The impact of the Federal Law on Bankruptcy unveiled by the UAE remains mostly hypothetical, and it is unlikely to elicit a flood of bankruptcy applications, according to Essam Al Tamimi, senior partner at law firm Al Tamimi & Company has said
While the law contains aspects that may make preventative composition or bankruptcy more attractive, it is likely parties will still prefer to restructure debts consensually, Tamimi wrote in an op-ed for a local newsmagazine.
Such applications have requirements that many debtors may not satisfy. These include suspended debt payments for over 30 business days when applying for preventative composition, Al Tamimi wrote.
Also, although a debtor may wish to seek court supervision for preventative composition or restructuring, depending on the type of application (and approach of the trustee/court), the debtor may lose the ability to manage its business and could still be placed into liquidation.
Therefore, the decision to file an application would need to be carefully considered, according to Al Tamimi.
The law also does not decriminalize bounced cheques, although it does suspend such criminal proceedings.
Al Tamimi said that the law is a welcome development that gives debtors the necessary comfort to remain in the UAE and restructure their debts, especially those with a viable business and the right intentions to restructure.
However, the protection offered is only a suspension, which means some may still choose to skip the country and undertake any restructuring or bankruptcy from outside the UAE, Al Tamimi wrote.
It is likely though that in the next two or three years criminal proceedings for bounced cheques will become less commonplace and may even be abolished if bankruptcy overtakes them as the more favored option, he added.
Like any new law, it will take time for all stakeholders, including the legal fraternity, to fully understand how the law will be implemented in practice, Al Tamimi.
Until applications are filed, the approach of the courts and trustees, timelines and practical implementation of the law will remain a theoretical analysis, Tamimi wrote.
This is not the first tine Al Tamimi has shed doubt on the new law.
Back in 2016, when the law was being announced, he had said that the new bankruptcy law would not decriminalize bounced cheques, something that was seen as the law’s defining feature.
UAE President H.H. Sheikh Khalifa bin Zayed Al Nahyan issued the long-awaited Federal Law on Bankruptcy by decree in late 2016.