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Restructuring & Insolvency Breakfast Series | Liquidation and Insolvency: Making it work, when it all fails // Monday 11 November 2019

21 November 2019
DWF (Middle East) LLP in conjunction with Alvarez & Marsal and Thomson Reuters hosted the third session of their Restructuring and Insolvency Breakfast Series on Monday 11 November 2019 which focused on Liquidation & Insolvency – Making it work, when it all fails.  

The panel discussed the process of terminating a business and distributing the remaining assets to shareholders and creditors. They also covered liquidation by court order, along with the impact of the introduction of the UAE Bankruptcy Law in 2016 on the liquidation process.  

Moderator: James Fox, DWF Middle East - Partner // Head of Dispute Resolution (Middle East)
Panellists:

  • Umera Ali, DWF Middle East - Partner// Head of Banking & Finance (Middle East)
  • Neil Hayward, Alvarez & Marsal – Managing Director and Co-Head of the Middle East Office
  • Nabil Azar – Ex-general counsel and company secretary of a major local bank

A summary of the key takeaway points from the discussion:

  1. Insolvency Laws in the UAE: In 2016, the UAE issued Federal Bankruptcy Law No. 9 of 2016 (the "UAE Insolvency Law"). A key feature of the UAE Insolvency Law is that it allows a company capable of being rescued through restructuring to apply to the UAE courts for formal restructuring. Insolvency and liquidation procedures are also streamlined. Under the UAE Insolvency Law, any debt outstanding for 30 or more business days can permit a relevant party to initiate proceedings against the relevant debtor. The DIFC and the ADGM have also passed insolvency laws similar to the UAE Insolvency Law. These UAE insolvency regimes now allow struggling businesses to stay afloat through a court process - a process that was not previously available. The UAE Insolvency Law has also broadened the scope of entities that can take action against a distressed company, such as vendors and shareholders.  
  2. Building Confidence in New Insolvency Courts: As the insolvency laws in the UAE and its offshore jurisdictions are fairly new, there is a question over the competency of the UAE insolvency courts to handle insolvency and rehabilitation matters. In order to address questions over competency, there needs to be more clarity on who can serve as experts in such matters. Also, governmental committees should be established to give clear directives to the insolvency courts with respect to structure and process. Consistency and transparency with respect to the insolvency process will go a long way in establishing confidence amongst both distressed corporates and banks.   
  3. Prediction: As the new insolvency regime remains largely untested, it is unlikely that there will be any major cases put before the insolvency courts in the next year or so. There is too much uncertainty with respect to the expertise of the insolvency courts and how the insolvency laws will be implemented. It is expected that banks will be followers and not pioneers. Local corporates are likely to take the lead in taking advantage of the benefits of the insolvency laws. Banks are risk averse and are also hesitant to lend new money to distressed companies (even for the purpose of turning the distressed company around, which means that the distressed companies continue to deteriorate). Nevertheless, as there may be legal and commercial limits to how much restructuring can be done, banks may be pushed to work with the insolvency laws.  
  4. Costs and Early Filing: In order to protect against the high-costs associated with restructuring, it is highly recommended that distressed companies involve their advisors earlier in the process rather than later. As more time passes from the date that a company begins to have solvency issues, it is likely that certain solutions will become unavailable to it. In general, the culture with respect to insolvency needs to change in the Middle East and early fiiling with the insolvency courts must be incentivised. The creditors have more chances of succeeding if the company is operating than the company that is bankrupt. Therefore, it is in interest of all parties to consider restructuring. 
  5. Ideal Jurisdiction: The US insolvency regime provides a very good example for the region. The UK insolvency court process is not very rigid and there is an emphasis on businesses being able to function as a going concern while maximising the return to their creditors and owners. Therefore, a mixture of the two jurisdictions would be ideal for the system to succeed. 

 

Watch our expert panellists discuss their main takeaways from the seminar. 

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