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White Paper on Restructuring and Insolvency

29 May 2019
DWF | Join Us
DWF (Middle East) LLP together with industry experts from Alvarez and Marsal Middle East held an interactive Breakfast Panel Series to discuss Restructuring and Insolvency. 

Recommendations

The Breakfast Panel Series was held to focus on the topical subject of Restructuring and Insolvency in the Gulf Cooperation Council ("GCC"), and more specifically in the United Arab Emirates ("UAE"). The region has seen some significant defaults in the last twelve months, which has made this an area of focus for lenders and companies. Over the course of the Breakfast Panel Series, the panellist recommended the best course of action for investors and creditors when investments are at risk by discussing the following topics:

A. Corporate Restructuring 

The panel discussed corporate restructuring in the UAE and some of the main points discussed were as follows:

  • Regardless of whether a company is in financial distress or not, any company can benefit from restructuring as it will result in it becoming more efficient. It is important for companies in the region to review their business and operational models, in order to ensure that their business remains cost effective. 
  • Businesses in the Middle East should continue to change despite past successes and be prepared to adjust.
  • In order to ensure that family offices continue to grow despite change of ownership, which is likely to occur over the next decade, the corporate framework needs to be adapted to ensure transparency. 

B. Financial Restructuring

During this seminar, the panel discussed financial restructuring in the UAE, as well as in the GCC. Some of the main points discussed were the following:

  • There is not a lot of ammunition available to the lenders in their tool-kit to effectively restructure finance transactions or negotiate terms that can provide for effective restructuring. Therefore, amending and restating facility agreements is the most popular method of financial restructuring in the GCC. 
  • Instead of only amending and restating the facility agreement, it would be preferable for borrowers to re-organise the business activities undertaken by the relevant entity for cost cutting, and also seek financial and operational restructuring for cost effectiveness. It would be helpful for lenders to get involved in the business of the borrower, and if suitable, a lender could even consider taking equity position. 
  • Borrowers need to engage with their lenders and advisers earlier in the financial restructuring process. If borrowers take a proactive approach, and instruct their legal advisers to closely monitor their financing in order to ensure that the financing terms are aligned, the restructuring process can be more effective and efficient. 

C. Purchasing and Financing of Distressed Assets

The panel reflected over the intricacies involved with financing and purchasing distressed assets in the GCC, as well as in the UAE. The following points were discussed:

  • In the GCC, financial institutions prefer to own assets as opposed to selling them for a higher price. This means that when assets depreciate significantly, the institutions prefer to hold onto the asset in the hope that it appreciates once more.
  • Companies need to consider their assets and business. Some companies hold on to non-performing assets, which can significantly impact the performance of the entire company. If a company was to sell these assets it could potentially save the company in order to meet their financial obligations.
  • There is no way to accurately quantify the value of a distressed asset in the region. Therefore, most distressed assets are valued as "failed businesses", and are priced from the perspective of disposing of the assets. Therefore, from a legal perspective, when considering these assets it is imperative to conduct thorough due diligence to reveal the value of assets on the books. 

Key Discussion Points

Recent developments

The abovementioned sessions discussed significant developments concerning restructuring and insolvency:

  1. Companies in the GCC are fearful of restructuring, but it can benefit businesses to look at ways to become streamlined and anticipate changes in the marketplace.
  2. The UAE Bankruptcy Law remains untested. A claim was made in Abu Dhabi under the UAE Bankruptcy Law but we are still waiting on the conclusion of this case. In the Kingdom of Saudi Arabia, two cases have now been accepted for restructuring under the bankruptcy law.
  3. Directors that are commercially-savvy and aware of local practice are key to appreciating the true value of an asset and taking an informed and objective view on whether to dispose of the asset or hold on to it.

Presenters

A.  Corporate Restructuring

  1. Moderator: Umera Ali, Global Head Islamic Finance and Head of Banking & Finance Middle East, DWF (Middle East) LLP, provided a legal perspective on the topic based on her experience as a banking & finance lawyer with an extensive background in restructuring.
  2. Panellist 1: Kayaan Unwalla, Head of Corporate and Defence and Security DWF (Middle East) LLP, provided perspective from the technology sphere regarding cyber security as the next most pressing issue for SMEs in the Middle East and around the world.  
  3. Panellist 2: Bryan Marsal, Co-founder, Alvarez & Marsal, gave an outlook off the back of three decades of hands-on operational and financial experience, and highlighted the prospect of a looming financial crisis.
  4. Panellist 3: Khaled Shivji, Founder, AA Consultants, provided a unique outlook into the way family businesses in the Middle East will change dramatically over the next decade, with clients needing to focus on shareholder needs and become more transparent.

B. Financial Restructuring 

  1. Moderator: Neil Hayward, Managing Director, Alvarez & Marsal Middle East provided insights into the issues from a financial restructuring perspective based on his expertise and involvement in investigations and restructuring of companies.
  2. Panellist 1: Umera Ali, Global Head of Islamic Finance and Head of Banking & Finance Middle East, DWF (Middle East) LLP, provided a legal perspective on the topic based on her experience as a banking & finance lawyer with an extensive background in restructuring.
  3. Panellist 2: Haroon Ansary, Senior Director, Alvarez & Marsal Middle East offered insight in relation to his global restructuring experience spanning a period of twenty years across Europe, North America, Asia and the Middle East, specifically in relation to the GCC region.
  4. Panellist 3: Mark Stapley, Regional Head of Wholesale and Market Risk, HSBC Bank Middle East Limited, presented his experience in relation to transaction management that has spanned over 20 years across Europe and the Middle East, focussing specifically on assisting businesses on their financial restructuring.

C. Purchasing and Financing of Distressed Assets

  1. Moderator: Umera Ali, Global Head of Islamic Finance and Head of Banking & Finance Middle East, DWF (Middle East) LLP, provided a legal perspective on the topic based on her experience as a banking & finance lawyer with an extensive background in restructuring.
  2. Panellist 1: Aisha Gondal, Of Counsel, DWF (Middle East) LLP, gave insight into her expertise in advising local and international clients on a multitude of matters in connection with securities offerings, commercial contracts and business regulations.
  3. Panellist 2: Haroon Ansary, Senior Director, Alvarez & Marsal Middle East offered insight in relation to his global restructuring experience spanning a period of twenty years across Europe, North America, Asia and the Middle East, specifically in relation to the GCC region.
  4. Panellist 3: Ahmad Alanani, CEO & Founding Partner, Sancta Capital, provides focused advice on deep value and distressed investment opportunities across the capital structure in the Middle East and Africa.

If you would like to discuss any matters in relation to Restructuring and Insolvency please contact us.

We accept no responsibility for loss to any person acting or refraining from acting because of material contained in this summary.

Further Reading