Abu Dhabi: The news of a UAE company restructuring its debt successfully under the country’s bankruptcy law is positive and will encourage foreign direct investment into the country, experts told Gulf News.
A UAE company has for the first time successfully restructured its debt to resume business under chapter 4 of federal law no 9 of 2016, according to a statement from WAM on Tuesday.
The company, which was not named, is a limited liability company founded in 2008 to carry out contracting work and has debt in excess of 18 times its available capital and had requested the proceedings.
“I believe the law will help business owners make an effort to adjust their future cash flow liabilities in order to get their business back on its feet. The effect will be significant as it will reduce risk on banking sector, to pay their liabilities to other related parties and at the same time, it will not force companies to close down businesses and dismiss all staff,” said Tariq Qaqish, managing director for asset management at Menacorp.
“The law will encourage business owners not to flee the country, especially businesses that are owned by expatriates. What is worrying for me, is that some business owners will take advantage of the law and take aggressive decisions.”
He also said the real effect of the law on the economy is debatable.
“At this stage, it is good step to encourage foreign investments which has clear legal platform that allows companies to continue their business and attempt to revive its balance sheet.”
“In the US there is a sound bankruptcy law for individuals and institutions, however it is becoming so significant in size that some analysts are stating it is harming the economy more than it is benefiting.”
Apart from implementing the bankruptcy law, the UAE government also issued debt law as well as investment law recently to boost the economy and attract more foreign direct investment following years of low oil prices that hurt its growth.
Adrian Low, a partner in Clyde & Co international law firm said implementation of bankruptcy law is a good news for private companies that are facing financial difficulty and it is also a good news for lenders.
“The more examples we have of the companies going through the process, the more confidence people will have in the process itself. It’s a positive thing for the economy.”
He also said the more information that comes out in relation to how the process works, the better it will be for businesses to restructure under the new law.
“At the moment, no one knows how long it is going to take, how the process works, and how much cost is involved. If more people use the law, it will give confidence for businesses. For banks, it is positive because it gives them certainty what the likely recoveries are when they start the process.”
The federal law 9 of 2016 applies to all private sector companies in the UAE, including those incorporated in freezones, except those companies incorporated in the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), which have their own insolvency regimes.
