The head of legal services provider DLA Piper in the Middle East has called on Gulf countries to reform their bankruptcy laws which he says are holding them back.
Speaking to Arabian Business, Abdul Aziz Abdullah Al Yaqout said: “The perception in the Middle East with regards to bankruptcy is that something like that just doesn’t happen. It is something negative.
“The Arab mentality is you do not lose out in business, and bankruptcy is always connected to management failure. It is not understood as a tool to keep the value that is left in the interests of the creditors and also possibly in the interests of the shareholders, if you can save the company.”
He added that there are countries in the Middle East where a legal bankruptcy has never occurred, and others with no laws at all for dealing with the issue.
“The Middle East has a very big deficit when it comes to the issue of tackling restructuring and bankruptcy. A number of jurisdictions do not even have bankruptcy provisions or laws, for example Oman,” he said.
“And the few laws that exist in many of the countries are not sufficient. In Kuwait, as far as I know, there has never been a bankruptcy applied, ever. That means the whole system has not even been geared up to apply this law, so you don’t have the judges to apply these rules… I think it is holding the region back.”
He added that while the UAE bankruptcy laws were currently “vague and deficient”, he believed they were in the process of being updated.
“The Middle East is a developing region, it has always been focused on building and not weeding out what is wrong. I mean the reason behind a bankruptcy law or an insolvency regime is to ensure the health of an economy,” he said.
“And ensuring a company which is not viable anymore, for whatever reason – be it the business model doesn’t work, be it the financial climate is not good – that this company is wound down in a proper fashion,” he added.
He said the suffering caused by the financial crisis in the region had forced policy makers to address bankruptcy laws with an urgency they might not have previously.
“I think the crisis we have passed through was needed to bring about a change in mentality and thinking about what insolvency means and how you can use insolvency to protect creditors, to ensure transparency, to ensure equal rights of creditors and also to help protect value,” he said.
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