No more jail time for bad debts under new UAE bankruptcy law

A new bankruptcy law in the UAE promises to reduce the risks of doing business in the country by allowing businessmen and executives to avoid time in jail if their companies fail to pay debts.

The long-awaited law, approved by the cabinet this week, is expected to take effect by the beginning of 2017 after it is promulgated, Obaid Humaid al-Tayer, Minister of State for Financial Affairs, told reporters on Tuesday.

“This law will add value to the business community and will be positive for both foreign and local investors. This is an important step for the UAE,” he said.

At present the UAE does not have modern bankruptcy regulations, making it difficult for companies to restructure or wind themselves up. Under existing legislation, unpaid debt or the issue of a bounced cheque can land businessmen in jail.

That has proved problematic for smaller companies in particular as some executives of troubled firms have fled the country, leaving behind bad debts. Such debts, known as “skips”, totalled over $1.4bn last year, bankers estimated.

The new law will establish a regulatory body, the Committee of Financial Restructuring, that will oversee restructuring cases and appoint experts to handle them. It provides for companies to receive new loans under terms set by the law.

However, businessmen will face a prison sentence of up to five years and a fine of up to Dhs1m ($272,000) if their companies fail to pay debts and deliberately avoid filing for bankruptcy, Tayer said.

The new law will not apply retroactively to businessmen who are already facing criminal cases over unpaid debt. It will cover both state-owned and private companies with some exceptions, such as firms based in special free zones.

Tayer said the UAE was also working on a new personal insolvency law that would apply to individuals. “It will take around 12 months to draft the law,” he said.