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Final draft of UAE bankruptcy law approved.

The final draft of the federal bankruptcy law was approved by the UAE Cabinet, at the beginning of September this year.

Under the existing legislation, business owners facing financial difficulties could face jail terms, causing many to skip the country leaving behind approximately AED 5 billion in debt, which has been a major obstacle in doing business in the UAE.

Emilio Pera, Partner and Head of Financial Services, KPMG in the UAE, said the new law will enhance the UAE's business environment by boosting its investment climate. Businesses facing financial difficulty can now restructure, rather than go under, which will not hurt investors as much as it did before. He added that the ease of doing business in a country is one of the key indicators that potential investors will consider in a global market that is increasingly competitive as companies struggle to regain pre-crisis growth levels, with the maturity of the legal framework an important contributor to this indicator. Continued investment into this market should boost economic growth, further enhancing the attractiveness of the UAE as a global investment destination.

"In the recent past we have seen individuals skip the country to avoid jail sentences when they can't meet financial obligations, resulting in businesses going under and leaving investors out of pocket. This legislation will enable restructuring or structured unwinding of businesses facing financial difficulty which will not only enable them to continue to constructively contribute to the economy, but also protect investors," said Pera.

The UAE has approximately 300,000 SMEs, with about 100,000 being eligible for banking services, according to advisory and analytics firm Cedar Consulting, with the current total exposure of banks to SMEs in the country accounting for about five per cent of total lending, while their contribution to bank deposits is around six per cent.

Noor Trade's Head of Business Banking, Usman Khakwani said the news of a UAE bankruptcy law has been a breath of fresh air for many businesses in these challenging times.

"Given that SMEs are the major source of GDP growth outside of the non-oil sector, it is pertinent to have this safety net in place for the betterment of all stakeholders involved such as SME, buyers and suppliers, banks and other related parties. It may be inferred that a bounced cheque will no longer mean a criminal offence in the UAE" he said.

Khakwani added that the impact should be positive towards the growth of UAE, as this will allow businesses who fall under the criteria of being in financial distress to restructure their finance and continue their operations, making it a win-win situation for all involved stakeholders.

Pera said that the bankruptcy law is not something for a business to consider unless they are already facing severe financial trouble. For a business that is operating profitably in the market, the law will help attract investors as it provides reassurance that their investment will be protected even if the business fails.

"It will also give SMEs confidence when setting up their business in the UAE, and a certain level of comfort in the market. As of now we know that the law could be enacted as soon as the end of the year. SMEs that are struggling right now could look at the possibility of staying afloat until the law is enacted, in order to potentially save their business," said Pera.

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Publication:CPI Financial
Geographic Code:7UNIT
Date:Oct 25, 2016
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