A new bankruptcy law, issued in the UAE on October 24 could encourage banks to increase lending to SMEs because it sets out a framework for insolvency proceedings and debt restructuring, according to Fitch.
The agency estimates that SME lending represents around 5 per cent of total UAE bank loans, much of which is unsecured. The UAE’s existing insolvency law does not provide for the rehabilitation of distressed companies through creditor agreements.
There are many recent examples of ‘skip’ cases, where SME owners have fled the UAE when they could not repay their bank loans because, as under domestic personal criminal law, expatriate borrowers can be jailed if they bounce a cheque or fall behind on their financial obligations.
Based on media reports and legal commentary, the agency thinks it will provide alternatives to liquidation and offer broader options for debt restructuring, which should benefit creditors. The new bankruptcy law should help improve prospects for creditor rights and provide a more supportive environment for SMEs as they will be allowed to continue to operate while restructuring plans are being agreed. Media reports indicate that the new law should take effect in the coming months.
Bankruptcy is the bane of SMEs