Woes could form legal guidebook
Orion Holding Overseas is only the third company to be ordered into liquidation by the Dubai International Financial Centre's (DIFC) courts. As one of its earliest insolvency cases, the Orion saga could set precedents and provide a guide for the judicial system as it handles an expected flood of liquidations this year. Until last year, Forsyth Partners' insolvency in 2007 was the only major case the courts had adjudicated.
Lawyers and analysts say that cases such as Orion's have shown the efficiency with which the DIFC's system, which is based on English common law, can deal with liquidations. The system in the DIFC is working, they say, pointing out that most liquidations do not even reach the courts, but are successfully negotiated and processed by professional liquidators. But the ease with which troubled companies can be dissolved under DIFC regulations also points to a stark contrast with the local court system, they say.
Insolvency laws outside of the UAE's economic free zones are largely untested. Court-assisted liquidations in the Gulf, meanwhile, take more than three years to process on average, a World Bank report says. The time, cost and legal uncertainty involved in pursuing a case in local courts has meant many firms do not see them as viable forums for resolving disputes, settling debts and winding up. Hawkamah, a corporate governance non-profit group based in the DIFC, has long been advocating for better insolvency laws outside the free zones.
The idea, Hawkamah's leaders say, is that economic growth and diversification goals can be reached only if companies can dissolve with ease. A smooth transition from failure to a new start is a crucial element in an economy's health, they say. As cases such as Orion's go through the DIFC, leaders across the region will have the chance to see a system that could provide a model for local courts. A special tribunal has been set up at the DIFC that may handle creditors' claims against Dubai World, a Government-owned conglomerate that is seeking to restructure US$22 billion (Dh80.8bn) of debt.
Published: January 23, 2010 04:00 AM