United Arab Emirates

A softening in the United Arab Emirates' economy has led to a surge in small and medium-sized businesses defaulting on debt, dragging on banks' performance and highlighting the need for a new bankruptcy law, Reuters reported. In a country where a bounced cheque risks landing the issuer in jail, there have been hundreds of recent cases of expatriate business owners fleeing the country, or "skipping", with unpaid debts, banking sources say. Others who remain have defaulted on debt and in some cases been arrested.

An impediment to private enterprise and a major risk for banks has been the lack of a viable insolvency law. Ironically, UAE, which is an important international financial and business hub, has functioned without effective insolvency laws, which hurt its international reputation, Gulf News reported in an analysis. Prior to the global financial crisis of 2008, business failures were dealt with in an ad hoc manner and conflicts, when they rose, were often resolved through informal arrangements, facilitated by external negotiators.

Fahad Al Raqbani, director general of Abu Dhabi Council for Economic Development, said that the long-awaited insolvency law in the United Arab Emirates is expected to contain provisions for corporate bankruptcy modeled on U.S. chapter 11 proceedings, The National reported yesterday. “Many companies in the US undergo Chapter 11 bankruptcy and then gain in momentum,” Raqbani said. “A given project may be successful, but also need restructuring.” The insolvency law was passed by the Cabinet in July.

Malaysian state fund 1Malaysia Development Bhd said on Wednesday (Aug 26) that it strongly denies that Abu Dhabi's International Petroleum Investment Co (IPIC) is considering pulling out of a plan to help restructure 1MDB's debts. "We in fact confirm that 1MDB remains engaged in discussions with IPIC, to conclude the transaction per the terms as officially announced by IPIC to the London Stock Exchange on 10 June 2015," it said in a statement.

Dubai-based real estate agency S&K Estate Agents said a deteriorating property market in the emirate contributed to its decision to file for bankruptcy and be liquidated, Reuters reported. "Simply put, the revenue being generated by the business drastically reduced over the first half of 2015, without enough income to cover operational costs," S&K said in an emailed statement released through a public relations firm. The company said its reputation had suffered from client complaints and a recruitment drive did not yield results quickly enough to save the business.

Drydocks World has called in the American financial group Citibank to help it refinance its US$2.3 billion of debt, The National reported. DDW, under the chairmanship of Abdulrahman Al Saleh, the director general of the Dubai Department of Finance, has hired the restructuring advisers at Citi’s Middle East unit, which is based in the emirate, to seek a better deal from its creditors. The marine engineering group, part of the Dubai World conglomerate, sealed a deal in 2012 to push back maturities on $2.3bn in two tranches.

The long-awaited new insolvency law has taken a big step towards becoming a reality after being approved by the Cabinet, The National reported. Sheikh Mohammed bin Rashid, Prime Minister and Ruler of Dubai, said on his website that the proposed draft law includes flexible strategies to bail out businesses that have encountered financial troubles that might lead to bankruptcy. “The draft law aims to regulate accumulated debts, eases restructuring of companies as well as support troubled businesses,” he said.

Bank creditors to Drydocks World (DDW), Dubai’s maritime engineering business, are expecting to receive proposals from the government-owned company to restructure some of the US$2.3 billion debt it refinanced in 2012, The National reported. Recent talks with creditors have left them convinced that the company, owned by the Dubai World conglomerate, will seek to change the terms of its agreement to repay some $800 million of bank loans in the summer of 2017.

Liquidators for ES Bankers (Dubai) Ltd (ESBD) have estimated they will pay out 82.7 percent of the $93.5 million owed to depositors in the stricken bank, advisory firm Deloitte said on its website, Reuters reported. However, unsecured creditors of the Dubai arm of the Espirito Santo empire, which stumbled after accounting irregularities were identified at one of its holding companies earlier last year, will get none of the $14 million they are owed, the document added.

At the start of a new year, the UAE’s lawyers, bankers, small business owners and, indeed, government officials, are still waiting for the country’s new insolvency bus – sorry, law –to arrive. But the signs are that after many years of standing at the bus stop and waiting, the legislation is getting closer to becoming a reality, The National reported in a commentary.