The UAE’s new and long awaited insolvency law has moved a step closer to reality, with the referral of a revised draft of the legislation to the Ministry of Justice for its approval.
A person with knowledge of the matter said the Ministry of Finance had completed the draft and recently submitted it to the legislative council of its sister ministry.
This follows more than 12 months of discussions on the individual provisions of the legislation with representatives of the local governments of all seven emirates.
Should the draft legislation be approved, it will have to receive approvals from the council of ministers, the Federal National Council, and finally the president’s office.
It is unclear when the new law will be enacted.
The Ministry of Justice reviewed an earlier draft of the law in the first half of last year, but sent it back to the Ministry of Finance in the second half of that year.
The Ministry of Finance subsequently established a committee in October 2012 to rework certain provisions of the draft law in collaboration with government representatives from the seven emirates.
The implementation of modern bankruptcy laws is seen as a key priority for the continued development of the UAE’s economy.
The lack of a functional insolvency regime is seen as harmful for the country’s international economic reputation.
Although the UAE ranks 23rd in the World Bank’s Doing Business report for 2014, it only ranks 101st in terms of resolving insolvency, the fifth lowest score in the GCC.
The UAE introduced insolvency laws in 1993, but they have barely been used since because of uncertainties over the application of the law in highly complex insolvency situations.
The existing laws were seen as inadequate in handling the debt problems of Dubai World, when it admitted in November 2009 that it was unable to meet a payment on US$24 billion of debt.
The scenario prompted the Dubai Government to establish the Dubai World Tribunal in the Dubai International Financial Centre (DIFC) to handle creditor claims.
Such a law is not available to companies outside the Dubai World family.
A new federal law containing features common in other international jurisdictions, such as a moratorium on creditor claims would be particularly welcome, said Lynette Brown, law firm Al Tamimi and Company’s head of banking and finance in Dubai.
“Lack of certainty over a process of insolvency creates discomfort in people’s minds, so anything that provides a bit more clarity and creates more certainty is a good thing,” she said.
“If people see that there’s a clear insolvency path in place that is similar to what is in other countries, it would be of great benefit to the market.”
The efficacy of a modern bankruptcy regime was displayed last year, when Drydocks World became the first company in the UAE to use a legal avenue to approve a restructuring plan via the Dubai World Tribunal.
The Dubai World subsidiary filed a commercial voluntary arrangement with the tribunal in April last year to secure the tribunal’s approval for its restructuring programme in the face of a challenge from a minority of dissenting creditors.
Meanwhile at its latest meeting, the board of directors of Central Bank of the UAE reviewed a numer of industry developments, WAM said yesterday.
It reviewed a on systemic “prudential ratios for the banking system, banking stability, and liquidity indicators of the banking sector,” WAM reported.
Among other issues raised was the Implementation of the US Foreign Account Tax Compliance Act (FACTA) for for individuals subject to US tax laws, bank CEO bonuses and regulations relating to Shariah-compliant banking.
jeverington@thenational.ae
