The UAE took a significant step in upgrading the regulatory structure of its financial systems by issuing a Bankruptcy Law that is in sync with the economic progress achieved in recent decades.

With the law, according to Obaid Humaid Al Tayer, Minister of State for Financial Affairs, the UAE aims to attract more investments, especially those sourced from overseas jurisdictions, and at the same time protect investors.

The absence of such a law created a gap had put an end to many businesses they could have been saved if they had protection against bankruptcy, and which would have allowed them to restructure the company and its debts. This way they stood a chance of surmounting obstacles such as bad management or a lack of funding. Unfortunately, they had no choice but to liquidate the company without any possibility of saving it.

Interestingly, the path-breaking law will result in many positive outcomes although it will take some time to put it into practice and understand its provisions.

Younis Haji Al Khouri, Undersecretary at the Ministry of Finance, commented that only limited numbers of companies will benefit in the early years of its application.

Yet, the law holds promise in regulating bankruptcies and establishing a stable regime for investments. This law, however, needs to be understood and that will take some time. It will be applied only on companies and private sector institutions and has nothing to do with individuals’ debts. Such issues might be addressed in future regulations.

Therefore, investors must understand the bankruptcy law and that is the responsibility of authorities such as the Ministry of Finance, which can hold workshops to explain its details so as to aid proper activation.

The chambers of commerce and industry can also play a pivotal role. Some companies might take advantage of the law and commit bankruptcy frauds without knowing that the law has set a number of strict punishments such as five years in prison plus a fine that might reach Dh1 million.

Understanding the law and recognising its provisions will definitely help avoid making mistakes due to unfamiliarity with the provisions.

Experiences from elsewhere have proved the effectiveness of the law, especially in economically advanced countries such as the US where Chapter 11 of the bankruptcy law allows restructuring and saved hundreds of companies, particularly during the financial crisis and returned them to the labour market.

It helps protect the rights of shareholders, especially in public companies. In addition, Chapter 7 regulates bankruptcies and liquidation.

Foreign investors typically study the regulations that protect his/her investments before investing. In all cases they will want assurances they can be in a position to address financial or administrative restructuring in case of difficulties.

The law also ensures the UAE’s legislative structure is more organised, the economy become more attractive for investors and better to create job opportunities.

It should be noted that the UAE’s investment environment would witness a paradigm shift from applying the law three months from now.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.