The new UAE bankruptcy law – surprise announcement?

It was announced today that new UAE legislation on bankruptcy had been decreed into law, a first draft of which was only approved by the country’s federal cabinet last month. In a move which may take many of the legal and professional services community by surprise in the speed of its execution, the law will come into force three months after it is published in the official gazette.

This is not to say the news is unwelcome; there is almost universal agreement that new legislation is desperately needed in this area, if only to give some level of protection for small business owners and to open an avenue for an orderly restructuring of debts and other liabilities in a way that could save jobs and keep businesses in the market. Indeed, for some time it has seemed incongruous that the UAE as a champion of innovation and SMEs faces a common problem whereby those with business debts often opt to flee the country rather than leave themselves at the mercy of the lenders.

That said, senior lawyers have over the past weeks voiced doubts about the practicality of some of the ideas presented, some of which are modelled on European bankruptcy legislation. In particular a very ambitious timeline of 45 days had been suggested between when a related party (debtor, creditor or bank) can file a complaint under the law and when it must be heard in court. Not only could this open up the legislation to the risk of abuse, perhaps by companies wanting to exert pressure on creditors, but it would seem to impose a potentially huge burden on the country’s court system which many see as already overstretched.

Diligencia’s angle on this is that we are often asked to conduct litigation checks on individuals and companies, including any history of bankruptcies – which is an easy question to answer when one considers there has not been a single officially recognised case of bankruptcy declared in the UAE courts to date. Instead clients can be left guessing as to whether apparently minor issues such as instances of dishonoured cheques are indicative of broader problems.

Our view is simply this: any new developments in UAE law which allows the business community clearer information on the track record of companies and individuals, easier access to information on the risk issues that matter, and would support better and more efficient decision making, is something we would wholeheartedly support.

Reportedly, instances of bounced cheques will not be de-criminalised as part of the new bankruptcy law but legal proceedings would be suspended.