DUBAI, May 14: The United Arab Emirates is close to finalising an updated federal bankruptcy law and a draft of the legislation should be ready by the end of this year, Justice Minister Hadef bin Juan al-Dhaheri said on Monday.

The draft, which has been in the works since 2009, should enable both listed and family-owned companies in the UAE to be rescued rather than having to go through lengthy bankruptcy or liquidation proceedings.

“The ministry is studying a set of laws,” Dhaheri told a conference on financial restructuring and bankruptcy in Dubai.

“Among them is a federal law on foreign investment, another one on SMEs (small and medium-sized enterprises) and also another law on arbitration in commercial transactions and another one on bankruptcy and restructuring,” he said.

Asked whether the government was going to clear the long-awaited bankruptcy legislation this year, Dhaheri later told reporters: “Hopefully, God willing.”

Dubai’s debt crisis in 2009-2010 put company restructuring firmly in focus for both the government and investors. However, existing federal bankruptcy laws remain untested in UAE courts as distressed companies prefer to settle creditor claims privately because the existing legislation is opaque and complex.

In 2009, Dubai, one of seven UAE members, issued a special decree to deal with a $25 billion debt restructuring at its flagship conglomerate Dubai World.

Dhaheri also said another draft, on foreign investment, was still being discussed by the ministry’s legal committee but declined to give details and timing: “I can’t give a framework for it.”

The new UAE bankruptcy law may ease debt restructurings with greater provision for out-of-court negotiations and the government hopes it would help attract more foreign investors.

In addition, it contains provisions that can force a minority of creditors to accept a restructuring agreement if it is acceptable to the majority, a process known as a cramdown.

However, it will still be difficult to seize assets even if they are pledged as collateral since land ownership in the UAE is on the whole restricted to citizens, with some provisions for nationals of other countries in the Gulf Cooperation Council.

So international banks involved in a state-linked corporate restructuring would not be able to take control of assets and sell them on to realise their dues, as would happen in the West.

The new law will not apply to government entities or entities operating in a financial free zone such as the Dubai International Financial Centre, which has its own insolvency laws, experts have said. It takes just over five years to resolve insolvency in the UAE, one of the world’s top five oil exporters, with a recovery rate of only 11 cents on the dollar, which puts the country at 151st place globally, according to a World Bank survey.—Reuters