By Sarah Townsend
Reformed insolvency legislation to be enacted in first quarter of 2017, says Essam Al Tamimi
The UAE’s new bankruptcy law will not decriminalise bounced cheques, one of the country’s top lawyers has revealed – despite earlier indications to the contrary.
Essam Al Tamimi, founder of Al Tamimi & Co, told a gathering of businesses in Dubai this week that the legislation would suspend legal proceedings in “certain situations” rather than outright decriminalising bounced cheques. He did not disclose further detail on these situations.
At present, anyone who issues a cheque that bounces faces criminal action under existing laws.
Critics have said this strict measure penalises cash-strapped individuals and small-to-medium-sized enterprises (SMEs) rather than helping them to restructure and manage their debts in challenging economic conditions.
When the draft insolvency law was approved by ministers in July, it was reported that it would introduce measures to decriminalise bounced cheques. But Al Tamimi said that this was not the case, and the legislation did not contain such powers.
The new law, understood to be based on ‘Chapter 11’ bankruptcy legislation in the US, is to focus on company restructuring, Al Tamimi said. It will provide traders with three options when in financial crisis – Restructuring, Preventative Composition and (declaring) Bankruptcy.
Restructuring ensures unpaid debts and businesses are put through a yet-to-be established Financial Restructuring and Bankruptcy Committee to avoid bankruptcy via a process of mediation outside the courts.
Preventative Composition involves court action to protect creditors’ assets at risk from bankruptcy.
Finally, Bankruptcy gives businesses a full legal route to enact bankruptcy proceedings through the courts. These proceedings could also involve the Restructuring option, Al Tamimi explained.
The legislation places “great responsibility” on the court and judges to administrate and follow up with applications, and it lumps companies, private individuals, quasi-government entities and professionals into one category treated the same under the law.
To ensure fairness, more than one judge may be appointed to oversee the bankruptcy proceedings, it was revealed.
The law is set to be enacted in the first quarter of 2017, Al Tamimi added.
He said: “The strong emphasis on restructuring suggests that traders should be given the chance to restructure, pay their debts and avoid bankruptcy.
“This provides a better avenue for financially at-risk traders than bankruptcy itself, on which the previous law was based.”