Bankruptcy Law: A lifeline to Businesses in Distress. Dated September 6th 2016

Published: 2019-11-07 09:00:00
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The UAE Cabinet has adopted the federal bankruptcy law which is expected to improve the countrys business environment by making it more attractive to investors. We approved the final draft of the federal law on bankruptcy, posted the finance minister in a tweet. According to the minister, the law seeks to enhance the investment attractiveness of the economy of UAE as well as enhance the performance of companies located in the country. The cabinet further ratified the use of digital technology to be employed in criminal procedures as well as establishing a committee to monitor the activities of insurance firms in the country.

The law which has gone through a series of deliberations and studies seeks to give a lifeline to firms facing financial distress by giving them an option to restructure their debt rather than fleeing from the country to avoid arrests and prosecution. According to the UAE minister of economy, the law further seeks to help small and medium business owners to overcome challenges in difficult economic times and shooting ad debts. Major players in the financial sector including the International Monetary Fund and the Dubai SME have been campaigning for this law to help businesses in distress through the decriminalization of bounced cheques and easing the process of corporate bankruptcies. According to legal experts, the law will be felt as business operations will be eased in the country. This will be achieved through creating adaptability for the economy to changes and providing a supportive framework for businesses to achieve optimum performance and advancing economic growth.

To show support for the new law, banks in the country resolved to suspend all legal actions against all SMEs that were facing financial challenges. UBF, a professional association representing 49 banks, adopted a mechanism that would act as a mini insolvency law that would stop the rise of default cases. According to Mr. Al Ghurair, the chairman of the UBF, this initiative by banks would apply only to those banks that had borrowed at least 50 million dirhams from several banks and were showing signs of financial distress and inability to service their obligations. The law was meant to help businesses by giving them time and some breathing space as long as they were genuine. The insolvency law comes at a point in the economy when there are increased incidences of bank defaults and expatriates fleeing the country as a result of the absence of a legal framework for debt restructuring and bankruptcy. This comes at a time when commercial banks have experienced increased cases of default even when commodity prices in the economy have dipped drastically.

Some years back, banks in the UAE estimated that bad loans amounted to between 5 to 6 billion dirhams. According to KPMG, a consultancy firm, the lack of bankruptcy law in the country was one of the major reasons why business owners facing financial distress would consider fleeing the country rather than sitting with their creditors to discuss on the way forward of settling their obligations.

The bankruptcy law comes at a time in the economy of the UAE when banks are reporting increased cases of default by businesses. The ratification of this law provides a framework where businesses facing financial distress can be helped through the provision of space and time where businesses facing financial distress can talk with their creditors on the way forward to paying their obligations. This will improve business operations in the country and boost economic growth.

References

John, I. (2016). Bankruptcy law: A lifeline to UAE businesses in distress - Khaleej Times. Khaleejtimes.com. Retrieved 25 September 2016, from http://khaleejtimes.com/business/local/bankruptcy-law-a-lifeline-to-uae-businesses-in-distress

sheldon

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