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Cutting a fast debt deal is to your credit, say UAE insolvency...

UAE residents pursuing a failed or failing company for money should look to reach a deal both sides can live with as early as possible.

Or risk being left with a token amount after several years of complex court proceedings. That was the message that emerged from a high-profile discussion on insolvency and liquidation held in Dubai Wednesday, as a panel of international experts said Middle East nations should ensure they have a "robust restructuring system" in place so that troubled firms can be dealt with quickly.

Faced with a company struggling to pay its debts, the best solution is for the firm and its creditors is to reach a consensus on a repayment plan. If you can manage that, says Ian Schneider, a partner at accountancy firm PricewaterhouseCoopers told delegates, then you can expect to receive a little over a third of what you are owed - or 34.7 per cent.

Insolvency experts say lengthy liquidation often results in those who are owed money ending up with less cash

That's the average he's seen returned to creditors able to reach consensus in a year's worth of cases handled by his firm in the UAE. Those who find themselves chasing a firm for their money through a liquidation process can expect substantially less, he said - in the region of 10 per cent.

Not only that, he said, but research conducted by regional corporate governance institute Hawkamah and the World Bank, and other organisations, put the average length of such proceedings at five years.

That's why the region's legal jurisdictions must have clear rules governing restructuring and liquidation - or in simple terms, what firms are worth saving, and what firms have "reached the end of the road", leaving their creditors scrambling for the scraps.

If a firm can be rescued - either by agreeing a deal outside of court with those it owes money or after a court-imposed vote of its creditors - it should be given the "breathing space" to recover, the experts agreed.

"A business unit is worth more as a going concern than it is after being broken up in liquidation," said Mahesh Uttamchandani of The World Bank. Not only that, but a successful restructuring can save jobs, by transferring employees to a new legal entity or keeping them on under new management. That doesn't mean saving those who got the firm in distress in the first place though.

"Rescue proceedings shouldn't be seen as free ride for people who are useless at their job - they should be seen as a way of getting the business, and all the employees who rely on that business, in the hands of people who are competent," said Gordon Stewart, president of insolvency organisation INSOL.

And not every firm can recover from its difficulties, he added.

"Would you save a company that is making stagecoaches if we live in the age of the train? Some companies have reached the end of their life."

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Publication:7 Days (Dubai, United Arab Emirates)
Geographic Code:7UNIT
Date:Dec 6, 2012
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