Dubai: A bankruptcy or insolvency law was promulgated by the UAE as early as 1973, which was later amended under the UAE Federal Commercial Transactions Law No. 18, in 1993.

Judge Mohammad Yousuf, Deputy Director of Dubai Courts, told Gulf News that Article No. 645 to Article No. 900 of the UAE Federal Commercial Transactions Law No. 18, 1993 are clear and covers all aspects of bankruptcy pertaining to merchants and companies.

"The UAE Bankruptcy Law is similar to the international bankruptcy laws," he told Gulf News in an exclusive interview.

"By the declaration of a debtor as bankrupt by the court, a notice is issued to all creditors to register their claims," he said.

He said that Emirati creditors of a bankrupt merchant must register their claims within 10 days of publication of the notice. Foreign creditors staying outside the country must register their claims within one month of the announcement.

The judge of the bankruptcy court will verify the documents submitted by the debtor and will reschedule debts and lodge them as per the court's instructions.

The issue of bankruptcy has gained momentun in recent months as scores of people default on payments due to the current financial crisis that hit the country's real estate sector.

Yousuf said a copy of the schedule along with a statement of the amount that the court intends to accept as debt will be sent to every creditor and the bankrupt entity.

The creditors could object to the amount stated by the court. He added that the judge supervising the bankrupt merchant or company will decide whether to accept or reject the objection.

He explained that those who are declared as bankrupt will not be able to carry out businesses.

"They will have no rights to elect or to be a candidate at an election in any body. They cannot be members of the Federal National Council, Municipality Council, chambers of commerce and industry, or to work at the stock markets, trade or be a member or trustee of any company, in addition to many other positions which are banned.

"The bankrupt merchant cannot leave the country without informing the court," said Yousuf.

Dr Khalifa Rashid Al Sha'ali, advocate and legal consultant, said the rapid economic development of the country needs a law to regulate it. It is obvious that the UAE will need clear rules to regulate the bankruptcy and insolvency of individuals and companies.

"Individuals involved in personal loans cannot announce bankruptcy. Those who take a loan for building a house, buying a car or other related issues are under the country's civil laws. To announce bankruptcy, one must have a business," he said. "It is important to understand that bankruptcy applies only to 'traders' those covered by the law and not to civil debtors."

According to Article No. 4 of the law, a "trader" is defined as being "an individual or company that carries out commercial activities".

He said that the Civil Law make a difference between commercial and civil activities. Professional consultancy-type activities practised by individuals such as doctors, lawyers, consulting engineers and other professionals are not considered commercial activities.

These activities come under the "civil" category if they are carried out by an individual. However, should a business adopt a commercial form as set out under the Companies Law, then that business is treated as a commercial trader, even if its activities are essentially civil in nature.

Punishment for bankruptcy could be up to five years in jail.

He said that the law regulates all trade and business transactions in the UAE. This law also accommodates most, if not all, civil transactions.

The law also is very strict on those who misuse this to try to get out scot-free.

"One should not have any doubt that there is severe punishment for those who commit bankruptcy crimes, such as claiming to be bankrupt and then proven otherwise. If the merchant hides documents from the court to prove that he is bankrupt, he faces severe punishment.

He said that the UAE Federal Commercial Transactions Law No. 18, 1993 and the bankruptcy law is part of the curriculum which is being taught at universities, educational institutions, faculties of law and administrative institutions in the UAE in addition to all police academies in the country.

Al Sha'ali said the law is effective and well implemented at all the country's courts. He explained that any merchant who stops paying his commercial dues on its due date because of financial problems can announce bankruptcy.

The merchant who stops payment of his dues will be considered by the court as suffering from financial difficulties and will be described as bankrupt.

Al Sha'ali believes that financial crimes will not have a major impact on the UAE's economy.

"For the general benefits of the country, the government usually interferes to sort out some financial problems that could happen at any of the national companies. The market here is stable and the merchants and contractors here form the core of the country's financial system and all are supported by the government here," he said.

Al Sha'ali said many bankruptcy sentences or verdicts were issued by the Supreme Court against merchants in the past.

Dr Adel Abdullah Khamis Al Memari, advocate and legal consultant at Al Itizan Legal Consultancy and a lecturer at Ajman's Faculty of Law, said that he works with many banks in the UAE in collecting bank loans from people who delay payment or who stop paying.

"I can tell that the market is not affected too much these days. We usually report five to ten cases a day in this regard. There is very slight increase in such cases now," he said.

"Many banks are trying to enforce a travel ban on expatriate clients who have defaulted on their dues. The cases of travel ban at police against some persons who took loans from banks has increased in the past few days," he said.

Al Memari said that the bankruptcy law is effective and there are many cases at the courts relating to bankruptcy.