New bankruptcy law to boost FDI

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The new UAE bankruptcy law
The new UAE bankruptcy law, modeled on French and German laws, is likely to be passed by next year with the hope that it will boost foreign direct investment and revive business confidence in the region. Image- EJP Photo

A new bankruptcy law, likely to be passed in the UAE by next year, is expected to boost foreign direct investment and revive business confidence in the region.

The law is modeled on French and German laws, and is seen important in helping cash-strapped companies become more secure and revive their fortunes. The law has been under consideration since 2009 and the government is now studying how to best implement the draft legislation. The need for new law was felt as many businesses in the UAE shut down in the aftermath of global financial crisis. The current business laws largely remain untested as they carry several criminal implications and sanctions for the defaulting business.

According to Younis Al Khouri, the undersecretary of the Ministry of Finance, “it will be a positive as it will make it a more debtor-friendly regime, help to attract foreign direct investment [FDI] and make companies a bit more secure in their position”.

Historically, owners of bankrupt businesses have chosen to flee the emirate rather than facing a long legal battle to declare themselves as bankrupt. The new law is aimed at decriminalizing bankruptcy and simplifying the process to help struggling businesses. However, the law will not be applicable to government entities or companies based within the Dubai International Financial Centre.

The new law would allow such businesses, who are not technically insolvent, to apply for support under a new system called the financial recovery procedure. The confidential process would be overseen by a financial restructuring commission and would offer help to the debtors and creditors to reach an amicable outcome.

The new procedure to apply for bankruptcy would also give equal rights to debtors and creditor. For creditors, it would also increase the chances of recovering the owed amount. A World Bank survey last year places the UAE in 101st place in terms of ease of recovering debt in insolvency. The emirate’s recovery rate was 29.4 cents on the US dollar.







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