What to do if an investment disappears

A couple who lost Dh193,000 want to help other victims navigate the world of bounced cheques and debt recovery

Abu Dhabi, United Arab Emirates - April 23, 2019: Aileen Diaz and her husband Ruben Rios lost Dh193,000 through an investment scam and were never able to retrieve money. Tuesday the 23rd of April 2019. Abu Dhabi. Chris Whiteoak / The National
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In early 2016 Aileen Diaz and her husband Ruben Rios were facing a tough financial situation. Just eight months after arriving in the UAE from Venezuela, Mr Rios had lost his job as a general manager at a gym.

The couple then decided to start their own food import company and, following the advice of a PRO, they separately invested their savings in a fruits and vegetables importer that promised them returns of 8 to 10 per cent on profits per month.

But within months of investing three separate amounts totalling Dh193,000, they were told their money had gone.

“It's been hard times for my family, we lost our savings," says Ms Diaz, a 35-year-old systems engineer.

Their case highlights the need to conduct the appropriate due diligence before making an investment, but also the difficulty in recovering debts. As in other countries around the world, debt collection continues to be a challenge for companies operating in the UAE, according to Banks Legal. The UAE legal consulting firm cites a 2018 poll conducted by international credit insurance company Euler Hermes that ranks the Emirates as one of the most difficult countries for collecting debt, just behind Saudi Arabia.

Abu Dhabi, United Arab Emirates - April 23, 2019: Aileen Diaz and her husband Ruben Rios lost Dh193,000 through an investment scam and were never able to retrieve money. Tuesday the 23rd of April 2019. Abu Dhabi. Chris Whiteoak / The National

In such an environment, experts say it is important to know what to look out for and how to respond effectively. That includes educating oneself on the updated rules for bounced cheques, the best ways to recover debt, the differences between civil and criminal cases, the bankruptcy laws — and most importantly, how to avoid the situation in the first place.

In the case of Ms Diaz and Mr Rios, they signed an investment agreement with Dubai-based Fresh Carota Foods, and, through their company Royal Churros, wrote a cheque for Dh84,000 in October 2016. After a few months of making the profits promised, they wrote two more cheques in March 2017 — one for Dh50,000 and another for Dh59,000.

“They gave us three security cheques just to secure our capital, but a few months later, the guy said ‘we lost all your investment money and we cannot pay you back,’” says Ms Diaz, a Dubai resident who works in Abu Dhabi.

The agreement was that, 'if you invest in my company, I will guarantee I will not lose your money'.

Jasim Shamas, one of two business partners at Fresh Carota Foods, tells The National that he was already fined for the dishonoured cheques he wrote and that they do not have the capital to pay them back.

“That was two years ago. At that time, I was new to the market. It was a loss for ourselves also,” Mr Shamas says. “The profits and losses are part of the business.”

Ms Diaz and Mr Rios, who remains unemployed, were never able to recover the Dh193,000 they had invested, even after reporting the bounced cheques to the police and going through a debt collection agency. The offenders were fined Dh10,000 by Dubai Public Prosecution.

While Ms Diaz and Mr Rios, 34, had the option to file a civil case, they feared it would be too expensive and that they would not be successful in getting their money back.

Mr Shamas says his business is struggling with market fluctuations and that Carota Foods makes profits of “not more than Dh20,000 a year”.

But Ms Diaz says they were led to believe their investment would be safe regardless. “The agreement was that, ‘if you invest in my company, I will guarantee I will not lose your money. Maybe you cannot receive any profit if there’s any issue, but your capital is safe’,” she says.

Ehab Fathy, the lawyer with Al Ittihad Debt Collection hired by Ms Diaz and Mr Riyos, confirmed that the accused paid the fine, but says recouping the investment would require a separate civil case.

Adil Akram, office manager of Al Ittihad, says the couple did not want to go ahead with a civil case because of the court costs, which would have been 6 per cent of the amount sought (Dh11,580) in additional to the legal fees. The case can take months or years and, if the accused has no assets to sell, the only recourse is jail time.

“The first part of the case is to win. The second part is to recover the money. This is a long procedure,” says Mr Akram.

DUBAI,  UNITED ARAB EMIRATES , April 23 – 2019 :- Andrew Morris 
Partner at Banks Legal, a UAE legal consulting firm at his office in the JBC 4 at Jumeirah Lakes Towers in Dubai. ( Pawan Singh / The National ) For Business. Story by Nada El Sawy

How can others avoid being caught out by an investment?

Andrew Morris, a partner at Banks Legal, says it is essential to do the due diligence before entering into commercial agreements to mitigate the credit risks involved.

“Particularly if it’s someone who’s borrowing money or you’re investing in their company because they need capital, you would need to consider: is this a business that has a realistic prospect of being able to generate sufficient revenues to repay what I’m lending?” says Mr Morris.

When doing business with small and medium enterprises, “the risk is higher,” as they may not have the same access to financing if the need arises nor are they likely to be as asset heavy as a larger company, he adds.

What are the rules around bounced cheques?

In late 2017, Dubai Courts made a decision to issue fines instead of jail sentences for bounced cheques up to Dh200,000. The fines — which are not payable to the cheque beneficiary — are Dh2,000 for dishonoured cheques up to Dh50,000; Dh5,000 for cheques between Dh50,000 and Dh100,000; and Dh10,000 for cheques between Dh100,000 and Dh200,000.

“For any cheque bounced over Dh200,000 there still attaches a penalty of imprisonment for up to three years for the person signing the cheque, in addition to a fine,” says Nichola Reece-Burton, head of litigation and dispute resolution at James Berry Law in Dubai.

In 2018, the UAE’s Federal Criminal Procedures Law was amended to include a new section regulating the mechanism of ‘penal orders,’ meaning that certain crimes subject to certain conditions will result only in a fine. Each emirate's prosecution office is required to issue a resolution identifying the crimes subject to penal orders.

“It is expected that such resolutions will be issued soon to include dishonoured cheques,” says Omar Khodeir, a senior associate in the litigation department of Al Tamimi law firm in Dubai.

There are exceptions to the treatment of dishonoured cheques, including but not limited to, under circumstances outlined in the UAE’s bankruptcy law and in relation to real estate transactions. It is also worth noting that issuers of bounced cheques who leave the UAE may still face the risk of arrest and possible enforcement of a judgment against their assets in a foreign country, says Mr Khodeir.

Companies who repeatedly bounce cheques are still allowed to operate, but will be blacklisted at the Central Bank of the UAE and will have a poor credit score at the Al Etihad Credit Bureau, says Ms Reece-Burton.

“Banks will also often insist on the company closing the bank account, making trading very difficult — if not impossible,” she adds.

How can I recover debts owed to me?

To recover debt, typically through a law firm or a debt collection agency, a “letter of demand” is issued to the debtor giving a specific time frame (such as seven days) to pay back the debt. If non-payment persists then civil and/or criminal proceedings will need to be considered.

“Momentum is pretty key to the success of a debt recovery procedure,” says Mr Morris. “It’s important that once that demand process starts … there’s follow up and it’s not just soft follow-up, there needs to be escalation.”

The legal fees for non-court recovery may include an upfront fixed fee plus a success fee on the amount recovered.

In the case against Carota Foods, for example, it would have cost Ms Diaz and Mr Rios 20 per cent if successful in recovering the money, meaning Dh38,600 from the Dh193,000. Since Carota Foods did not pay the money after the letter of demand, the next step would have been to file a claim in Dubai Civil Court against the company.

Mr Morris says any decision to file a civil case should be made from the onset of the payment default, based on whether the company is still operating, the chances of recovery and what jurisdiction it would fall under.

“If you have a DIFC jurisdiction provision, then you may be able to bring your claim in the small claims tribunal, which for small debts (up to Dh500,000 or up to Dh1,000,000 if agreed by the parties) is a good way of getting a judgment without spending a lot,” says Mr Morris. It is a longer and much more expensive process in the local courts, he explains.

What protections exist under the UAE's bankruptcy law?

The UAE Bankruptcy Law was issued by Federal Decree in September 2016 and came into effect in December of that year. The law "identifies different ways to avoid bankruptcy cases and the liquidation of debtors' assets" through financial restructuring and the potential to secure new loans under terms set by the law, according to the Ministry of Finance website.

“In theory the new bankruptcy law does give companies that are facing insolvency … the ability to obtain some protection from that. They can restructure their debts and effectively trade out of that situation,” says Mr Morris.

This could mean that the company in debt would be able to repay its creditors without being forced into bankruptcy, Mr Morris adds. But if a company is forced to file for bankruptcy then creditors may recover very little.

Last month saw the first UAE company successfully restructure its debts under the new law for the first time, Wam reported.

The Abu Dhabi Judicial Department — through the Bankruptcy Department of the Abu Dhabi Court of First Instance — allowed the company, which had debt in excess of 18 times its available capital, to restructure its liabilities and resume business under Chapter 4 of Federal Law No. 9 of 2016.

The company is a limited liability company, according to Wam, which was founded in 2008 “to carry out contracting work".

Ms Diaz says she wanted to share their story, so that others are aware of the challenges and protect themselves.

“We lost all our money, so we were not able to renew our trade license. My husband is still unemployed – it’s been three years with no luck,” says Ms Diaz. “This journey will end once we get our money back in one way or another.”