Abu Dhabi: The new UAE bankruptcy law approved by the UAE Cabinet this week is likely to come into effect early next year.
Obaid Humaid Al Tayer, Minister of State for Financial Affairs, told a press conference that the law will come into effect three months after its publication in the official gazette which will be issued in the coming weeks.
“The law is based on modern legislative and economic principles, while taking into consideration the global developments and changes taking place in the economic and business sectors,” said Al Tayer.
The UAE Cabinet approved the much-awaited bankruptcy law on Sunday.
Experts say the new law will help boost the economy as it improves business confidence and enhance the attractiveness of the UAE to investors.
It will also facilitate the work of commercial companies, by paving the way for companies in financial distress to restructure.
The law is expected to facilitate liquidation of debtors’ assets in the event of bankruptcy — and allow the possibility of getting fresh loans under terms set by the law, it was revealed on Tuesday.
The law will also prevent individuals from bypassing the law as there is a punishment, including five years’ prison sentence, as well as fines of up to Dh1 million.
The bankruptcy law is implemented on both private and government owned companies, with some exceptions such as firms based in special free zones.
“We drafted the law to be very clear so that there are no interpretations under any by-law. There is lot of transparency in the process of the law. We looked at the best practices, best laws that achieved [a] high ranking in the World Bank report on doing business,” he said.
“We believe that the government will issue one of the best laws not only in the region but in the whole world. The new law will add value to the business community and will help in attracting foreign investments to the country.”
The law will apply to only commercial companies but not individuals, Al Tayer clarified.
Under the existing legislation, business owners and executives at companies facing financial distress or with unpaid debts face the risk of being jailed, forcing many to flee the country, leaving behind large unpaid debts.
Last year the UAE’s banking sector faced a substantial surge in bad debts. The UAE Banks Federation estimated SME-related bad debts in the range of Dh5-7 billion after a number of SME owners skipped their loan payments.
According the Ministry of Finance, the law sets up a new regulatory body named the Committee of Financial Restructuring that will oversee the procedures of financial restructuring outside the scope of the courts, in addition to appointing experts and establishing an electronic record of individuals with a bankruptcy ruling.
The UAE cabinet will decide on the number of members and entities that will have a representation in the committee.
Though the law gives protection to companies facing financial difficulties, it also stipulates strict punishment for violators who misuse the law and declare themselves bankrupt intentionally.
“There is a prison sentence up to five years and a fine of Dh1 million for the violators,” said Dr Hussam Al Talhuni, legal adviser to the Minister of Finance, told Gulf News.