New safeguards in Dubai for small-business operators

Legislation is under consideration to offer stronger protection to small to medium-sized businesses.

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As Dubai introduces transparency and creditor protection laws for Dubai World, new legislation is under consideration to offer stronger protection to small to medium-sized businesses. Abdul Baset al Janahi, the chief executive of the Mohammed bin Rashid Establishment for Small and Medium Size Enterprise Development, an arm of the Dubai Government, said he was lobbying the Ministry of Economy (MoE) and the Department of Economic Development (DED) to have a clear law to ensure that the owners of a start-up business faced with the prospect of bankruptcy had some recourse.

"What the MoE told us is that yes, there is a bankruptcy law - but are they enforced and are they in place? The question is why not? We never tapped into this, but now we are and pushing and hopefully we will succeed," Mr al Janahi said during a panel discussion on entrepreneurship organised by the Indus Entrepreneurs' Middle Eastern chapter last week. "It is something not exactly under my mandate, but because I want to protect entrepreneurs and I want to help them, I'm pushing the DED and the MoE to do something about it."

Mr al Janahi's organisation has helped more than 800 Emiratis launch their own businesses and has recently announced it will begin expanding the program to allow expatriates to apply for incubation assistance from the first quarter of next year. "I'm not saying that we can do it overnight because you're talking about federal level. But we are a big lobbyist because of our reputation over the past seven years," he said. "We want more feedback from entrepreneurs so we can keep lobbying with the government to pass such articles and policies to help them."

Hayden Smith, a lawyer in Abu Dhabi with Trowers and Hamlins, said he would welcome the review of bankruptcy laws in the UAE. "Creating a regime whereby companies can come to private composition agreements with their creditors might be a viable alternative. After all, the parties themselves will likely be more efficient at agreeing the debt and repayment thereof than a court-appointed trustee," Mr Smith said.

Small and medium-sized enterprises (SMEs) account for about 85 per cent of all employment in the UAE and contribute to 46 per cent of its GDP, recent government estimates have shown. Due to the economic crisis, there have been a number of high-profile cases of local entrepreneurs fleeing the country to avoid ending up in prison because of bad cheques. The most notable case was that of Simon Ford, the British owner of Blue Banana, who left the UAE in June after the company's debt had "grown exponentially since the last quarter of 2008" and was faced with what he said were personal threats against his family.

"Penalising a person because they tried to do business is very bad. It stops people from doing business here," Mr al Janahi said. Steven Brown, the owner of Vesta Group, a holding company in Dubai that offers IT, consulting and retail services, said he faced the threat of debtors prison in 2005 when his post-dated cheque for his office's rent in Dubai Media City was about to be cashed without enough funds in his bank account.

To solve his problem, Mr Brown left his office in the free zone, where he was paying about Dh485,000 (US$132,000) per year and set up his business within Dubai, where his rent decreased by 90 per cent, he said. "Unless the rules change, unless the government looks at all business practices, you're not going to get entrepreneurs coming to this country," Mr Brown said. "You're not going to get the people you need that will hold up an infrastructure. It's the people that have thousands of dirhams shoved into their business that keep the economy running day in and day out."