In a significant recent judgment, the ADGM Court has clarified that it has jurisdiction to hear an action for fraudulent trading against the former directors of an onshore UAE company.
By way of background, NMC Healthcare LTD (NMC), and its various subsidiaries, were incorporated in onshore UAE. On 17 September 2020, NMC was redomiciled as an ADGM company. Shortly thereafter, on 27 September 2020, NMC was put into administration pursuant to the ADGM Insolvency Regulations 2015 and joint administrators (the Joint Administrators) appointed.
Since the pandemic, during which insolvency rates were low due to Government measures, there has been a considerable rise in insolvencies in the UK and many other jurisdictions. High interest rates have significantly increased the cost of borrowing and many companies are saddled with mountains of debt that was taken out in better times and which are now difficult to repay. In addition, high inflation and energy costs, lower consumer confidence and volatile supply chains have all contributed to making the last few years very difficult for businesses.
1. Introduction
The longstanding debate surrounding the prioritization of crown debts vis-à-vis private debts has entered a new chapter with the advent of the Insolvency and Bankruptcy Code, 2016 (“IBC”). Prior to the IBC, the common law principle generally granted crown debts preferential status over unsecured debts. This historical primacy stemmed from the sovereign's role as the embodiment of the public good, requiring unimpeded revenue collection for the smooth functioning of the State.
The adage ‘there is no such thing as a free lunch’ rings true for the 831 company directors disqualified in 2023/24 for abusing the Covid financial support scheme.
The Superior Court of Quebec rules in favor of Export Development Canada (“EDC”) and enforces a "[unequivocal]" Waiver against the surety who signed it in the context of a loan guarantee granted to the RBC.
Relevant Facts
The Kingdom introduced its first ever bankruptcy law in 2018 which has created a foundation for a business rescue culture in Saudi Arabia. Companies undergoing financial difficulties are equipped with the tools that allow them to either trade out of a difficult period or liquidate the business in a manner which does not leave creditors out of pocket. More recently, to complement the existing insolvency regime, rules of cross-border bankruptcy proceedings came into effect on 16 December 2022 (“Rules”).
Introduction
Barely six years since the enactment of the Insolvency and Bankruptcy Code, 2016 (“Code”), the Code has already undergone various amendments from to time, to aid its broad objective of time bound insolvency resolution, maximisation of value of assets of corporate debtors and balancing the interests of all stakeholders. Besides the amendments, judicial pronouncements have also played an instrumental role in shaping the Code in its present form.
The Dubai Court of First Instance concludes that preventive composition, restructuring, bankruptcy, and liquidation are only possible if the debtor company has existing assets.
In a recent judgment issued on 26 April 2023 the Dubai Court of First Instance rejected the liquidation application of an indebted company on the basis that the company does not have any assets that could be liquidated.
The extant regulatory framework for Asset Reconstruction Companies (“ARCs”) has been amended by the Reserve Bank of India (“RBI”), vide its notification titled ‘Review of Regulatory Framework for Asset Reconstruction Companies (ARCs)’ dated 11th October 2022 (“Framework”).
Key Changes:
Some of the key changes brought about by the Framework are as follows:
Over the past year or so, we have seen a number of examples of Dubai Courts taking an extremely cautious approach to handling debtor-led bankruptcy cases, particularly in relation to determining whether there is a legitimate distressed financial position and enquiring as to the conduct of managers leading to the bankruptcy of companies.