The real victims of bankruptcy when companies go under in the UAE

A future uncertain: former workers of the Hastie Group at their labour camp in Al Quoz Industrial Area in Dubai.

Authorities are working on laws that may provide more protection to companies about to go bankrupt, and hopefully safeguard the payment and conditions of workers and other creditors - but that may not be much comfort to the men of Hastie Group.

Six pairs of boots are stacked neatly outside each of the dormitory rooms. The names of their owners are printed on the doors, along with their trades and nationalities, in a neat, A4-sized human inventory.

On any normal working day the boots would not be there. But these belong to about 250 Hastie Group workers - many of whom have not been paid since their Australian employer went bust on May 28.

Their situation highlights the vulnerability of employees and creditors of international companies that collapse in the UAE, and why the Government wants to change the country's bankruptcy code.

With no work and little money to help them find it, most of the men spend their days inside their rooms in their Al Quoz labour accommodation in Dubai, with few furnishings beyond six bunk beds and a few buckets.

"This is our worst nightmare," says one former Dh2,400-a-month supervisor. "It was a good company. We never thought this would happen."

He returned from annual leave in India last month to find he no longer had a job and was unlikely to receive any of the five years worth of gratuity payments he was owed.

His room quickly fills with co-workers from India and Bangladesh, living along the same corridor and with similar stories to tell. They seem resigned to their situation. Either they find a job by the end of the month or they go home.

Many have been offered jobs by Al Futtaim Carillion, the construction group that was working with Hastie on a tower project in the Downtown Burj Khalifa development.

But as yet it is unclear how many of the men will be transferred, under what terms and conditions or whether they will receive any benefits they are owed.

An Al Futtaim Carillion labour manager declined to comment in detail, saying the situation is sensitive.

The collapse of Hastie in the Emirates has highlighted how bankruptcy laws and the criminalisation of signing a bad cheque can work against creditors. Once cheques begin to bounce, the people who have signed them face the threat of imprisonment - a clear incentive to leave rather than stay and try to rescue a struggling business.

This is reflected in the Hastie saga. But it is only part of the story. Funds that could have helped to pay the men in Al Quoz labour camp and other creditors were transferred to the parent company in Australia in the days leading to its May 28 collapse.

While UAE bankruptcy legislation does include a clawback mechanism to recover funds that have left a company ahead of an insolvency, local lawyers could not give an example of this ever happening.

"There is a right of clawback if this transaction was seen to be to the detriment of the company and therefore to the creditors of the company," says Abdul Aziz Al Yaqout, regional managing partner of international law firm DLA Piper.

"The insolvency administrator could make a claim in Australia."

But that could be a long and expensive process that may or may not result in funds eventually being recovered to pay out-of-pocket creditors in the Emirates.

The UAE is developing a new federal bankruptcy law that could be available in draft form as early as the end of this year. It is expected to put greater emphasis on rescuing companies and preserving assets.

"The new insolvency law will go a long way in rectifying a lot of these issues, predominantly giving companies going through difficult times a legal and regulatory safeguard," says Hisham Farouk, the UAE-based managing partner at Grant Thornton, one of the world's largest insolvency specialists.

"But it does not yet resolve the issue with bad cheques, which is the principal reason you see a lot of flight with company executives."

It takes more than five years to resolve an average insolvency in the UAE according to the 2012 World Bank Doing Business report. That compares with a year in the UK and 18 months in the US.

Creditors of bankrupt companies also stand to get less in the Emirates, with an average recovery rate of only 11 cents on the dollar. That compares with a recovery rate of 88.6 cents on the dollar in the UK and 81.5 cents in the US. The country's overall insolvency regime ranks 151 out of 183 countries assessed.

Australia, where Hastie was based, scores in the world's top 15 countries for resolving insolvencies. That appears to be reflected in the speed with which some of the company's assets have been sold as going concerns.

Under Australian law, employees also have access to a government scheme that offers financial assistance when there are insufficient funds from a liquidation to cover entitlements.

PPB, the administrator of the Hastie Group, has so far sold five of its businesses in Australia. But that will be of little comfort to the victims of the Hastie collapse in the Emirates, who say the UAE operation has been sacrificed at the expense of the Australian parent.

They are angry that cash which could have helped to pay the debts of the company in the Emirates was sent back to the Australian business immediately before its collapse, and that it will now benefit creditors in Australia instead of the UAE.

PPB did not say whether any funds would be made available to creditors in the Emirates.

"The UAE business was not in a good state and there were insufficient funds to continue trading," says Scott Hinton, a PPB spokesman.

"It appears that the UAE businesses were receiving substantial financial support from the parent company before the administration."

The administrator says the funds transferred to Australia were sent before it had been appointed to run the affairs of the contractor.

PPB has also received assurances from the local Hastie sponsor that "they have responsibility for dealing with local employees, including compensation and their end-of-service benefits", it said.

About 600 of the 900 UAE-based employees are continuing to work with main contractors on projects in the country.

"Of the balance, we understand that many employees have been offered work but have not accepted," says Mr Hinton.

The thin margins of the building industry worldwide mean that a major insolvency is often followed by several more as bad debts cascade down the supply chain, which often functions around 30 days' credit.

A former senior manager at the company says there is a danger of this happening with Hastie, as creditors ranging from building-material suppliers to travel agents risk being sucked down in a spiral of insolvency.

Criminalising bounced cheques developed in much of the Middle East as a simple way of ensuring creditors' rights without complex commercial litigation or a sophisticated civil legal system.

It has become popular in countries where it is difficult to enforce a court's decision, says Mr Al Yaqout.

"It is a big Sword of Damocles," he says. "There's no better way of getting your money.

"From a creditor's perspective it is very comforting."

But the system offers no such comfort to executives who need to sign the cheques and who may find themselves ultimately accountable when a company fails.

Neither will it help the unemployed Hastie workers in Al Quoz who still do not know when or if they will be putting their boots on again for their next day's work.