The UAE has approved a draft law on bankruptcy, further cementing its place as a regional hub for startups.
In a tweet on Sunday, Sheikh Mohammed Bin Rashid Al Maktoum, vice president and prime minister of the UAE and ruler of Dubai, said the draft bankruptcy law would enhance the investment attractiveness of the UAE economy.
We also passed the final version of the new Federal Law on bankruptcy, which aims to promote both investment and ease of doing business.— HH Sheikh Mohammed (@HHShkMohd) September 4, 2016
The insolvency law, passed by the UAE cabinet in July 2015, is expected to decriminalize bounced checks and facilitate corporate bankruptcies, but until now, little else has been said.
Currently it is a criminal offence to go bankrupt and there is no easy legal action for collecting money owed by a company that has gone bust.
If you look at it this way: Company A, from outside the UAE wants to do business in the region. They find Company B to partner with it. Company A ships their product to the UAE and then Company B disappears or goes bankrupt. There is currently no legal framework to help Company A get their money back.
Another consequence of not having a legal framework for insolvencies was the mounting debt of failed business owners. According to Gulf Business, “UAE Banks Federation chairman Abdul Aziz Al Ghurair told reporters in November that small business owners had fled the country with around 5 billion Emirati dirhams ($1.4 billion) in debt last year.”
According to Dubai-based Rebecca Kelly, a lawyer with Morgan, Lewis & Bockius LLP, once a law had cabinet approval, it was then just a question of signatures. She said it was likely they would see the law enacted in October, but it had actually been around for about five years.
She told Wamda the companies law, one of a list of laws looking to help business in the UAE, took a long time to be enacted. “And the final version wasn’t much different from the first,” she said.
This isn’t uncommon. Kelly said that in cases where a federal law was going to greatly impact the majority of businesses in the region, it was normal that time was taken over them.
“The government has to consider how the law will work within the existing legislative framework and whether amendments to existing laws will be required in order to implement the new legislation,” she said. Waiting six to 12 months after publication for a law to be enacted was normal.
The data sharing law, announced in October 2015, would also open many doors for startups, and it too has yet to be enacted.
The UAE has been wooing startups, with great success, for years. But to be able to offer companies and clients looking to operate in the UAE reassurance over their business dealings, having an insolvency law, which would deal with bankruptcy, will open the gates even wider.
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