post issues for registered mail. When a notice of assignment is sent by registered post within Bahrain, the postal carrier obtains the recipient’s signature on a delivery card (commonly referred to as the pink slip), which is then returned to the sender. This slip bears the postal date stamp and evidences the date on which the counterparty received the notice An assignment agreement does not need to be in Arabic, notarised, or registered with any government authority.

(iii) Deposit Pledge – For a deposit pledge agreement to be enforceable against third parties (i) a written notification must be sent to the account bank informing it of the pledge; and (ii) the account bank must provide a formal acknowledgment of this notification. If the account bank is a party to the deposit pledge agreement, the notice and acknowledgment provisions are built into the deposit pledge agreement and the account bank executes the deposit pledge agreement. In this senario, a separate notice does not need be sent to the account bank and an acknowledgement obtained from the account bank. A deposit pledge agreement does not need to be in Arabic, notarised, or registered with any government authority.

(iv) Share Pledge – A share pledge agreement must be (i) executed in writing by the pledgor, pledgee, and (depending on whether the notary requires it), the company whose shares are being pledged; (ii) in Arabic, English or in Arabic and English; (iii) notarised by a notary in Bahrain. To be enforceable against third parties, a share pledge agreement must: (i) have an established date; (ii) identify the pledged assets (shares); (iii) specify the amount of the secured debt; and (iv) involve a transfer of possession of the assets (shares). The notarised share pledge agreement must be registered with the MOIC or the Bahrain Bourse (i.e., the Bahrain stock exchange) (if the shares are listed on the Bahrain Bourse). The Bahrain Bourse registration fee is based on the value of the shares on the day of registration with the Bahrain Bourse. The MOIC registration fee is between twenty Bahraini Dinars (BHD 20) and fifty Bahraini Dinars (BHD 50).

(v) Business Mortgage: A business mortgage agreement must (i) be executed in writing by the mortgagor and mortgagee; (ii) contain the detailed terms of the agreement; (iii) be in Arabic, English or in Arabic and English; and (iv) be notarised. The mortgage agreement must identify and list each asset secured by the business mortgage. If not, the mortgage will only cover the business’s trade name, lease rights, contracts with customers, and goodwill. In practice, it may be cumbersome to list all the assets in the mortgage agreement. This is because a notary may refuse to notarise a schedule as they cannot verify details of all listed assets. A common workaround is to list broader categories of assets in the mortgage agreement while specifically defining assets of particular importance to the secured party. To be perfected, a business mortgage must be registered with the MOIC. The registration fee is between twenty Bahraini Dinars (BHD 20) and fifty Bahraini Dinars (BHD 50). The registration is required to be renewed every five (5) years under the Law of Commerce.

(vi) Other types of security: It is common for banks to obtain a promissory note from the borrower to secure payment obligations. A promissory note is generally in English and Arabic. It does not need to be notarised or registered with any government authority. Another common type of security is guarantees. Personal and corporate guarantees are commonly obtained by banks in Bahrain. Articles 742 to 768 of the Civil Code govern the provision of guarantees. To be valid, a guarantee must: (i) guarantee a specific debt (Article 742 of the Civil Code); (ii) be confirmed in writing; (iii) the guarantor’s consent to provide a guarantee must be explicit (Article 743 of the Civil Code); and (iv) not be provided for a larger amount than that owed by the debtor (Article 748 of the Civil Code). A guarantor can only guarantee future and unspecified obligations if the guarantee document specifies the maximum amount guaranteed and the maximum duration of the guarantee (Article 746 of the Civil Code). If these are not specified, the guarantor can withdraw the guarantee. A personal or corporate guarantee does not need to be in Arabic, notarised, or registered with any government authority.

There is no mandatory requirement to notarise or legalise loan agreements and guarantees with any government entity or ministry in Bahrain.

For security documents, the position differs by asset type:

(i) A share pledge (security over listed or non-listed shares of a corporate entity in Bahrain) and a business mortgage (security over certain assets of a company) are required to be notarised by a notary and registered with the MOIC. If the shares are listed on the BSE, then the share pledge will need to be registered with the BSE.

(ii) A real estate mortgage must be notarised by a notary and registered with the SLRB.

(iii) There is no requirement to notarise and register a deposit pledge, assignment, promissory note or guarantees in Bahrain.

Yes, certain security interests must be registered to be perfected and enforceable against third parties. Please see our response to question 6 in relation to the perfection of certain security under Bahrain Law.

Registration Fees – There is no requirement to file or register any loan or security documents with the CBB. There are no registration fees applicable to loans made by a foreign lender to a borrower in Bahrain. There are no registration fees applicable to guarantees provided by an entity in Bahrain. In relation to security, a registration fee may be payable depending on the type of security being created. The following types of security are required to be registered under the Bahrain Law and the registration fees are as follows:

(a) Share pledges and business mortgages are required to be notarised and registered with the MOIC or Bahrain Bourse (for listed shares) and a fee of around twenty Bahraini Dinars (BHD 20) to fifty Bahraini Dinars (BHD 50) is payable; and (iii) in relation to the registration of a share pledge (listed entity), the registration fee is calculated based on the value of shares on the day the pledge is registered with the Bahrain Bourse.

(b) Real estate mortgages need to be notarised by a notary and registered with the Bahrain Survey and Land Registration Bureau (SLRB). A registration fee in the range of twenty Bahraini Dinars (BHD 20) to thirty Bahraini Dinars (BHD 30) would be payable to the SLRB.

Notaries’ Fees – There is no requirement to notarise any loan documents in Bahrain. Accordingly, no notarisation fee is applicable to loans made by a foreign lender to a borrower in Bahrain. In relation to security documents, there is no requirement to notarise a guarantee, deposit pledge, assignment or promissory note in Bahrain. However, share pledges, business mortgages, and real estate mortgages are required to be notarised. The notarisation fee of around two hundred Bahraini Dinars (BHD 200) to four hundred Bahraini Dinars (BHD 400) is required to be paid to the notary.

Withholding Taxes – There is no withholding tax in Bahrain.

Documentary Taxes- There is no documentary tax or document stamp duties in Bahrain.

Corporate Income Tax (“CIT”) – Currently, there is no CIT in Bahrain on businesses except for businesses that operate in oil and gas sectors. Businesses that derive profits from the extraction or refinement of hydrocarbons in Bahrain are subject to tax at the rate of forty six percent (46%) on net profits for each tax accounting period, regardless of the residence of the taxpayer. On 29 December 2025, the Bahrain Cabinet approved the introduction of CIT in Bahrain with implementation anticipated from 2027. Based on the Cabinet’s announcement, Bahrain is expected to introduce a ten percent (10%) CIT applicable to businesses that meet either of the following thresholds: (i) annual revenues exceeding one million Bahraini Dinars (BHD 1,000,000); or net annual profits exceeding two hundred thousand Bahraini Dinars (BHD 200,000). At this stage, the text of the draft CIT law has not been published. The draft CIT law is expected to contain the main CIT framework, with detailed implementation rules and administrative procedures to be set out in accompanying regulations once the law has been enacted. The draft CIT law has been referred to the Council of Representatives and will be reviewed by the Legislative and Legal Affairs Committee as part of the legislative process. Currently, there are no CIT implications for any Bahraini companies except companies engaged in the extraction and refinement of hydrocarbons in Bahrain.

Bahrain’s Domestic Minimum Top-Up Tax (“DMTT”) regime is implemented by Decree Law No. 11 of 2024 (“DMTT Law”) Executive Regulations (Minister of Finance Decision (172) of 2024, “DMTT Regulations”) with effect from 1 January 2025. The DMTT Law and its regulations adopt the OECD Model Tax Convention and BEPS Pillar Two (Global Anti-Base Erosion, “GloBE”) rules implementing a global minimum tax at a rate of fifteen percent (15%) for large multinational enterprise groups (i.e. a group with global consolidated revenues of seven hundred and fifty million Euros (EUR 750,000,000) in line with the revenue test set out under the GloBE rules, “Large MNEs”) through a DMTT mechanism. According to the DMTT Law, the DMTT applies to ‘constituent entities’ of Large MNEs which may include an entity established in Bahrain or a Permanent Establishment (“PE”) of a group entity of the Large MNE in Bahrain.

Value Added Tax (“VAT”) – In accordance with the Bahraini Decree-Law No. 48 of 2018 (“VAT Law”), VAT applies on supplies (including exports of goods and services) and imports of goods and services that are considered as being supplied in Bahrain by or to a taxable person in Bahrain subject to the VAT Law’s place of supply provisions. The taxable person should charge VAT at the standard rate of ten percent (10%) unless the supply or import is subject to VAT at the zero percent rate, or exempt, or outside the scope from VAT. Generally, the supply of margin-based financial services may benefit from a VAT exemption for the purposes of the VAT Law. To name a few examples, such exempt financial services include (i) granting and transferring loans, borrowings, and credit; and (ii) any Islamic financial product provided in accordance with legally approved contracts, which is similar to a conventional financial product in terms of the intended objective and materially achieves the same result. However, the financial services exemption does not apply where the consideration for the financial service is expressly determined as a fee, commission, or commercial discount. Accordingly, where an express fee, commission, or discount is applied to the supply of a financial service, these fees or commissions will be subject to VAT at the standard rate of ten percent (10%). Further, if a financial service is provided by a service provider based in Bahrain to an entity based outside Bahrain, the supply would be subject to VAT at the zero rate (0%) provided the zero-rated conditions of export of services are met. For completeness, where a foreign financial entity provides a financial service to an entity in Bahrain that is a taxable person, the Bahrani taxable recipient must charge VAT under the reverse charge mechanism (if the financial service includes explicit fees) and account for the VAT charged to the National Bureau for Revenue.

There is no statutory prohibition on upstream, downstream or cross-stream guarantees under Bahrain Law. A company may provide security, or issue guarantees in respect of obligations of its parent, subsidiary or sister companies, provided that such arrangements are permitted under its constitutional documents and duly authorised by its directors and/or shareholders (depending on the company’s constitutional documents). The corporate authorisations is as set out in our response above. There are no statutory restrictions on financial assistance.

There are no restrictions under Bahrain Law against a company providing guarantees or security to support borrowings incurred for the purposes of acquiring shares of the company, shares of any company which directly or indirectly owns shares in the company, or shares in a related company.

When lending to a borrower or taking security or a guarantee from an entity incorporated in Bahrain, lenders must consider several corporate authority issues to ensure that the transaction is valid and enforceable. It is common in Bahrain for directors or managers to be granted general powers under the company’s constitutional documents (such as the memorandum or articles of association or both). Such powers are expressed in generic terms for example, the power to ‘do all acts and deeds for and on behalf of the company’ or to ‘manage the company and do all things necessary to achieve its objects’. However, these general management powers are not sufficient to permit a company to borrow funds, grant security and enter into loan financing documentation because there is no concept of ostensible authority under Bahrain Law. Accordingly, explicit authority is required to permit a company to borrow funds, grant security, enter into the transaction documents and authorise certain representative(s) to execute the transaction documents (including any security documents) for and on behalf of the company.

A clear chain of authority from a company’s constitutional documents to an authorised signatory should be demonstrated. If a borrower is incorporated in Bahrain, its constitutional documents must contain express wording to permit the company to borrow funds. If the term of the loan is more than three (3) years, the constitutional documents must clearly specify that the directors have the power to borrow for more than three (3) years. If this is not clearly stated, then a shareholders’ resolution is required (Article 182 of the Law No. 21 of 2001 promulgating the commercial companies law, as amended (“Companies Law”). If an obligor incorporated in Bahrain is granting security, its constitutional documents must contain the right or power to mortgage, pledge or grant security interests over the company’s assets to secure the debt. If a Bahraini incorporated obligor is providing a guarantee, its constitutional documents must contain express wording to permit it to guarantee a third party’s obligations.

If a Bahrain-incorporated obligor’s constitutional documents clearly authorise an individual to execute loan and security documents, then no further authorisations are required (however, lenders still request for one from a risk perspective and for good order). If the board of directors are authorised in the constitutional documents to borrow, provide security and enter into loan and security documents but no specific individual(s) are authorised in the constitutional documents to sign the transaction documents then a directors’ resolution approving entry into the transaction itself and the transaction documents and authorising a certain individual or individuals to sign the transaction documents is required.

If a Bahrain-incorporated company has a notarised power of attorney that has been provided to certain individual(s) giving them the power to sign the transaction documents for and on behalf of the company in relation to financing transactions, then a board of directors’ and/or shareholders’ resolution and/or a power of attorney may be relied upon to establish capacity and authority of a signatory. Where an individual is authorised to undertake certain activities in relation to financings (with the power to delegate this authority), a notarised power of attorney from the authorised individual to an individual giving them the power to enter into financing transactions (including renewal of loan facilities) is acceptable. If none of the above scenarios apply, a shareholders’ resolution should be obtained.

Please note that according to Article 183 of the Companies Law, in relation to joint stock companies (public and private) and limited liability companies (limited liability) “the chairman of the board is the head of the company who represents it before third parties. His signature shall be considered as a signature of the board of directors before third parties. He shall implement the decisions of the board and comply with its recommendations. The vice-chairman shall replace the chairman in the latter’s absence and have the same powers of the chairman of the board”. Accordingly, if a board of directors’ resolution is obtained from joint stock companies (public and private) and limited liability companies (limited liability) that is only signed by the chairman of the board of directors, this can be considered as a signature of the entire board of directors (subject to no contrary provision being contained in the constitutional documents of the company).

An obligor incorporated in Bahrain is not required to demonstrate to lenders that any borrowing of a loan or provision of security or a guarantee has a corporate benefit to the obligor under Bahrain Law.

The concept of an agent and an agency contract is recognised under the Law of Commerce and the Civil Code. There are no specific powers or duties implied under the Bahrain Law that overrides the duties of an agent set out in the relevant loan agreement, provided these are not contrary to public policy.

In syndicated loan transactions with a Bahrain-incorporated obligor, security is granted to a security agent. Unlike common law jurisdictions, there is no concept of a “security trustee” as Bahrain Law does not recognise the concept of a trust in the context of loan financing (although a trust is recognised more generally in Bahrain pursuant to Law No. 23 of 2016). Instead, a security agent is appointed relying on general agency provisions contained in the Civil Code. Contractual subordination and other intercreditor arrangements are permitted and are common in Bahrain. Almost all syndicated transactions include a mechanism for security sharing among creditors and the appointment of a security agent.

In some loan agreements with a Bahrain-incorporated obligor, a parallel debt provision is included to create a direct obligation of the security provider to pay the security agent. In addition, each security document executed between the security provider and security agent (on behalf of the finance parties) generally includes a covenant for the security provider to pay for the benefit of the security agent. These provisions are recommended to be included in a loan agreement with a Bahrain-incorporated obligor because on enforcement of a security agreement, the Bahrain Courts may require the security agent to prove the debt.

Not applicable.

Bahrain Law recognises the principle of freedom of contract. The parties to a contract with a foreign element can agree on the applicable law if the law does not conflict with Bahraini public policy or morality and the parties prove the foreign law as an issue of fact (Law No. 6 of 2015 On Conflict of Laws in Civil and Commercial Matters with a Foreign Element).

If these conditions are satisfied, the Bahrain Courts will recognise an arrangement created under the law of another country. However, in practice, the Bahraini Courts have held in several cases that Bahrain Law applies instead of a chosen foreign law on the basis that the parties either failed to present satisfactory and tangible evidence of the existence of the foreign law or failed to determine its effects. In addition, there is no assurance that a Bahraini court will interpret a foreign law in a manner consistent with its application in the jurisdiction of origin.

In relation to security documents with a Bahrain obligor or where assets are located in Bahrain, it is recommended that Bahrain Law is the governing law and the dispute resolution method selected is either Bahrain Courts or arbitration because enforcement of these security documents would take place in Bahrain.

A final foreign arbitral award sould be recognised and enforceable in Bahrain. The determination of the arbitral tribunal will be considered as a foreign award. Bahrain is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) and formally acceded to the New York Convention and the terms of the New York Convention became law in Bahrain on 15 March 1988. As a result, the enforcement of foreign arbitral awards should occur pursuant to the terms of the New York Convention.

Under the terms of the New York Convention, the Bahrain Courts will be entitled to refuse to enforce a foreign arbitral award only on certain narrowly defined grounds. Broadly speaking, enforcement may be refused where the following conditions apply:

(a) the arbitration agreement was invalid.
(b) a party was not given an opportunity to present its case.
(c) the tribunal of arbitrators that decided the dispute was incorrectly formed or acted beyond its competence.
(d) the award is not final in the state in which it was made.
(e) under laws of Bahrain the subject matter of the dispute cannot be decided by arbitration.
(f) enforcement of the award would be against the public policy of Bahrain.

Bahrain Law does not generally restrict the subject matter of a loan agreement or security document from being decided by arbitration. Enforcement of an arbitral award issued should not be against the public policy of Bahrain.

If an arbitral award is obtained from a country that is not a member of the New York Convention, the foreign arbitral award should be enforceable in Bahrain under the Law No. 9 of 2015 promulgating the Arbitration Law (“Arbitration Law”), which provides that the enforcement of a foreign arbitration award may only be refused where the party against whom the award is invoked proves any of the following:

(a) the party to the arbitration agreement was under some incapacity or that the arbitration agreement was invalid under the law to which the parties have subjected it or under the law of the country of award; or
(b) the party was not given proper notice of the appointment of an arbitrator or arbitral proceeding or was otherwise unable to present its case; or
(c) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration. If a foreign award contains decisions on matters beyond the scope of the submission to arbitration, decisions made on matters submitted to arbitration will be recognized and enforced provided that said decisions may be separated from those made on matters not submitted to arbitration; or
(d) the tribunal of arbitrators that decided the dispute was not formed in accordance with the agreement of the parties or the law of the country in which the arbitration took place; or
(e) the award has not yet become binding on the parties or has been set aside or superseded by a court of the country in which or under the law of which the award was made; or
(f) the competent court within Bahrain finds that:
a. under Bahrain Law the subject matter of the dispute cannot be decided by arbitration; or
b. enforcement of the award would be against the public policy of Bahrain.

In relation to the enforcement of foreign judgements, a judgment of a foreign court may be enforced in Bahrain without re-examination of the merits of the case, provided it satisfies the following conditions:

(a) Reciprocity: The foreign court that has issued the judgment enforces judgments and orders rendered in Bahrain.

(b) Jurisdiction: The Bahrain Courts did not have jurisdiction in the matter in respect of which the order of judgment has been made and it was made by a court of competent jurisdiction under the jurisdiction rules or laws applied by such court.

(c) Notice: The Parties were served with due notice to attend and had been properly represented.

(d) Final judgment: The judgment was final in accordance with the law of the court making it (regardless of whether such judgment was subject to appeal to a higher court).

(e) No conflict: The judgment did not conflict with any previous decision of the Bahrain Courts and did not involve and conflict with public order or morality in Bahrain.

If these conditions are not met, a new case must be filed in Bahrain in order to implement the applicable ruling and the foreign arbitral judgment will be admissible as evidence.

If Bahrain and the country from which the final judgment has been rendered have not entered into any reciprocal arrangement for the enforcement of foreign judgments, it is likely that a judgment of that foreign court may not be enforced in Bahrain and the Bahrain Courts would likely need to rehear the dispute.

Insolvency proceedings are governed by the Law No. 22 of 2018 promulgating the restructuring and insolvency law (“Insolvency Law”) and the CBB Law. The Insolvency Law applies to commercial companies established in Bahrain, including companies established by law or decree, and individual traders who do business and have their head office in Bahrain. Voluntary liquidation is also available for solvent companies under the Companies Law.

Insolvency Law

Under the Insolvency Law, both debtors and creditors can start insolvency proceedings by filing an application with the Bahraini Court. The Insolvency Law provides for two (2) procedures to deal with an insolvent entity:

(a) Restructuring: The Bahraini Court must first consider restructuring and order a restructuring of the debtor’s debts if this is more favourable for creditors than liquidation or if it is economically justifiable for the debtor to continue its business. The insolvency trustee (with assistance from the debtor) must submit a restructuring proposal to the court within three (3) months from the start of insolvency proceedings. The proposal is put to a vote by creditors whose rights are affected by the proposal. The Bahraini Court can ratify, reject, or approve (subject to amendments) the proposal.

(b) Liquidation: Under this procedure, a liquidator is responsible for selling the insolvency assets and distributing proceeds to creditors in the order of priority set out in the Insolvency Law.

CBB Law

Part 10 of the CBB Law governs the insolvency of a CBB-licensed entity. A licensee is deemed insolvent if its financial position becomes unstable and it stops paying its due debts. Once a licensee is insolvent, it must immediately cease to undertake any regulated services in Bahrain, make any payments, or carry on any business in relation to regulated services, unless otherwise agreed in writing by the CBB.

The CBB can take over the administration of a licensee or appoint an external administrator if the licensee becomes insolvent or is most likely insolvent, the licensee’s licence is amended or cancelled based on failure to satisfy any licence conditions or to start business within six months from the date of the licence, or the licensee continues to provide regulated services causing damage to the financial services industry in Bahrain (Article 136, CBB Law).

The administrator, the licensee, or any creditor can submit a petition to the Bahraini court for compulsory liquidation of the licensee.

The commencement of insolvency proceedings triggers an automatic moratorium (stay) on claims against the insolvent’s estate, which restricts a lender’s ability to enforce loans and security interests.

This stay applies to both secured and unsecured creditors and prohibits a lender from taking certain actions such as bringing enforcement proceedings or guarantee claims without court approval. While secured creditors retain their priority over secured collateral, enforcement is typically suspended during restructuring or liquidation proceedings unless the Bahraini Court allows enforcement. Additionally, security interests granted and payments made within a suspect period before insolvency can be challenged as voidable transactions.

Under the CBB Law, secured debts are not subject to the order of priority. Therefore, both in administration and compulsory liquidation proceedings, secured creditors can dispose of the licensee’s secured assets and have priority over the sale proceeds ahead of all other creditors. The CBB Law does not contain any specific provisions regarding moratorium. The implementation of any moratorium is subject to the discretion of the appointed insolvency practitioner and the courts, depending on the specific circumstances of the case.

Under the CBB Law

The administrator or liquidator can, with prior court approval, nullify any agreement (other than derivative contracts) concluded by a licensee before the start of the administration or liquidation if this is either in the interest of the licensee or its customers, or necessary to avoid irrevocable damage.

In the event of liquidation proceedings, a licensee cannot conclude any transaction at an undervalue, conclude any transaction for the purpose of defrauding any of its creditors, or give preference to any person during the prohibition period. The prohibition period is two (2) years before the date on which the licensee was placed under administration for transactions with related parties, and six (6) months before that date for transactions with non-related parties.

Under the Insolvency Law

The insolvency trustee can apply to the court to invalidate any transaction undertaken by the company or any obligation incurred by the company retroactively if the company concluded the transaction or incurred the obligation with an intent to defraud its current or future creditors or with an intent to cause damage to them, or if the company did not receive fair consideration for the transaction or incurred an obligation that is not in the company’s interest, and the company was insolvent or became insolvent as a result. These provisions also apply to security interests.

The insolvency trustee can also apply to invalidate any payment made or any transaction performed by the debtor, including the creation of a security interest over its assets for the benefit of any creditor, if the transaction or payment is made to satisfy an existing debt and the debtor is or will be unable to settle its debts when due.

Set-off prior to insolvency of an entity is recognised under the Civil Code. Set-off is not permitted without a court order once insolvency proceedings are commenced against a Bahraini-incorporated entity.

Under the Insolvency Law, claims are paid in the following order of priority upon liquidation:

(a) secured creditors.
(b) unsecured financing obtained after the commencement of insolvency proceedings.
(c) administrative costs and claims of the insolvency proceedings.
(d) employees’ claims for due wages and financial benefits of up to three thousand Bahraini Dinars (BHD 3,000).
(e) customers’ claims for advance payments made to the debtor to purchase goods and services, of up to one thousand Bahraini Dinars (BHD1,000) per customer.
(f) claims of government agencies for taxes or fees of up to one thousand Bahraini Dinars (BHD 1,000) per agency.
(g) unsecured claims arising before the commencement of insolvency proceedings.
(h) unsecured claims arising before the commencement of insolvency proceedings not filed within the stipulated timeframe but in time for the liquidator to determine the right of distribution.
(i) claims of foreign government agencies (if any) for taxes or fees.
(j) unsecured claims of shareholders for compensation for late payments.
(k) amounts due to shareholders in proportion to their respective shareholding.

Creditors holding the same security interest over the same asset rank in the order in which they are created and perfected (if applicable). A security interest that is not validly perfected is not effective against third parties.

Retention of title refers to a contractual clause under which a seller retains ownership of goods until the buyer has paid for them in full. Retention clauses are commonly used in supply of goods, construction, equipment supply, and trade finance contracts. To be enforceable, the clause must comply with the Civil Code and the Law of Commerce.

Please note that Law No. 3 of 2026 issuing the Secured Transactions Law (the “ST Law”), introducing a modern notice-based regime governing security over movable assets was published on 29 January 2026 and will come into force on the first day of the month following the lapse of twelve (12) months from publication. Accordingly, the ST Law is expected to become effective on 1 February 2027. The ST Law will materially change the way security is created, perfected and enforced in Bahrain.

The ST Law is expected to materially improve access to credit—particularly for small and medium enterprises (“SMEs”) by enabling businesses to leverage receivables, inventory, equipment and other movables as collateral while maintaining their operational use, underpinned by a new electronic notice register and streamlined enforcement mechanisms.

The legislation comprises sixty (60) articles and forms part of a broader governmental program to strengthen Bahrain’s financial infrastructure and legal environment, enhance transparency, and align with international best practice. It is also geared toward supporting Bahrain’s performance under the World Bank’s evolving Business Ready (B–READY) framework through more efficient collateral regimes and clearer creditor protections. The law has been approved by the Shura Council following prior parliamentary clearance, with a formal final vote noted as forthcoming; implementation will depend on the issuance of executive and technical regulations, including the operationalization of the electronic registry.

In Bahrain, traditional bank lending remains the dominant form of financing for companies in Bahrain. Islamic finance represents a significant and growing proportion of the lending market in Bahrain, given Bahrain’s status as a leading Islamic finance hub in the region.

Alternative credit providers and private credit funds have a limited presence in Bahrain compared to more mature markets, though interest from international alternative lenders in the Gulf Cooperation Council region as a whole is growing. Capital markets activity, including sukuk issuances and medium-term note programmes, continues to be an important source of financing for larger Bahrain corporates and financial institutions.

(a) ST Law – Please refer to our comments above in relation to the ST Law.

(b) Netting Law – As part of the CBB’s objective in enhancing its regulatory framework, the CBB has circulated the draft Netting Law for consultation on 12 December 2024. The draft Netting Law is based on the International Swaps and Derivatives Association (“ISDA”)’s Model Netting Act which shall supersede Resolution No. 44 of 2014 with respect to promulgating a Resolution for Close-Out Netting under a Market Contract (“Netting Regulations”). The implementation of the draft Netting Law will provide greater legal certainty for financial institutions and market participants in Bahrain. By clearly defining the enforceability of netting agreements and the treatment of collateral, the law should reduce legal risks and enhance confidence in the financial market.

(c) Regulatory developments: The CBB periodically updates its rulebook, which may impose new requirements on licensed entities and affect the structuring of lending transactions. Lenders and borrowers active in regulated sectors such as telecommunications, oil and gas, and utilities must continue to monitor sector-specific regulatory requirements. Taking or enforcing security over assets in regulated sectors such as telecommunications, oil and gas, and utilities may require prior approval from the relevant regulatory authority.

(d) ESG and sustainability: There is growing interest in sustainability-linked financing and ESG-compliant lending structures in the GCC region, and Bahrain is no exception. Lenders are increasingly incorporating ESG-related representations, undertakings, and margin adjustment mechanisms into loan documentation.