Legal Reform in Jordan

The EBRD’s assessment of commercial laws and practice in Jordan, as well country visits conducted by team members, have revealed a need for developing a number of initiatives, in particular:

  • The adoption of a modern collateral law which will provide flexible rules for the taking of security over movable property

  • The updating of the insolvency regime, providing for an efficient exit of non-performing businesses

  • The strengthening of corporate governance framework for all types of companies (limited liability companies, joint stock companies, listed companies, etc).

  • The development of a credit bureau which will compile and distribute credit information reporting (the current Central Bank registry is too limited).

Encouragingly, there appears to be ongoing work in all these areas, supported by international technical assistance. The EBRD Legal Transition Team aims to establish contact with all stakeholders to better understand how these reforms are shaping up and whether the Bank’s technical assistance could be additional and beneficial.

Jordan: Access to Finance

The Jordanian legal framework allows for the creation of a wide range of security interests over a broad range of assets. The system recognises both possessory and non-possessory pledges over movable assets and rights as well as registered mortgage over real-estate. A new law was enacted in Jordan which became effective in February 2012 for Placing Moveable Property as Debt Security. However, the law is rather recent and there is still no relevant court or market practice to confirm its applicability in Jordanian business practice.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Jordan.
 
 
 

Jordan: Contract Enforcement and Judicial Capacity

The assessment of the judicial system in Jordan revealed low efficiency and lack of adequate resources in addition to lengthy procedures. Predictability is a matter of significant concern, although perceptions of and impartiality have improved in recent times. Improving judicial education and addressing lack of specialisation among judges ranks as one of the top priorities of future reforms and judicial capacity building efforts.

 

Jordan: Corporate Governance

The EBRD’s 2011 assessment revealed that Jordanian corporate governance framework is in “low compliance” with international standards.

The law does not set an efficient interaction between the company and its stakeholders who stand outside the company’s decision making process. Equally, equitable treatment of shareholders needs to be promoted and basic shareholder rights enhanced. Shareholders attempting legal actions encounter tremendous difficulties to obtain redress for the violation of their rights.

The legal framework governing corporate governance in Jordan should be revised to achieve greater compliance in law and practice with the OECD Principles.

 

Jordan: Debt Restructuring and Bankruptcy

There is no single, unified insolvency law in Jordan. Instead insolvency-related legislation is found in two sources: the Commercial Code and the Companies Code. The insolvency law framework is liquidation-focused and offers limited opportunities for business reorganisation within an insolvency context. In particular there is no possibility of including secured creditors in a compromise or settlement procedure without their consent. Secured creditors rank behind taxes and amounts owed to employees in any liquidation of legal entities.

 

Jordan: Electronic Communications

Jordan has a relatively stable investment environment, with liberalised market access, and gradually improving competitive safeguards. However, there are very high charges to be paid to the regulator and the state through a complex scheme of licensing, revenue sharing and taxation. In practice, the regulator does not have the full independence expected by best practice. Nevertheless, the market remains the most liberalised in the region, and Jordan has been found to be in the lowest risk category.

 
 

Jordan: Energy Regulation

Jordan has largely unbundled its electricity to separate transmission from generation, distribution and supply; it has created a relatively competent regulator. However, some gaps remain with respect to compliance with the acquis communautaire such as limited third party access, non-compensatory tariffs, ministry interference in retail tariff-setting, and lack of judicial review on the regulator's decisions.

The natural gas market does not comply in any respect with the acquis because gas is used exclusively for generation, and there is so little domestic production.

Jordan: PPPs/Concessions

The results of the EBRD Assessment of PPP law lead to conclude that the law on the books in Jordan is in “medium compliance” with internationally recognised standards, mainly because of the lack of any specific and modern PPP legislation that could consistently govern major PPP projects.

Likewise, in evaluating the effectiveness of the law in practice, Jordan was found to be in “medium compliance” with international standards. This is mainly attributable to a lack of strong institutional framework and clear criteria for the allocation of PPP projects by governmental bodies and for the selection of the applicable legislation.

 
 

Jordan: Public Procurement

Jordan scored 63% (medium compliance) on the quality of its public procurement legal framework. This places Jordan in the lowest quartile compared to other countries in the EBRD region. This low score is because the framework does not allow for an accurate estimation of the procurement process. It allows for domestic preferences, and does not robustly monitor the post-tendering phase. Further, the law incorporates only minimal standards with regard to monitoring and contract management.