The UAE is expected to base its forthcoming new insolvency legislation on ‘Chapter 11’ bankruptcy proceedings in the US, a government official was reported as saying.
Under Chapter 11, companies are given the opportunity to adopt and implement a recovery strategy under the supervision of the courts.
It allows them, in effect, to renegotiate the terms of their debts with creditors without having to liquidate the company, in an attempt to benefit both parties.
According to a report in the National, Fahad Al Raqbani, director-general of Abu Dhabi Council for Economic Development, said the UAE’s long awaited insolvency law would contain similar provisions.
Raqbani said of the UAE’s draft law: “It is a very important law, [and will] encourage people to declare the insolvency of their companies.
“It will cover investors’ rights … and support the economy.”
“Many companies in the US undergo Chapter 11 bankruptcy and then gain in momentum,” he added.
“A given project may be successful, but also need restructuring.”
The insolvency law was approved by the UAE’s cabinet in July and is awaiting ratification by the Federal National Council and the Supreme Council.
Ruler of Dubai Sheikh Mohammed bin Rashid said at the time: “The draft law aims to regulate accumulated debts, eases restructuring of companies as well as support troubled businesses.
“It aims to mitigate risk of bankruptcy and ensure a safe and attractive business environment in the UAE that nurtures and supports investments.”
The legislation is also expected to contain provisions to decriminalise bounced cheques – something that the UAE government has been considering for some time – and to facilitate large corporate bankruptcies, Arabian Business reported in July.
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