By Staff writer
Sheikh Khalifa bin Zayed al-Nahyan issues decree to transform rules on company restructuring
UAE President Sheikh Khalifa bin Zayed al-Nahyan on Monday issued a long-pending decree on bankruptcy laws in the country.
Dubai Media Office posted on its official Twitter page that the UAE President had "issued a decree on federal law number 9 on 2016 on bankruptcy". The bill is expected to come into force in late December or early January.
The new legislation is expected to help smaller companies in particular as the UAE economy slows because of low oil prices.
Last month, Essam Al Tamimi, one of the country’s top lawyer, said the new law, understood to be based on ‘Chapter 11’ bankruptcy legislation in the US, will focus on company restructuring – something that is not currently available in the UAE.
Industry bodies including the UAE Banks Federation have been lobbying for such a law for several years. They claim the absence of formal bankruptcy legislation in the country hinders the growth of small-to-medium-sized businesses in particular – a sector the government is keen to develop.
Under existing legislation, unpaid debt or a bounced cheque can wind businesses in jail.
This has proved problematic for smaller companies in particular as some executives of troubled firms have fled the country, leaving behind bad debts.
This law may help medium and large companies, it will do little for small companies. In most developed countries, limited liability companies mean the owner only stands to lose a nominal amount if the company folds. In the UAE, most arrangements put the owner on the line for far more. If a small company gets into trouble, the owner may have little choice but to skip, if the personal liability would sink him.
The country needs to sort out the medieval situation with personal debt before there is any noticeable impact. If you're sending people to prison for debt, you can't really expect people to hang around and risk dealing with financial issues.
I remember running an event on entrepreneurship quite a few years ago in Abu Dhabi and during a panel session, while the panel continued to observe that the UAE was an ideal place for entrepreneurship and new businesses, especially targeting SMEs which would be mostly expat-owned....one Arab man stood up and told them that they were all wrong. That it was the opposite that besides having to pay for employee visas etc it was frightening because if your business fails as many do despite best efforts, you don't just "get back on the horse again", you go to jail or are fined massive amounts or have to flee leaving many unpaid, for fear of legal reprisal.
Having said that, I am very happy to see that after nearly a decade after this exchange, there might be a chance for new business owners to not fear if they don't succeed and can regroup themselves and be given a second chance. It should definitely work to keep businesses opening and staying here.
as long as bounced chqs can lead to prison. (as banks and businesses use this method for collection payments/credit worthiness/collateral/threat) people will still be afraid to stick around if their businesses are having cash flow issues.