By Courtney Trenwith
Serial entrepreneur and billionaire says Gulf entrepreneurs won’t take the risk if there’s no protection from jail
Serial entrepreneur and billionaire Sir Richard Branson has told Arabian Business he was “flabbergasted” that the UAE did not have a bankruptcy law.
Branson, who has founded dozens of businesses under the Virgin brand, said providing bankruptcy protection was a priority for a region where millions of new jobs desperately need to be created.
“I’m flabbergasted to hear there’s no bankruptcy law [in the UAE],” Branson said, speaking exclusively to Arabian Business on the sidelines of the Government Summit in Dubai.
“What transformed Great Britain was, in about 1850 the bankruptcy law was brought in and people didn’t have to go to the watch house [jail] if they went bankrupt and they had a chance to start again.
“I would say that that would be one of the first things [Gulf governments] should do if they want to encourage entrepreneurship, because who’s going to take a risk if there’s no protection?”
Unemployment is a burgeoning, serious issue in the Middle East, where the population is getting younger and international authorities, including the International Monetary Fund, estimate hundreds of thousands of jobs need to be created every year just to maintain current unemployment levels, which are already in double figures.
This has led to a greater push for entrepreneurship, with the UAE government and others establishing support funds and planning a stock exchange dedicated to small and medium sized enterprises to help them access funding.
However, many are still not willing to take the risk of setting up a business with the knowledge that if they fail, they face a jail sentence.
The UAE companies law has some articles that cover insolvency but there is no specific legislation. A draft bankruptcy law has been in the works since 2009.
Bankruptcy legislation does exist in Kuwait but has not been enforced.
According to the World Bank’s Doing Business survey, which ranks each country by its “ease of doing business”, the UAE was listed in 26th place last year. But when it comes to resolving insolvency, the country is ranked in 101st place, behind Azerbaijan, Togo and Senegal.
It takes an average 3.2 years to resolve an insolvency issue, compared to the OECD average of 1.7 years, and the recovery rate is 29.4 cents in the dollar, as opposed to 70.6 cents in the OECD countries.
Many in the private sector also have voiced their support for bankruptcy legislation, which would make it possible for failed businesses to be shut down in a structured manner, providing an opportunity for creditors and shareholders to recoup some of their lost investment.
Standard Chartered UAE chief executive Jonathan Morris said not having a bankruptcy law was hindering business growth.
“The UAE has built this incredible infrastructure that it is leveraging brilliantly,” Morris said in September.
“What is lacking at the moment is the institutional infrastructure. What we really need is an effective bankruptcy law, an effective companies law, a banking law and so on to bring the institutional infrastructure to world-class standards.
“If they do that, I think the level of foreign direct investment is going to go through the roof.”
Branson said government-backed entrepreneurial loans also would assist the industry.
“If the government was to give entrepreneurial loans to people who come up with good ideas for business - they don’t have to be very big loans - I think that would help encourage thousands of new entrepreneurs in this region,” he said.
“It’s a scheme that Great Britain has pioneered, it’s very successful and that’s something that governments should consider here.”
Whilst I agree with his sentiment he is factually incorrect. There are bankruptcy laws in the UAE. Please read our blog on the same issue and maybe Mr. Branson should have a read too ... http://www.fit4businessclub.com/blog/will-clearer-bankruptcydebt-laws-uae-beneficial-business/
also Uk introduced laws re taxation VAt etc & this needs to be investigated?
so why has some failed & then find loopholes
to keep wealth offshore in Caribbean whilst starting and being born inUK this is filthy whilst wealthy and stealthy
The merit of implementing any insolvency law is not available , people forget that Gulf countries and UAE in particular does not recognize nor implement the laws and articles of the International covenant of civil rights which clearly indicate in article 11 that it is prohibited to jail any person due to his inability to fulfill contractual obligations .. even if new insolvency law are released there will be no guarantee and no chance that it will be honored or implemented because it contradict with the general practice of rejecting and unrecognizing the covenants articles.
the promises and statement that new insolvency law is under process started since 2003 and not 2009 , and most probably it will remain till 2029 before any change take place.
Agreed on the principle of the requirement for productive business laws but it should also recognise the need to prevent abuse by extremely opportunistic scrupulous individuals who evade being held to account.
Also the government does already provide financial assistance for starting entrepreneurs. This initiative would benefit from said laws by creating liens with commercial banks thereby enlarging the reach and enhancing effectiveness.
No doubt the great leadership of this country has eyes for this.
It would be good to have such legislation and effectively enforced to ensure that the "Failed businessmen" do not use this as a means of stashing their losses in foreign tax havens.
Failed businesses do also lead to human misery with people laid off and families suffer just of because the owner's mistakes.
Martin, you have to be new to this region.
The recent past has shown many examples where scrupulous ones got off the hook while many decent people became victims and had no protection.
Do some research on people who were forced to sign postdated cheques when establishing contracts and the counter party not fulfilling their contracted obligations - but still cashing the cheques.
Or look for cases where invoices have not been paid - or not been paid for extended periods of time - despite successful delivery of products and work.
And regarding the eyes ... it's been visible for long time. and some of the worst offenders are government owned entities.
Mr Mooney, I read the article that you have given a link to. No mention there of any such existing law in the UAE.
Each law can be identified by its number and year of passing , viz
Law 26 of 2007 related to tenant / landlord relations. Can y ou please tell us the number / year of this law you refer to?
Harry, not having a bankruptcy law will not stop businesses failing, all it means is that owners are unable to wind down a business in an orderly fashion and instead have to resort to jumping on a plane before they get thrown in jail. When this happens you end up with a chaotic collapse of the business and less money to pay creditors, including the employees that have lost their jobs, and potentially years of legal wrangling over who can liquidate the remaining assets and how they are distributed.
The intent of Bankruptcy laws, according to the U.S. Courts is to give an honest debtor a â€œfresh startâ€ in life by liquidating the debtorâ€™s assets to pay the debtorâ€™s debts, or by creating a repayment plan, as well as to protect troubled businesses
and provide for orderly distributions to business creditors through reorganization or liquidation. What's wrong with that? For cases that involve fraud and schemes to deceive, there are laws I am sure in the UAE that cover fraud, theft and misrepresentation. Unfortunately, if these laws covering fraud are truly implemented, most of the developers in UAE will be in jail. Government policies here are heavy-handed when dealing with foreigners, while locals get away with everything; they borrow and spend on luxury goods and get bailed out, while foreigners defaulting on a cheque due to unexpected business setback wind up in jail.
Dear Liam, if you believe on that blog try to go insolvent and you will see the result... Why do you think so many people left their cars at the airport.? Some of them didn't leave but they were thrown in jail... In both cases bye bye the money owed to the creditors... As a manager of a business I have been experimenting both cases: the debtor flying away or going to jail... Bronson is right, give the genuine insolvent a way to pay back, may be some crooks will benefit of that law but at least so many honest people cornered by a reversal economy will have the chance to keep their families afloat.