May 20 2012
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Al Hamli: "The hybrid [insolvency] law will be tailored for local circumstances"
20 May 2012
The UAE is expected to finalize a new Financial Restructuring and Bankruptcy Law by the end of 2012, according to a statement by Dr. Hadef Bin Jouan Al Dhaheri, the UAE Minister of Justice. The provisions of the new draft law apply more widely than the current rules and procedures governing bankruptcy in Book 5 of Federal Law No. 18 of 1993.
According to a statement on legal firm Hadef & Partners' website in January, the new law empowers the UAE Council of Ministers to set up a commission to administer the "financial reorganization" procedure as well as maintain a centralized register for disqualified persons and directors and a centralized register of bankruptcy restrictions and orders.
Hadef & Partners and Clifford Chance have been instructed by the UAE ministry of finance, on behalf of a number of UAE government stakeholders, to assist in formulating key policy proposals and to draft a new proposed federal bankruptcy law for the UAE, based on a comparative study of insolvency laws in a number of other legal jurisdictions, including England and Wales, France and Germany.
Zawya presents some key statements by people involved in this process, from a conference in Dubai:
"This law will make the UAE the first GCC country to handle the financial restructuring and bankruptcy law in an objective and scientific manner, as well as to combine the regulatory and legislative framework with experience and practice. The new law will be separate from the existing company law; it will be interlinked to the company law because it will tackle the practice of the company and its governance.
Sir Anthony Evans, Chairman of The Special Tribunal Related to Dubai World:
"The courts will play a very crucial role in the future. The specific need is to recognize the relationship between the new law and the existing civil code and the ability to obtain remedy in the local courts, which will be needed to make the new code work."
Gordon Stewart, President, International Association of Restructuring, Insolvency & Bankruptcy Professionals (INSOL):
"This [draft] is an excellent basis for a new law and there has been a formidable effort of putting it together. The real test will come in its enforcement through the courts. One has to also look at the existing civil and criminal laws of the country and the ones governing the issuance of checks. While our contributions might take certain situations for granted, this is a crucial aspect."
Richard Briggs, executive partner at Hadef & Partners:
"The order for payments of preferential debt will be amended and the UAE courts may sanction cramdown where the rights of creditors and shareholders are not affected by the proposed structuring plan.
"Some judgments can be made in eight months in Dubai. Abu Dhabi is making great efforts to speed up the process. But many judgments take three to four years. While there is an existing law, with the slowdown in the economy in 2008, the need for an insolvency law was really put to the test since the UAE had never faced a major downturn and the big companies and the government companies had never faced insolvency issues."
Dina Mahdi, Associate at Hadef & Partners:
"In terms of cramdown provisions, secured creditors will not have the right to vote during the restructuring plans. When preferential debt is given to the priority classes (fees related to the actual proceedings, fees related to taxes and wages), then only unsecured creditors have a right to vote on restructuring plans."
[Cramdown is a term used in bankruptcy law that allows debtors to retain collateral as long as they offer repayment of the 'secured portion' or fair market value of the collateral in their repayment plan.]
© Zawya 2012
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