Dubai: Arabtec could soon be replaced as contractor on some ongoing projects as clients try and reduce the risk of dealing with a company heading into liquidation.
One leading developer already had discussions internally about replacing Arabtec at one of its prestige projects. The developer is reportedly weighing the credentials of two other contractors before taking any such decision, sources say. (It could even be that the developer might still stick with Arabtec if it feels the work can still get done.)
Arabtec has so far not given any updates on the status of its existing projects in the UAE or whether there are any re-negotiations happening with clients. Multiple sources in the industry say that at a few project sites, work activity has “dropped”. Again, confirmation on the various projects' status is awaited from Arabtec.
The UAE’s biggest contractor by far decided in September that dissolving the company via liquidation is the only option left after accumulated losses mounted. There was talk of futher funding coming in from strategic investors, but those came to naught.
The Arabtec issue has come at a worst possible time for the UAE construction sector. Project activity was sharply down in October “mostly due to a lack of new building projects”, according to monthly data put out by IHS Markit.
Fairly straight forward
Switching contractors in the UAE at any stage of a project is relatively easy, and there are laws that enable it if project promoters can come up with due reasons. In the recent past, several developers have taken this extreme step and, this way, not allowed their projects to lag.
Since the liquidation request has not been submitted yet, then subcontractors will have to either wait for a liquidator's appointment, or apply now to register a lawsuit
Arabtec has called a virtual meeting of shareholders on November 30, where they will be given a chance to go over all the steps taken by the management to set in motion the liquidation. Or the shareholders could give their approval - through a Special Resolution – to the Board of Directors to “amend the timetable” for the winding down of operations.
This relates to the extra one year provided to local businesses to try and sort out their financial affairs under an amended UAE Bankruptcy Law.
“I think it will be interesting to see if Arabtec chooses to use the amendments to the Law, which could allow Arabtec protection for a period of one year in which to try and resolve issues,” said Scott Hutton, Partner at EKP Legal. “In my opinion, I suspect Arabtec will proceed with the liquidation."
As Arabtec and its shareholders try and decide what next, the wider construction market may be ready to move on. Sources in the subcontracting industry say they will only take on Arabtec projects on a case-by-case basis and if certain guarantees related to payments are implemented.
* They may be personally liable for the company's debts (as in the case of Arabtec).
* A compulsory liquidation is a measure taken by creditors to preserve the company's status quo or the remaining assets. This is a clear precautionary measure against the depletion of assets (if any).
* As per the UAE laws, creditors must join any liquidation process by submitting their debts bonds to the administrator/liquidator. Debtors will join the group of creditors, and there will be an asset assessment to ensure that they will cover debt and the priority given to creditors with a superior debt.
- Hesham Elsamra, Senior Associate, Abdulla Alawadi & Associates
How easy is it to recover?
For subcontractors the “best way to recover some portion of their monies on projects where the main contractor is being changed is to work directly with the developer and the new contractor,” said Sameer Lakhani, Managing Director at Global Capital Partners. “This allows for under-construction projects to be made viable with the value preserved.
“There have been numerous instances where smaller developers have already done this. And has proven to be more expeditious for all parties to complete the projects and extinguish the liabilities.”
Some subcontractors will be waiting for the outcome of the November 30 Arabtec shareholders’ meeting to decide their next steps.
“Since the liquidation request has not been submitted yet, subcontractors will have to either wait for a liquidator's appointment, or apply now to register a lawsuit according to the contract with the competent judicial authority,” said Hesham Elsamra, Senior Associate, Abdulla Alawadi & Associates. “Whether it is [done] through regular litigation or arbitration.
“Once the liquidation process becomes official (there will be an ad in an official gazette), any debtor must register his debt with the administrator/liquidator appointed by the Dubai Financial Market. Time is of essence here.”
If the November 30 shareholders’ meeting goes ahead, Arabtec may finally be in a position to offer some direction.
If and when Arabtec is formally placed into liquidation, all creditors will rank in the liquidation process behind preferred creditors such as employees, secured creditors, and government creditors such as the Federal Tax Authority. All creditors should ensure that their claims are in good shape and submitted to Arabtec in accordance with the terms of their contracts