Proposed UAE bankruptcy law could put strain on courts once enacted, top lawyer says

The UAE’s draft bankruptcy law, once enacted, could place a significant strain on the courts and public prosecution system, with a need for a large increase in trained insolvency practitioners, according to Essam Al Tamimi, a leading Emirati lawyer.

Mr Al Tamimi, the founder and managing partner of law firm Al Tamimi and Company, welcomed the approval of a draft of the law by the Cabinet last month, but cautioned that local courts were currently ill-equipped to handle the types of restructuring and bankruptcy procedures set out in its provisions.

“The law is very well drafted and very comprehensive, with well-structured provisions equivalent to Chapter 11 [in the US] that will protect insolvent companies from going bankrupt. The main concern is the practicalities,” Mr Al Tamimi told The National.

“The local court system today is way too busy and doesn’t have the manpower to deal with the law’s extensive detailed procedures,” he said.

Mr Al Tamimi said that the new law called for a large number of insolvency experts to assist with court-driven insolvency proceedings, but that such experts were thin on the ground in the UAE.

“In terms of experts required, I don’t think we have a large enough number, and in some cases they don’t appear to have the right qualifications,” he said.

“There are a lot of details there that the legislators need to pause and think how practically they can be introduced and implemented effectively. The vocabulary of the new law and its processes are new even for experienced lawyers and judges.”

The law, once enacted, would also require extensive training for police and public prosectors, he said.

While the commercial transactions law has a number of provisions related to bankruptcy and insolvency, there have been hardly any court-led insolvency proceedings in the country’s history.

“The new law will require a paradigm shift in the minds of judges, accounting experts and lawyers,” said Mazen Boustany, a partner with Baker & McKenzie Habib Al Mulla.

“Once people start using it, they will get used to it of course. There’s a question to be raised, however, whether you would need to appoint specialised bankruptcy judges, as is the case elsewhere.”

The draft of the bankruptcy law, which draws on bankruptcy protection laws from jurisdictions including France, Germany and the Netherlands, was approved by the Cabinet a month ago, with government figures at the time expecting it to come into effect from early 2017.

The Minister of State for Financial Affairs, Obaid Humaid Al Tayer, said last month that while laws approved by the Cabinet were typically referred to the Federal National Council (FNC) for consultation, the Constitution allowed for the new insolvency law to be passed directly to Sheikh Khalifa, the President, for signature when the FNC is in recess, as is currently the case.

Members of the FNC last month expressed an interest in debating the draft law before it comes into effect.

The FNC is expected to convene again late this month or in early November.

“There are big practical issues that require forward planning whenever any new law is passed,” said James Farn, an Abu Dhabi-based partner with Hadef & Partners.

“It’s difficult to say whether some of the local courts contracted out of the federal system are going to have the systems in place early on after the law passes, [and] it may vary from emirate to emirate. The courts will need to prove their credibility to encourage creditors to use the new law.”

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John Everington

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