Dubai: More than two years after Dubai was affected by the global financial crisis, the restructuring of corporate debts remains in legal limbo as it is unclear how banks can get their money back from government-linked enterprises.

The impasse, which is aggravated by deficient bankruptcy legislation, is finally pushing some banks to consider legal action. But their tougher stance is being matched by a hardening of the government's attitude to bailing out state-linked entities, raising the risk of further delays in completing these restructurings.

In other jurisdictions, the spectre of legal action would have loomed long before now.

Local and international banks have been waiting nearly two years in some cases for resolutions to drawn-out restructurings of entities hit by the debt crisis in 2009, when Dubai was forced to request a standstill on flagship conglomerate Dubai World's $25 billion (Dh91.8 billion) debt.

While Dubai World reached an agreement on a debt restructuring a year ago, a number of other state-linked entities have not, leaving banks unable to get back money they are owed. As well as being hampered by a lack of legal remedies to force the issue, banks are also undermined by the fact that potential plaintiffs are companies ultimately owned by the emirate.

Talks on restructuring Dh6 billion of Zabeel's liabilities have ground to a halt with multiple loans in limbo and few assets available for sale, leaving banks facing steep reductions in the loan principal they are likely to recover, sources told Reuters in January.

Banks have sent multiple notices demanding repayment, but no legal action has been taken as it is not known whether such a step would succeed in a court.

The government's hardening attitude to providing financial support is further complicating the situation for banks.

Banks involved in a $10 billion restructuring of Dubai Group, in which banks are owed $6 billion, said in December they were considering legal action to secure their dues from the company, which had not paid interest on its debt pile since August 2010, sources told Reuters in November.

Analysts say the government has been emboldened in its negotiations with creditors following a number of successful debt repayments, including one for a $3.5 billion sukuk issued by state-owned developer Nakheel, and by Europe's sovereign debt crisis, which has made Dubai's difficulties in paying back debt seem minor by comparison.

The reduction of more than 50 per cent which banks will be forced to swallow on their Greek holdings as part of the Eurozone's rescue plan, is far worse than anything seen on a Dubai restructuring. Dubai World promised to fully repay $14.7 billion it owed banks, but over a longer period of time and at lower interest.