In­sol­vency law will ease pres­sure on firms

Ex­perts wel­come long-awaited bank­ruptcy leg­is­la­tion

7 Days in Dubai - - FRONT PAGE - By Shoshana Ke­dem @B_Shosh shoshana@7days.ae

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.”

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