UAE Cabinet approves Bankruptcy law


His Highness Sheikh Mohammed bin Rashid Al Maktoum, the UAE’s Vice President, Prime Minister and the Ruler of Dubai recently made an announcement that the UAE Cabinet has approved the final draft of the federal bankruptcy law.

This legislation aims to promote UAE’s economy attractiveness for investments and enhances business facilitation, according to Sheikh Mohammed.

Helping SME’s

There have been a lot of discussion from senior officials in the financial sector including UAE Banks Federation (UBF) and IMF for a bankruptcy law for numerous cases involving SME owners fleeing the country over unpaid debts and the fear of going to prison.

The implementation of this law, which is a few months away following the cabinet’s approval of the draft bill, will be a positive step, particularly for small business owners or those considering to start a business in the UAE.

The law will also put a moratorium to put people behind bars for bounced cheques until a restructuring plan for business owners has been agreed with creditors, a senior government official told a local newspaper.

This law by the Council of Ministers will enhance the economic and investment legislative system in the UAE, thus contributing to better ranking of the state in the global indicators regarding ease of doing business, competitiveness and entrepreneurship, according to Abu Dhabi Securities Exchange CEO Rashid Al Balushi.

He further added that the law would also ensure the continuity of companies and give them the flexibility needed to manage their finances. These factors, Al Balushi continued, will also help provide an ideal environment for investment.

Moreover, Al Balushi stressed many positive points of the law that has been promulgated, including ensuring the continuation of the company’s business, provision of protection to investors and preserving their rights in general.


The UAE’s banking sector faced a substantial surge with numerous bad debts the previous year. It has been estimated that around Dh5 to Dh7 billion loan payments have been skipped by small business owners according to UBF’s estimation. Out of this estimation, many of the small businesses in the UAE had borrowed loan from not one bank but numerous banks in the country.

In the wake of rapid expansion, that was supported by bank funding during the financial crisis and due to this above mentioned loss, many SME sectors in the UAE now find it tough to do business resulting in delays and defaults in loan repayments.

Business unwinding

The adoption of a bankruptcy law enables entrepreneurs and companies to restructure or unwind their businesses in an orderly manner allowing creditors to recover debts within the legal framework, as SME’s are the first ones to be affected by the financial crisis and bankruptcy.

In the absence of a bankruptcy law, there is a fear of being jailed when SME owners face financial difficulties, forcing them to leave the country as the only exit strategy. Thus increasing the burden on financial institutions for servicing the bad debts and affecting the growth of trade and service.

A business growth strategy

The approval of the UAE Bankruptcy Law will lead the way for positive business growth and diversification in the country. This law protects the UAE’s entrepreneurial ecosystem, comprising small and medium-sized businesses constituting over 90% of the UAE’s corporate sector, according to the CEO of Cresent Enterprises, Badr Jafar.

“This law is a very significant development for the banking and finance industry which will undoubtedly spur entrepreneurship and encourage investors from within and abroad into the region. It will ensure that the crucial relationship between small and medium enterprises, banks and investors is further strengthened,” said Jamal Al Jassmi, General Manager of Emirates Institute for Banking and Financial Studies

A positive step ahead

Cedar Consultancy notes that the UAE consists 300,000 SMEs, with about 100,000 being eligible for banking services. Currently, the total exposure of banks to SMEs in the country accounts for 5% of total lending while their contribution to total bank deposits is 6%.

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