Entrepreneurs to Benefit from UAE Bankruptcy Reforms

UAE Entrepreneurs will benefit from proposed bankruptcy legislation.

A draft of a new UAE bankruptcy law has been delivered to the UAE’s Ministry of Justice. The law has been in the works for two years, and its genesis may have been the dire economic straits traversed by some of the Emirate’s largest financial institutions in the course of the world economic crisis of 2008. Up until this time, company officers have been personally and criminally liable for corporate debts since all loans have been personally guaranteed. What this has meant in the aftermath of the financial crisis is that failing business owners and others left the UAE literally under the cover of darkness.

The new legislation is expected to emulate Chapter 11 of the U.S. Bankruptcy code which gives failing companies time to reorganize and restructure debt in order to get back in shape. Courts cannot seize assets immediately. At present, word is that there is nothing in the draft UAE law that allows for the protections of Chapter 7 of the U.S. Code. Chapter 7 allows for the orderly liquidation of corporate assets and liabilities, the worst case scenario. There is apparently nothing in the UAE legislation that extends the protection of bankruptcy laws to individuals.

The UAE legislation is being praised as a boon to businesses, especially to small businesses and entrepreneurs. The significant downside of providing no legal bankruptcy protections (e.g. jail time) has certainly been a disincentive to entrepreneurs and small business owners seeking to take as risk. By just changing the calculus of the risk-reward ration just slightly the UAE could provide just the boost needed to companies and entrepreneurs looking to start and expand businesses.

Links:

http://mideastposts.com/2011/11/27/news-analysis-the-uaes-new-bankruptcy-law/

http://www.arabianbusiness.com/uae-unveil-bankruptcy-law-aid-businesses-431578.html?tab=Article

http://www.thenational.ae/thenationalconversation/industry-insights/economics/bankruptcy-law-reform-may-boost-economy