JANUARY 2013
Legal Focus
its business. A struggling debtor will generally be more inclined to voluntarily subject itself to a statutory restructuring regime, provided the regime is aimed at continuity of business (under protection from creditors). This can be seen as distinct advantage in that debtors may not wait “until it is too late” before seeking protection.
In
an insolvency-only regime, debtors will be unlikely to subject themselves to the court process when the only foreseeable outcome is liquidation.
What legal challenges and complexities arise when dealing with insolvency and restructuring in your jurisdiction? How can you assist clients in navigating/solving these challenges and complexities?
The primary challenge with this area in the UAE is the trepidation around how the UAE courts would apply and administer the provisions of the Commercial Code relating to insolvency in each case, and how long it would take for such proceedings to take their course. The regime in the Commercial Code is aimed at preventing individual proceedings against the debtor, verifying creditor claims, prioritizing them and then encouraging agreement on a settlement plan among creditors. It is a time consuming process, especially so if the creditors do not agree on the settlement plan (and in such case liquidation of the debtor is the only option prescribed, under the supervision of a court or creditor appointed trustee). As a conse- quence, creditors and debtors have historically preferred to keep the negotiation and settlement process outside of the courts to the extent possible.
Another challenge in the UAE is a fear of potential criminal consequences for managers or directors in an insolvency scenario, as the UAE Criminal Code provides that such individuals are subject to potential criminal liability punishable by fines and imprisonment when any of a broad spectrum of acts or oversights are committed preceding or during a bankruptcy proceeding. There is a general perception that it is better to avoid the risk of criminal liability by avoiding the bankruptcy judgment in the first place. In addition, there is a cultural aversion to submitting to insolvency proceedings or to declaring bankruptcy, as there is a stigma associating business failure with personal failure.
can you talk about any recent cases you have been involved in?
We represented the majority shareholders of a company listed on a UAE exchange which became insolvent, and earlier this year sold a substantial stake in the company to repay creditors.
The share sale proceeds repaid part of the outstanding debts of the owners (and
www.lawyer-monthly.com
companies owned by them) to their lenders. The borrowers have since restructured between 1 and 2 billion UAE Dirhams of debt with lenders (comprising of nine banks where there were bilateral loan agreements with each one). The lenders entered into standstill agreements declaring a moratorium on repayments for a period of two years in order to enable the borrowers to sell their mortgaged properties in an orderly manner to repay their obligations. The standstill arrangement was preferred as an alternative to filing for bankruptcy and/ or insolvency of the borrowers. This is an example of the preference for commercial arrangements outside of the UAE court system.
How do you see this practice area progressing over the next 3-5 years?
In our view it is unlikely that there will be significant developments in this practice area in the UAE in the next 3-5 years. The possible exception to this that we are aware of is the new insolvency law noted above which is currently still in draft form undergoing reviews by the UAE Ministry of Finance. It is hoped that the new law will create a more accessible, predictable and transparent insolvency regime, including a component aimed at creditor- protected compositions or restructurings. Once the new law comes into force, there is no certainty that it will be well used, as parties in the UAE may continue to prefer to negotiate settlements out of court regardless of the prevailing legislation; however, at this stage the content and impact of the new law is purely speculation. LM
contact details:
69
James Bowden afridi & angell
Emirates towers offices - Level 35 Sheikh Zayed Road Po Box 9371 dubai UaE
tel: +971 4 330 3900 Fax: 971 4 330 3800
Email:
jbowden@afridi-angell.com
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112