A draft of the UAE’s first ever bankruptcy law is likely to be completed by the end of the year, a senior Dubai government official confirmed on Wednesday.
“We are more than 70 percent of the draft completed… We should come with this draft by the end of this year,” HE Sami Al Qamzi, director general of the department of economic development, told reporters on the sidelines of the Dubai Economic Outlook 2012 presentation on Wednesday.
UAE legal firms Hadef and Partners and Clifford Chance were involved in drafting the new legislation, which is based on existing French and German insolvency laws. However, Farn pointed out that some companies will be exempt from the new law.
“Although the new law applies more widely, it will not apply to government entities or entities incorporated and licenced to operate in a financial free zone such as the DIFC,” James Farn, partner and head of banking and finance at legal firm Hadef and Partners, told Arabian Business.
Upon reviewing the existing laws, Farn said the team found them to “relatively limited” as only applied to those classed as traders
“The existing law related to only the activities of a trader but the new law extends to those who are involved in any business activity with a view to trading to for profit, so it is slightly wider than the concept of a trader, which is quite a radical departure.”
The team also highlighted the fact that the existing procedures were very court-driven and this discouraged people from using the procedures. “One of the perceived problems with the existing law is it is court driven and if its court driven that there is argument that it tends to frighten people away,” he added.
“A bankruptcy law will give security to businesses,” said Hamad Buamim, director general of the Dubai Chamber of Commerce and Industry (DCCI).
Buamim said the bankruptcy law, which has been two years in the making, would help attract foreign investment to the UAE and cut the number of expatriates absconding over debt obligations.
“[It will allow] challenged businesses to restructure,” he said. “Three years ago, if I was the owner of a business and in a very bad situation, I packed my bags and left. Because I couldn’t restructure my business. This is a major step going forward.”
One of the obstacles often cited by those who have fled the country is that it is criminal offence to bounce a cheque in the UAE; however Farn said this will not be changed as a result of the new law.
“The existing law is set out in the Commercial Transactions Law, which is part of UAE federal law and all the main provisions relating to bankruptcy law in that legislation will be repealed and replaced by the new law… [However] with regard bounced cheques, the view at the moment is those provisions will remain as there is no provisions at the moment in the new law with regard to bounced cheques, so that particular bit will remain untouched.”
One of the aims of the new law is to try and dissuade debtors from fleeing the country when they run into difficulties and to instead use the procedures to try and restructure their businesses.
“Going forward it will hopefully instill more confidence in the wider business community. Insolvency is still perceived within the UAE as a bad thing and avoided at all thing and goes back the concept of loss of face. The new law tries to move away from that stigma and encourage parties to sort out their financial problems in a more accessible way,” Farn said.
The law is also expected to map out ways for indebted companies to access finance, in a bid to address a clampdown in lending in the UAE in the wake of the financial crisis.
Dubai established a $20bn bailout fund to help state-owned firms unable to raise cash from banks during the credit crisis. The Gulf emirate said in May the fund would also offer aid to non-government entities as the emirate continued to battle a debt crisis.
Follow us on
