The new bankruptcy law recently announced in the UAE has brought some good news for the new or amateur SME companies looking to start a business in the UAE.
However, a new report published in the local newspaper states that if anyone deliberately declares his or her herself as bankrupt via scheming, will face a substantial fine of up to one million and five years in jail. This punishment was discussed by the Ministry of Finance, who reviewed the final draft of the bankruptcy law which aims to strengthen and protect UAE entrepreneurs in Abu Dhabi recently.
Legislative and economic principles
According to Obaid bin Humaid Al Tayer, the Minister of State for Financial Affairs highlighted that the ministry is ready to administer a law, based on modern legislative and economic principles while taking into consideration global developments and changes taking place in the economic and business sectors.
These efforts have led to implementing the bankruptcy law and distinguishing it from other legislation on a regional level, as well as in developed countries.
Pillars of local economy
Considered as an important pillar for boosting UAE’s economy, the bankruptcy law will provide protection for all parties, in addition to its pivotal role in attracting capital, in a safe and attractive investment environment and providing a protection legislation and legal acts.
Avoiding bankruptcy cases and liquidation of the debtors’ funds are major parts of the law. The law also works on identifying a comprehensive financial restructuring outside the scope of the court, composition procedures and the possibility of getting new loans under terms set by the law.
Credit levels, as well as financial guarantee within its legislative priority, will also be raised, in order to strengthen investor’s confidence and boost the economy, by enabling the financially distressed businesses to restructure.
This law will also encourage entrepreneurs that are looking out for secure investment, preserving their rights, as well as strengthening their trust in the legal infrastructure, according to Al Tayer.
According to Khaleej Times, the law will be implemented on businesses that were created under commercial company laws, those not established under the commercial law, semi or fully owned businesses by both federal and local government entities.
Moreover, the law will also be implemented on companies that were established in free zones, and which do not have provisions to regulate composition procedures or restructuring bankruptcy according to the Federal law No. 8 of 2004 concerning financial free zones, any trader and licensed civil entity.
Strengthening the economy
The bankruptcy law is a paradigm shift to boost economic landscape, according to the Director Industry interface projects and Financial Associate Professor Dr Nawazish Mirza.
“The enactment of bankruptcy law in UAE is a landmark move to provide an appropriate exit strategy to the financially distressed borrowers. Proper bankruptcy procedures are vital control mechanism that is aimed at improving economic efficiency through systematic reallocation of troubled assets.”
He pointed out that UAE’s economy has recently experienced an exponential growth of small to medium enterprises on account of liberal bank financing.
On the other hand, he noted that certain small businesses might be affected, due to the dynamic environment.
“The presence of a legal regime will ensure that while businesses may continue to default, restructuring or liquidation can be done in an organised manner to minimise drag on creditors.”
Dr Mirza added that the move could ease pressure on the loan portfolios of SME’s, and thus reducing credit cost and encouraging companies to reinvest, which will limit expatriation of profits.
“An increased possibility of bank financing will continue to support entrepreneurial ecosystem. All of this will boost business confidence resulting in lowering of investment barriers and ultimately contributing towards increase economic efficiency.”
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