Insolvency law will ease pressure on firms
Experts welcome long-awaited bankruptcy legislation
Anew bankruptcy law that will remove the threat of jail time for indebted business owners will help UAE-based firms to thrive, experts have predicted.
The final draft of a long-awaited law that the country’s banks have been calling for was adopted on Sunday evening.
HH Sheikh Mohammed bin Rashid, UAE Vice President and Prime Minister and Ruler of Dubai, confirmed its ratification in a tweet, saying it would facilitate business. The move
came as Dubai Police yesterday revealed 43,000 people were arrested for bounced cheques in the first half of 2016. Almost Dhs4 billion was recovered.
That figure covers bounced cheques from individuals - not just business owners - but gives an indication of just how many UAE residents find themselves in trouble.
Sanyalak Manibhandu, Head of Research at NBAD Securities, said the new legislation is a “game-changer” for firms nervous about falling foul of the law.
He said: “It’s important because you need bankruptcy laws to help sort out banking problems.
“At the individual or corporate level, if you don’t have bankruptcy laws, it would be difficult for the borrower to honour the terms of the lending agreement.”
He continued: “If it’s enforced properly, it will be a game-changer because you won’t see business cases dragged through the criminal court anymore.”
Under the current system, business owners often flee the country to avoid being arrested, which is known as ‘skipping’.
This means investors and the authorities face an uphill battle to recover their losses.
Emilio Pera, Partner and Head of Financial Services at KPMG’s Gulf office, also said skips are common.
He said: “Because there wasn’t a mechanism to unwind businesses in a more structured basis, people have left the country, which then leaves investors out of pocket.”
The new law has yet to be detailed by the government, but experts say individuals will be in a position to resolve debt problems between themselves, or bring auditing firms in to help them restructure.
Suvo Sarkar, Senior Executive Vice President and Group Head of Retail Banking and Wealth Management at Emirates NBD, said the “highly-anticipated new law will lend support to this vital sector, enabling SMEs in the country to grow strategically and take measured risks while also allowing lenders to ease the flow of capital into new businesses.”
For entrepreneurs, the threat of arrest and a possible criminal conviction currently hangs over them when planning for the future.
Mohammed Petaffi, the owner of start-up firm Shakeism Milkshakes, said: “It means that it will make the decision-making process easier for business owners and it will give businesses a chance to grow, especially small businesses, because they are always under pressure.”
But he added: “People should still be careful when giving cheques. They need to know that if they have promised someone something, then they have to carry it through.”
Saleh Al Aroud, Chairman of the Russian Business Council, said the law will “provide more transparency” and “build more trust in the economic climate... which will in turn will elevate the international competitive edge of the UAE.”