The new Federal insolvency law is expected to receive final approvals “within weeks”, coming into effect from early 2017, according to Obaid Humaid Al Tayer, the Minister of State for Financial Affairs.
The new law, approved by the Cabinet on Sunday, creates mechanisms for insolvent companies to avoid bankruptcy and liquidation, modelled on international best practices, as well as the creation of a Committee for Financial Restructuring consisting of both government and private sector insolvency specialists.
Speaking at the Ministry of Finance in Abu Dhabi on Tuesday morning, Mr Al Tayer said while laws approved by the Cabinet were typically referred to the Federal National Council (FNC) for consultation, the Constitution allowed for the new insolvency law to be passed directly to Sheikh Khalifa, the President for signature when the FNC is in recess, as is currently the case.
After signature by Sheikh Khalifa, the law will be published in the country’s official gazette, and will come into effect three months later. Mr Al Tayer said that it was up to the President’s office whether the law would be referred to the FNC or not.
“Mature economies have proven the need to implement a bankruptcy law in each country that wishes to strengthen its economic status,” said Mr Al Tayer.
“The bankruptcy law is considered as one of the most important pillars of the local economy, as it provides protection for all parties, in addition to its pivotal role in attracting capital, in a safe and attractive investment environment and providing a protection legislation and legal acts.”
The law will establish the Committee of Financial Restructuring as the regulatory body that will oversee the procedures of financial restructuring outside the scope of the courts, appoint experts in the field of financial restructuring, and establish and maintain database of individuals who have had bankruptcy rulings against them.
The committee is expected to include representation from the Ministry of Finance, the new law’s main architect, as well as insolvency specialists from the private sector, said Mr Al Tayer.
The new law sets out four pathways for insolvent companies to avoid bankruptcy, drawing on insolvency regimes in countries including Germany, France, the Netherlands and Japan.
Insolvent companies will be able to attempt to avoid liquidation via financial reorganisation, a court-supervised pre-emptive settlement for licensed entities, a court-supervised financial restructuring process, and the raising of new funds in specific circumstances.
The new law applies to companies established under the commercial companies law, companies that are partly or fully owned by the Federal or the local government, and companies and institutions established in free zones that are not governed by existing bankruptcy provisions, such as the DIFC and ADGM.
The law also spells out punishments for practices such as the deliberate concealing of financial losses and embezzlement by employees leading to a company’s insolvency or bankruptcy.
jeverington@thenational.ae
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