UAE - Legal experts have hailed the newly approved insolvency law that will come into effect in 2020 in the UAE, saying it will have a positive impact on the community and will also boost investment competitiveness in the country.
The UAE Cabinet approved the new Federal Law on Sunday to regulate cases of insolvency.
The law will protect debtors from legal prosecution, decriminalise the financial obligations of insolvent persons, and offer them an opportunity to work, be productive and provide for their families.
According to Emirati lawyer Dr Habib Al Mulla, executive chairman and managing partner at Baker and McKenzie, the bankruptcy law deals with companies while the insolvency law deals with cases of individuals, who are facing financial difficulties. Thus the new law supplements the previously issued bankruptcy law.
"There was no law in the past that addressed this situation. The insolvency law was issued as a supplement to the legislative process in this regard."
Al Mulla said the issuance of this law will help individuals who face difficulties in solving their financial obligations, and will provide them with methods of repayment under a legal cover that offers protection from criminal prosecution.
"This will even have positive impact on the community because imprisonment of the head of the family for a civil debt will have implications on the whole family."
On the other hand, the promulgation of the insolvency law would create a positive investment climate that would enhance the country's competitiveness, he added.
However, Dr Al Mulla said it is still not clear in the law that how it will deal with criminal penalties resulting from the issuance of dud cheques.
Egyptian lawyer Hani Hammouda of Kefah Al Zaabi Firm for Advocacy and Legal Consultancy said that the new law gives a boost to the growth of businesses under a legislative and legal environment.
"The new law aims at consolidating the investment competitiveness in the UAE. It also could find alternative and speedy solutions for financial litigations through the restructuring of defaulters' debts. It creates favourable conditions for investors to work under its terms."
Both the lawyers said the specific clause in the law have to be studied to have a full understanding of its implications.
"At this stage, we do not know whether there will be a travel ban on debtors. But everything will be clearer when the law is published in the official gazette," Hammouda pointed out.
All you need to know about the law
Q: What is insolvency law?
Insolvency law approved by the UAE Cabinet aims to protect individuals who are in debt.
Q: When will the law come into effect?
From January 2020
Q: How is it different from bankruptcy law?
The bankruptcy law deals with companies while the insolvency law deals with cases of individuals who are facing financial difficulties.
Q: What form of protection does the law offer?
Debtors will be protected from criminal prosecution and instead offered support to repay debts within three years. Individuals will be allowed to reschedule their debts and will have the opportunity to avail of new concessional loans.
Q: How will the court deal with the debts?
The experts appointed by the courts will coordinate with the debtor and creditors to come up with a plan, lasting no longer than three years, to settle the financial liabilities and fulfil all obligations stipulated in the plan.
Q: Will the debtors face a travel ban during the three-year repayment period?
At this stage, this aspect is not clear.
Q: Can the debtor apply for new loans during this period?
The debtor will be prevented from taking any loans until the court decides, upon the request of expert, the debtor or any of the creditors.
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