Easier exit route sought for firms

Abu Dhabi: Business liquidation regulations and practices in the UAE lag behind those in the Middle East and North Africa (Mena) region, according to a 2008 survey conducted by the Hawkamah Initiative in partnership with the International Finance Corporation.

The UAE scored 74 out 155 points, according to preliminary results of the survey announced by Hawkamah executive director Nasser Al Saidi yesterday.

The UAE's showing compared with 105 for Oman, 99 for Egypt, 85 for Saudi Arabia and a Mena average of 88.

Independently, the Dubai International Financial Centre (DIFC) scored 126 points.

Hawkamah was launched in 2006 by Mena regulators, policymakers and the private sector to improve corporate governance across the region. According to the survey, the region's score falls below the Organisation for Economic Cooperation and Development countries' average of 124 points.

The survey is considered the first of its kind in Mena. Regulators, lawyers, insolvency professionals and accountants across 11 Mena countries were asked to answer a uniform series of questions regarding business insolvency regulations, legal frameworks for creditor rights, and business restructuring regulations and practices.

Some of the results released yesterday showed it takes an average of three to five years to dissolve a business in the region, compared with just one month in countries with more developed systems, causing massive loss of value to the businesses and reducing recovery rates for creditors. On average, creditors operating in Mena recover just 30 per cent of loaned funds compared with 68 per cent in Japan.

The past five years have seen Mena countries race to ease the establishment of businesses through the creation of 'one-stop shops' and abolishing bureaucratic policies.

INSOL International president Robert Sanderson said regulators must pay more attention to the dissolution of companies. INSOL is a private consultancy firm specialising in business restructuring and insolvency.

"We need to give equal attention to the exit of companies," Sanderson said.

"Any market-based system will involve the failure of companies. What you need to ensure is that the exit of companies happens at the lowest possible cost to the shareholders, debtors and creditors."

Although the region has not seen increased cases of insolvency as a result of the global financial crisis, Al Saidi says the goal is to encourage policy makers to implement reforms to the existing insolvency frameworks to streamline economic activity and improve preparation for future business failures.

Full survey results and formal declaration are due to be released today and are expected to include a recommendation for the establishment of specialized courts to deal with failing businesses.