Banking business and trust law

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Answer ANY TWO main questions

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1.Mr. Jawad who runs a successful family restaurant and catering business has deposit accounts with XYZ Islamic bank for the last 3 years. He has a current account and his surplus funds are invested in Shari’a compliant investment accounts / deposits. Now he is considering taking a financing facility for 2 delivery vans to be used in his business. His son Salman who studied in the UK and worked there for 2 years, returns to Bahrain and opens an account in a conventional bank DEF Bank. He is also interested to understand more about CBB’s role as the sole regulator of the financial sector in Bahrain.

(a) For Mr. Jawad’s deposits and investments, explain 2 different types of Shari’a compliant deposit / investment accounts. (8 marks)

(b) What financing facility would you consider suitable for Mr. Jawad’s requirement of 2 delivery vans. Give reasons for your answer. (8 marks)

(c) In the CBB Rulebook Volume 1 for conventional banks, describe any 3 Principles of Business which apply to conventional bank licensees and approved persons. (6 marks)

(d)Discuss 5 main duties and powers conferred on the CBB as sole regulator of Bahrain’s financial services sector under the Central Bank of Bahrain and Financial Institutions Law 2006. (8 marks)

2.Mr. Abbas was one of the founding partners of Wheels & Deals a general partnership company in Bahrain, trading in various spare parts and lubricants used by automobile dealers and manufacturers in the GCC. As the company grew in size, the partners decided to change its status to a limited liability company. It was Mr. Abbas’ dream that one day they would be a joint stock company listed in the Bahrain Bourse. However, in recent years, the company has been making losses due to a general downturn in the economy and in the automobile sector. The company is finding it increasingly difficult to pay its trade creditors and other bank creditors and may have to file for bankruptcy.

(a)What are the legal implications of a General Partnership company as compared to a Limited Liability company and a Joint Stock company? (10 marks)

(b)Explain how a composition agreement benefits the debtor and creditors in an insolvency. (10 marks)

(c)Discuss some of the main changes and developments in the new Bankruptcy Law of Bahrain 2018. (10 marks)

3.Jamal owns a small manufacturing business producing packaging material and he decides to approach his bank for an overdraft facility to be used, if required, during the busy season to purchase his raw materials. He also needs a term loan for purchase of new machinery. The lending agreement with his bank contains several important legal clauses such as conditions precedent, representations and warranties, default clause, early repayment clause, penal interest clause for late payment and others. Jamal wants clarification on some of these clauses. The lending institution also takes security of the premises and machinery for the facilities provided.

(a)Give examples of conditions precedent and representations and warranties to explain their difference. (8 marks)

(b)Discuss the importance to the lender of the default clause, early repayment clause and penal interest clause for late payment. (8 marks)

(c)Explain how an overdraft is different from a term loan. (6 marks)

(d)Why does the lender take security and examine the advantages and disadvantages of taking land as security. (8 marks)

4.The Al Khaja family own successful multi-million dollar manufacturing and trading businesses for the last 30 years in the Middle East, based in Bahrain. Since they are getting older and are now in their 70’s, Mr. and Mrs. Al Khaja want to create a trust fund of some of their wealth for their children and grandchildren. They want to appoint a trustee with the necessary expertise to manage the funds as they think fit for these purposes.

They are also considering setting up an Islamic trust (Waqf) for some charitable objectives and causes such as for education and healthcare of underprivileged children and they want to ensure that the trust funds will be well managed.

(a)How can the trust be created under the Financial Trust Law 2006 and its recent amendment in 2016? Discuss the role of the different parties involved in its creation. (10 marks)

(b)Critically examine the main rights and duties of the trustee and the purpose of appointing a Trust Protector. (10 marks)

(c)What are the benefits of setting up an Islamic Waqf and how does the role of the Mutawalli compare with that of a trustee in a Common law trust. (10 marks)

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