According to UAE newspaper Arabian Business, Essam Al Tamimi, founder of law firm 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 any further details.
Driven to flee
Critics have claimed that the law makes life more difficult for cash-strapped individuals and SMEs.
As a result, offenders have opted to flee the emirates rather than face criminal charges for being unable to pay their debts.
Restructuring
When a draft insolvency law was approved by ministers in July, it was reported that bouncing cheques would be decriminalised.
Al Tamimi said this was not the case.
The new law, understood to be based on the US’s Chapter 11 bankruptcy legislation, will focus on company restructuring. 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 the 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 law is set to be enacted in the first quarter of 2017, he added.
“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.”
Bankruptcy law
The approval of the new bankruptcy law by the cabinet was announced by Sheikh Mohammed bin Rashid Al Maktoum, vice-president and prime minister of the UAE and ruler of Dubai, in a tweet in early September.
Obaid Humaid al-Tayer, Minister of State for Financial Affairs, told reporters in Dubai that week that the new law will be positive for both foreign and local investors.
The new law will establish a regulatory body, called the Committee of Financial Restructuring, that will oversee restructuring cases and appoint experts to handle them. It will provide for companies to receive new loans under terms set by the law.
Local reports on the new law in September, quoting unnamed government officials, said it will not offer protection from jail for individuals unable to repay their debts, however, it does offer protection for employees, shareholders and directors of companies undergoing court-led insolvencies.
In other words, an executive of a distressed business will still face a prison sentence of up to five years and a fine of up to AED1m ($272,000) if their companies fail to pay debts and deliberately avoid filing for bankruptcy.
The new bankruptcy legislation will apply to all onshore and free-zone companies throughout the UAE, with the exception of companies in the DIFC and ADGM jurisdictions, each of which already have their own separate insolvency regulations in place.
