UAE Bankruptcy Law and Its Effect on Investment

October 24, 2017by admin0

UAE ranks among the world’s leading business destinations today with lucrative foreign ownership and trading laws, rich with world-class infrastructure, and a relatively tax-free economy that has access to human capital from around world.

Each time the world’s economic conditions change, UAE manages to remain relatively stable despite global fluctuations. One of the major anchors that keep UAE’s economic landscape stable are the periodic interventions by the govt. to enhance the credit dynamics of the economy. Last year, a bankruptcy law was introduced in December and scheduled for full effect by the start of 2017. The law was specifically introduced to safeguard the interests of foreign companies planning to invest and already existing in UAE. With the help of this new bankruptcy law, SMEs were welcomed to start their ventures in the country without potential fear of losing their investment or encountering any legal hurdles.

Prime Minister and Ruler of Dubai, Sheikh Mohammed bin Rashid said on his website that the law is designed for indebt companies and includes flexible strategies for businesses that need a bailout plan when facing financial complications. The draft law aims to regulate accumulated debts, eases restructuring of companies as well as support troubled businesses,” he said.

UAE Bankruptcy Law
UAE’s new landmark bankruptcy law was issued by the Federal Decree No 9 of 2016 and fully enforced on December 29, 2016. It bestowed businesses with yet another reason to bring capital into the region – this time without fear of facing legal repercussions if the venture financially fails. Built and designed on modern legislative principles, the law aims to reduce the infamous risks involved with capital when doing business in a foreign country, while allowing foreign SMEs to enjoy protection from state-endorsed polices.

As the law was put into effect from the starting of this year, private entrepreneurs have reaped its countless benefits and almost immediately returned the favor in the form of economic grown and job creation in the region.

Law Specifics
As a business enabler, an introduction to bankruptcy law gives a leg up to those companies that fail to pay their debts by incentivizing them and preventing jail time. The regulatory body of UAE, Committee of Financial Restructuring has stipulated several principles to ease up expat ventures that are struggling with financial problems by decriminalizing debt and enforcing economic protection by the govt.

Finding Insolvency
By creating a balance sheet, the laws make it easy for the govt. to evaluate if the assets of the business can sufficiently cover its liabilities.

Regulatory Body
A team of financial experts (CFR) employed by the govt. of UAE will supervise and administer the insolvency cases for financial restructuring.

Ineligibility
Directors of a company can be disqualified for up to 5 years from any administrative roles in UAE. Such personnel can also be fined If found guilty of criminal offense.

Filing for Bankruptcy
The bankruptcy law changes introduced in 2016 are composed of two distinct restructuring options for debtors.

  1. Preventive Composition Scheme

This option gives debtors to repackage their debt proceedings in the insolvency court given that the debts have accrued for a period fewer than 30 days.

  1. Financial Restructuring Scheme

By walking this path, the debtor will be liable to a recovery of more than AED 100,000 by one or more creditors during the proceedings given the period has exceeded 30 days.

Protective Composition
Businesses can be rescued from creditors if they are not yet insolvent, but starting to face financial distress. It must be done within 3 years of court approval.

Insolvency and liquidation
This is an open option if protective composition or restructuring scheme does not affect. The law facilitates time limits and the option of lodging complaints through a trustee.

Exceptions

  • While the law covers majority state-owned and private business types based in various jurisdictions across UAE, some special Free Zones will be exempted from its accord.
  • As a buyout incentive, companies that are qualified for benefit from this law will also become eligible to apply for fresh loans under specific terms.
  • Another exception is those companies that are already facing criminal cases as a result of unpaid debts. These companies will face a prison sentence if found guilty.

Benefits

  • The new Insolvency law facilitates better predictability and enforces a legal framework to either restructure or liquidate financially distressed businesses
  • The new law gives a major boost to SMEs who want to continue with their business with feasible restructuring plans.
  • Eventually, the success of the law will depend on the courts in UAE and the expertise of UAE based bankruptcy specialists when it comes to the application of the law to real time cases.

IBG View of the New Law
As a leading business solutions advisory and company formation specialist, IBG Consulting will help you explore the clauses of this law so you may avail every incentive if offers to protect your investment and remain safe from criminalizing laws. We always prefer our client’s interests, and that is why our team of passionate and professional business setup consultants make sure the assets and the future of your company remain secure in UAE. Learn more about UAE’s Bankruptcy law by contacting our consultants.

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