Abu Dhabi: The long-awaited UAE bankruptcy law, approved by the cabinet this week, is expected to take effect by the beginning of 2017, Obaid Humaid Al Tayer, Minister of State for Financial Affairs, told reporters on Tuesday.

“This law will add value to the business community and will be positive for both foreign and local investors. This is an important step for the UAE,” said Al Tayer.

Experts say the new law will help boost the economy as it improves business confidence and enhance the attractiveness of the UAE to investors.

The new law will establish a regulatory body, the Committee of Financial Restructuring, that will oversee restructuring.

The law will facilitate the work of commercial companies, by paving the way for companies in financial distress to restructure. The law will also facilitate liquidation of debtors’ assets in the event of bankruptcy and allow the possibility of getting fresh loans under terms set by the law.

Under existing legislation, unpaid debt or the issue of a bounced cheque can land businessmen in jail. Last year the UAE’s banking sector faced a substantial surge in bad debts. The UAE Banks Federation estimated the SME-related bad debts in the range of Dh5 billion to Dh7 billion following a number of SME owners skipped the loan payments.

Under the provisions of the new law, businessmen will face a prison sentence of up to five years and a fine of up to Dh1 million if their companies fail to pay back debts and deliberately avoid filing for bankruptcy.

The new law will apply for only commercial companies and not individuals, Al Tayer clarified.

The new law will not apply retroactively to businessmen who are already facing criminal cases over unpaid debt. It will cover both state-owned and private companies with some exceptions, such as firms based in special free zones.