Bankruptcy law explained
Ministry clarifies new legislation
The new bankruptcy law will not apply to individuals with debts, officials have said, adding that anyone who tries to abuse the legislation could be jailed for up to five years.
Outlining how the system will work, Dr Hussam Al Talhuni, Legal Advisor to the Minister of Finance, said the law supports businesses in genuine difficulties and those who try to abuse it to deliberately avoid paying back their debts will be punished.
Offenders can be jailed for up to five years and fined Dhs1 million.
However, officials confirmed at a press conference yesterday that the new law will not offer protection for individuals unable to repay their debts.
“Individuals with personal debts are not covered in this law,” said Obaid Humaid Al Tayer, Minister of State for Financial Affairs. “The law only protects and applies to businesses.”
The minister added that the law offers protection for employees, shareholders and directors of companies in financial difficulties who are struggling to pay their debts.
The UAE cabinet on Sunday approved the final draft of the federal bankruptcy law, which will remove the threat of jail for indebted business owners.
There have long been calls from senior figures in the financial sector for a bankruptcy law due to numerous cases involving small business owners fleeing the country over unpaid debt and the fear of going to prison.
Officials said yesterday that the law will establish the Committee of Financial Restructuring, a regulatory body that will oversee the procedures of financial restructuring that are outside the scope of the courts. It will also keep records of individuals who have bankruptcy rulings against them.
Al Tayer reiterated that the law will support and protect businesses with financial problems.
“Mature economies have proven the need to implement a bankruptcy law in each country that wishes to strengthen its economic status,” he added at a press conference at the Ministry of Finance in Abu Dhabi, which had been called to discuss the law in detail.
“The bankruptcy law is considered as one of the most important pillars for the local economy, as it provides protection for all parties, in addition to its pivotal role in attracting capital in a safe and attractive investment environment and providing a protection legislation and legal acts.”
According to the law, business owners in financial difficulty will need to apply to the courts for protection measures.
The court will then appoint a financial committee to establish whether the business is eligible for protection.
If it is then the committee will come up with a comprehensive financial restructuring plan along with the owners of the business and their creditors.
The process would enable the business to continue operating and pay their debts and obligations.
“The law was set to match various bankruptcy cases, determine all legal tools to restructure the debtor’s business in accordance with specific terms and conditions as well as a legislative framework,” said Al Tayer. Sanyalak Manibhandu, Head of Research at NBAD Securities, said the new legislation will give businesses opportunity to restructure and continue operating. “It’s all about some flexibility” he said. “If businesses are given more time, they can take in equity to allow them sort out things and continue operating.”
The bankruptcy law is expected to be implemented within three months of being issued in the official government gazette.
It will apply to all onshore and freezone companies established under commercial company law throughout the UAE.