UAE bankruptcy law will not offer protection for defaults on personal debt
The UAE’s new bankruptcy law will not offer protection from jail for individuals unable to repay their debts, according to a top government official.
The final draft of the law, approved by the federal cabinet on Sunday, will offer protection for employees, shareholders and directors of companies undergoing court-led insolvencies, but private insolvent individuals will not be able to use it to avoid criminal prosecution, according to a person familiar with the draft legislation.
The legislation will apply to all onshore and free-zone companies throughout the UAE, with the exception of companies in the DIFC and ADGM jurisdictions, each of which already have their own separate insolvency regulations in place.
More details about the new law are expected to be revealed on Tuesday by the Ministry of Finance.
After receiving cabinet approval, draft federal laws are typically referred to the Federal National Council (FNC) for feedback and comment, and are then passed to the President for his signature, with the law coming into effect following its publication in the country’s official legal gazette.
The FNC is currently on recess and is due to reconvene in mid-October.
The approval of the draft of the new federal law, reported to contain about 130 articles, has been widely welcomed by the business and legal community as a significant milestone for the UAE’s economic development.
It is a sign of the economy maturing, according to the Noor Bank chief executive Hussain Al Qemzi.
“The law is expected to provide a greater flexibility in dealing with financially distressed companies. It will also provide a degree of certainty and security for business owners and investors, who can rely to some extent on protection for their businesses during a restructuring, to enable them to effectively negotiate with their creditors,” he said.
The lack of insolvency regulations during Dubai’s credit crisis in 2009-10 led to a number of businessmen being arrested for unpaid debts, with many fleeing the country to avoid arrest.
A number of small business owners in the UAE have fled the country leaving unpaid loans over the past two years.
Mazen Boustany, a partner with Baker & McKenzie Habib Al Mulla said: “The UAE in the past has had to create special tribunals to deal with the insolvencies of large companies like Dubai World, Amlak and Tamweel, due to the deficiencies of the current law.
“Hopefully with the passage of the new law this won’t have to happen any more.”
The UAE ranked 31st in the World Bank’s influential Doing Business 2016 index, published in October, but ranks only 91st out of 189 countries for Resolving Insolvency, putting it below countries including Mongolia, Nepal and Costa Rica.
“The law as it is in place right now is very creditor-friendly, but doesn’t offer effective means of helping debtors work through their financial difficulties,” said James Farn, head of banking and finance at Hadef & Partners in Abu Dhabi.
“It’s a question of having an insolvency law that’s fit for purpose for a modern economy like the UAE, one that meets the expectations of creditors but also offers appropriate recovery assistance for debtors.”
Follow The National’s Business section on Twitter
Published: September 5, 2016 04:00 AM