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Legal Focus
JANUARY 2013
Restructuring and Insolvency
We continue with our focus on the issues surrounding restructuring and insolvency by speaking exclusively to James Bowden, an associate in the Dubai office of Afridi & Angell. Here, he discusses market behaviour with Lawyer Monthly and some challenges that come hand in hand with cases within this practice area.
Please introduce yourself, your role and your firm.
Afridi & Angell is a full service law firm based in the UAE. As one of the longest established firms in the UAE, Afridi & Angell has become an integral part of the country’s legal landscape, and one of the premier law firms in the region. The firm advises local, regional and international clients on a wide range of transactions and legal issues.
As an associate in the Dubai office of Afridi & Angell, I advise extensively on a broad range of corporate and commercial, M&A and technology outsourcing matters in the UAE. I also co-authored the UAE chapter of The Restructuring Review 2012.
the restructuring and insolvency market has evolved radically over the last few years. How have you seen the market change recently in your jurisdiction?
The legal framework governing insolvency in the UAE is primarily set out in UAE Federal Law No. 18 of 1993 promulgating the Code of Commercial Practice (the “Commercial Code”), and it has remained essentially unchanged since then. The insolvency regime set out in the Commercial Code is still largely untested in practice, because debtors and creditors tend to opt for commercially agreed solutions outside of the courts, as the court process is lengthy and cumbersome. Recent activity of note includes:
(a) The ongoing development of an entirely new insolvency law for the UAE which is expected to replace the existing legislation as and when it comes into force. The new legislation is expected to substantially overhaul the existing regime, including the establishment of a specialized tribunal to hear and oversee insolvency proceedings. A draft of the law has not been released publicly at the time of
writing, as it has only been circulated for comment to the UAE Ministry of Finance. Our expectation is that it will be at least another 1-2 years before it is finalized and comes into force, possibly longer;
(b) The establishment of a specialized tribunal in 2009 to deal with the Dubai World debt crisis in the aftermath of the real estate collapse in late 2008. Dubai World is a Dubai government owned holding company with a diverse portfolio of investments, which at the time included major government property developer Nakheel (developer of some of the Dubai’s landmark developments such as the Palm Jumeirah and the World Islands). No claim was permitted to be brought against Dubai World or its subsidiaries other than before the specialized Dubai World tribunal. The tribunal was obligated to apply insolvency laws applicable in the Dubai International Financial Centre (one of Dubai’s free zones, which is recognized under the laws of the UAE as its own legal jurisdiction, and is based on English common law), which are based on English common law and are very different from those set out in the Commercial Code. This specialized tribunal was established ostensibly for its expertise in sophisticated financial legal matters, and its independence from the Dubai government; a side effect is that the proceedings did not occur in the Dubai courts or apply the provisions of the Commercial Code, so this major restructuring effort has not shed any light on how the Dubai courts would handle such proceedings.
What do you think are the advantages and disadvantages of a restructuring programme as opposed to insolvency?
Whether restructuring or insolvency
proceedings are preferred will depend upon the context of each situation, but the key question will be whether it is beneficial in each case for the company to continue carrying on