Failure given cold shoulder thanks to government help

The Life: A little-known programme in Dubai can help businesses restructure without losing their license to operate.

A Dubai initiative gives struggling business owners the option to 'freeze' their licences instead of giving them up. Jeff Topping / The National

Dubai's economy may be steadily improving but there are still plenty of businesses that are struggling — and possibly unaware of a plan that could help them restructure without having to shut down for good.

More than 3,200 licences for new businesses were issued by the Dubai Department of Economic Development (DED) in the first quarter, which was up 6 per cent on the last quarter of 2010, and the number of business that renewed their licences topped 21,600.

These are certainly positive signs for the region, although some existing businesses in recent years have also run into tough times and have not been able to afford licence renewal fees, which typically range between Dh18,000 (US$4,900) and Dh20,000 a year, experts say.

The usual penalty fee for not renewing a business that is still operating in Dubai is Dh2,500 a year. And, after five years, a licence is automatically cancelled if it is not renewed.

Rather than give up, however, more than 230 business owners have opted to "freeze" their licences instead.

The option was started by Dubai's DED during the recent downturn and "resulted primarily from the recession", says Samer Qudah, the head of the corporate restructuring department of the legal consultancy Al Tamimi & Company.

"Businesses faced some difficulties and did not renew their licences. The initiative from the licensing authority was to help those businesses to stand on their feet and go back into business without having to worry about fines and the possibility of losing their business."

The programme does come with its own costs - and restrictions. There's a freezing fee of Dh2,000 a year, and companies should keep in mind that if they ask for a three-year freeze only to resume earlier, they will still have to pay the full Dh6,000, says Mr Qudah.

This programme is also available only to companies who have cancelled all work visas and no longer have employees dependent on them.

Also, all government fines must be paid in advance and there cannot be any legal action pending against a firm.

Finally, the DED has said that a company's licence may be reactivated if creditors initiate a court case against them.

Still, by some accounts, the process itself is "very simple", says one Dubai business owner who froze his licence last year and asked not to be identified.

"Conditions change on you unexpectedly, and we've seen that happen here," he says.

"Suddenly you have capital shortage and you're not necessarily going to get as much financing or leverage from the banks. Instead of throwing [the business] out the window you can at least put it on ice for two or three years and see if the conditions change."

The business owner says he hopes to unfreeze one of his businesses next year.

Mr Qudah says there has been talk about launching a similar scheme in Abu Dhabi.

"We have been talking about this for a few months," he says. "Obviously, anything new would require some time."