Bank­ruptcy law ex­plained

Min­istry clar­i­fies new leg­is­la­tion

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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.

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