Insolvency law is needed in order to maintain confidence in doing business
In the current uncertain climate, this is more important than it has ever been before
A future UAE law and framework for insolvency has been a discussion point for some time but it has been put more firmly in the spotlight because of the global economic crisis.
I believe that a proper insolvency regime is absolutely necessary to maintain confidence in doing business in the UAE. Regardless which party you represent — creditor, debtor, employee or investor — it is vital to have a formal, clear and transparent process for dealing with the consequences of insolvency (or potential insolvency) to have the confidence to enter into transactions and pursue business opportunities. In the current uncertain climate, this is more important than it has ever been before.
This is not just about protecting entrepreneurship, though that is also an important part of it. (After all, every entrepreneur is also somebody's creditor). Starting a business is a scary but potentially very rewarding thing to do. Knowing there are formal processes in place that will be followed should any financial difficulties arise, will provide some reassurance.
Without the clear knowledge that the system will treat all parties in an insolvency case in a fair and transparent way, the appetite for doing business in this country, post the financial calamities of last year, is unlikely to recover quickly.
Whether the best approach is to continue with the existing law and reform some of the areas where it is not considered to be fit for purpose, or to start from scratch by taking the best from around the world, is debateable. Whichever approach is chosen, it is important to bear in mind that no law is effective unless there is a proper framework to ensure compliance with that law. Unfortunately, examples of lack of compliance and laws being ignored are not hard to find.
A key step towards improving compliance is better education; knowledge levels need to be raised; there needs to be comprehensive training of legal and finance professionals on the requirements of these laws, and there needs to be a code of ethics to which insolvency practitioners adhere. But that is not enough. Greater regulation and monitoring are also critical factors.
(Amanda Line is the regional director of Institute of Chartered Accountants in England and Wales (ICAEW) Middle East.)
