Abu Dhabi, UAEWednesday 22 January 2020

Bankruptcy and debt laws remain a deterrent to starting businesses across much of the Arab world

The UAE has introduced an insolvency law, but many states lag behind, a finance summit hears

Raya Abu Gulal, founder of the Women Lawyers Group - Middle East, talks about bankruptcy laws at the Skybridge Alternatives conference in Abu Dhabi. Antonie Robertson / The National
Raya Abu Gulal, founder of the Women Lawyers Group - Middle East, talks about bankruptcy laws at the Skybridge Alternatives conference in Abu Dhabi. Antonie Robertson / The National

While the UAE has moved to modernise bankruptcy laws, there is still a need for reform across much of the rest of the region, a panel discussion at the Skybridge Alternatives (Salt) conference in Abu Dhabi heard.

Many Arab states must reform bankruptcy laws as the threat of going to jail over debts is putting potential entrepreneurs off starting businesses, it has been claimed.

Women, in particular, worry that if their business fails they could face prosecution over debts, experts said.

“We have spoken to a few [women] about why do they not want to start their business,” Raya Abu Gulal, an Iraqi-born, UAE-based lawyer who founded the Women Lawyers Group, Middle East, said.

“A lot of them are worried about starting their business, obtaining loans and having access to finance, because they know they could face penalties if they could not pay their debts.

“This is a major setback because, [and] this could be a myth, women will not take more risks than men who are setting up their business.

“Especially when they have a family and they know if they fail to pay that debt they could face prison… so we do have to improve the laws in terms of bankruptcy for both genders."

The UAE introduced a new insolvency law for businesses in 2016, which protects executives from criminal prosecution if their businesses fail, as long as they follow rules around bankruptcies.

Dubai, United Arab Emirates - June 26th, 2018: Tariq Bin Hendi, Executive Vice President and Head of Wealth Products & Advisory for Retail Banking & Wealth Management, Emirates NBD Group speaks at Manage Your Money, Build Your Future event. Tuesday, June 26th, 2018 in Emirates Towers, Dubai. Chris Whiteoak / The National
Tariq bin Hendi said businesses must be allowed to fail. Chris Whiteoak / The National

A new law for personal insolvencies, to be introduced in January, allows individuals in financial peril to decriminalise their liabilities, either by settling their obligations through a court-approved payment plan or through insolvency and the liquidation of their assets.

Bounced cheques will not be decriminalised, but debtors with a court-approved payment plan can present this to a criminal court to have the case frozen.

However, while countries such as Bahrain have also moved towards reform, laws around bankruptcy and debt across much of the Arab world remain a deterrent to starting businesses, the conference was told.

In another panel discussion at the event, Tariq bin Hendi, director general of the Abu Dhabi Investment Office, called for a culture-shift in the region in terms of how failure in business is perceived.

“The question of failure is an important one,” he said. “Culturally, in many parts of this region, it’s not really accepted or tolerated.

"But if we’re going to build a disruptive economy… we have to accept that they [businesses] will fail [and] that’s a lesson learned.

“There are different laws that exist in the US, Europe and elsewhere. We are getting there, but in the absence of those, we have to make sure that we provide the right ecosystem to expand on what we have already built.”

Updated: December 15, 2019 01:23 PM

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