A perfect legislation is a jurist’s delight. But in the process of making the law flawless, if the situation that necessitated the law continues to go unresolved, it is of little consequence so far as the victims of the situation are concerned. It does not matter how brilliant the drafting is.

It is already three years since work on a bankruptcy law for the UAE began, but after so many missed goal posts and deadlines, it is now clear that a law would not be in place at least until the end of 2013. Of course, there is no guarantee that one would be ready by then, if past experience is any guidance.

This would mean that hundreds of companies, or even thousands, which have gone out of business in the wake of the unprecedented financial crisis and widespread payment defaults, perished without even a glimmer of hope for a lifeline that a bankruptcy law would have typically provided. Driven to desperation, a large number of these business owners have either fled the country for their inability to face the consequences or have landed up in jail. For, under the prevailing rules, much of what follows business failures is criminal offence.

The current liquidation process is a painful affair and, according to a World Bank assessment, it takes upwards of three years to wind up a company honourably in the UAE. Obviously, there are no options for a legally supported revival of the business. A remarkable deviation from the policy was the issuance of a decree in Dubai for the creation of a special tribunal to specifically deal with the problems of Dubai World holding company for re-scheduling its $25 billion debt in consultation with creditors. But this option is not available to any independent businesses or individuals.

The draft law under consideration reportedly gives failing businesses an opportunity to revive and nurse them back to health without the threat of creditors taking them to court and being slapped with criminal charges. The new law, when enacted, will allow the failing companies to declare bankruptcy and then restructure so as to make a new beginning.


Need for interim law


When finally the new law comes into being, thousands of failed business owners would rue their fate as their predicament was mostly not of their own making and they might have been just victims of the situation. It does not mean that those who failed had taken more risks and had adopted less sustainable business models than those who managed to survive. The failures had nothing to do with how they conducted business as the circumstances were forced upon them by external factors over which they had no control whatsoever. For such people, it would be a negation of the classical legal wisdom that law cannot show relativity to time, person and place. Because, there is no way the victims can now be compensated.

It would have made a great deal of sense for the authorities to have an interim law that could deal with the prevailing realities and the systemic weakness that had become endemic. The perfect final draft could have come after all the due processes and consultations, but putting a basic framework in place for expeditiously dealing with the issues at hand could have averted many a disaster and brought confidence back sooner than later. No law can be as complicated as demanding three years and more to draft. So, if a law takes such timeframes to make, it means there are problems beyond the language. Obviously, there are issues and approaches that involve difficult decisions. Without making those decisions, the process cannot go any far. If the issue is about the right models, there is no dearth of them, including a French model, which is thought to be the one under consideration.

With the drive to open up the UAE economy for more investment and the need for internationalisation of the business law regime gaining momentum, any delay in creating an institutional mechanism for dealing with business failures will be viewed with concern.

— The writer is a UAE-based journalist