Changes to the way failed companies are wound up are imminent now that the Cabinet has approved the long-awaited bankruptcy law. On Sunday, Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, said that the approved law “aims to promote both investment and ease of doing business”. It will now face scrutiny by the Federal National Council.
The National has long argued for such a law and looks forward to its implementation at the earliest possible opportunity. It will instil confidence in those who want to do business in the UAE – Emiratis and foreigners alike.
However, the law covers only the owners of businesses, not individuals who overextend themselves with personal debt or bounce cheques. As columnist Sabah Al Binali notes in the Business section, it is a cause for regret that many banks are willing to allow their defaulting customers to go to jail rather than find ways for them to work their way out of debt. Economic growth depends on people being able to risk their capital without having to risk their freedom, he observes.
Changing the way we deal with debt is only part of the solution if we want to encourage small and medium-sized businesses to flourish. There is a great deal of red tape that can be eliminated and many outdated regulations that should be scrapped. For example, current rules stipulate that businesses must occupy physical office space and that each business must have its own premises. This is increasingly impractical in an age when some businesses exist entirely in cyberspace, the lines between related businesses are often blurred, and small enterprises need to be flexible in the type of work they do simply to survive. Requiring them to have an office for each function is unnecessary and expensive.
The bankruptcy law will make it easier to close a business – a necessary step because progress always involves a percentage of failure. But if the UAE is truly to be the go-to place to begin a business, then that process should be simple and seamless. Other countries have “one-stop shops” where licences and approvals are obtained, and immigration, labour and other formalities completed.
The UAE already has much to offer start-ups in terms of infrastructure, location, connectivity and access to capital. By identifying and correcting the pitfalls in the system, we can attract the type of entrepreneurship the country needs to continue to prosper.
