Under the Penal Code, a trader will either be regarded as bankrupt by default or bankrupt by misrepresentation if he/she:
· Conceals, mutilates, falsifies or destroys of his books.
· Falsifies entry in any book or document for any artificial debts.
· Spends on gambling or materially contributes to or increases the extent of insolvency by rash hazardous speculations.
· Payment of debts to some creditors with intent to defend or delay other creditors.
· Failing to keep proper books of account or failing to produce all the books of accounts as are necessary to demonstrate or explain his debts or credits.
Owing debt in Dubai and not being able to pay it is a problem without a solution, even in this modern age. Currently there are no bankruptcy laws for ‘non traders’, which would include consumer bankruptcy cases such as employees of companies. Changing market conditions, particularly in the real estate sector, have put the use of insolvency laws into the limelight. It addresses the position of individuals in financial trouble and what steps can be taken by businesses that are in difficulty.
Dubai Chamber shares that 408 cases were filed over the first four months of 2009 representing an astonishing 80 per cent in-crease in comparison to the same period last year.
A survey report compiled by Hawkamah, a non-profit organisation based in Dubai that promotes higher standards of corporate governance in the region, urges more robust and better-integrated legal systems as the financial crisis enters a new phase in which more insolvencies are possible gave the UAE a score of 74 points out of a maximum 155 on a scale measuring the strength of insolvency regimes. Other countries in the region scored higher; The Dubai International Financial Centre received a score of 126. It was given its own score because it is a free zone with its own insolvency laws that are clear, well-drafted and based mainly on the English legal system
Insolvency laws are on the books in the UAE, but are largely untested by the judicial system. Both the UAE’s Commercial Companies Law and the Commercial Transactions Law give extensive coverage to how courts should treat insolvent companies. Under the commercial code, for example, companies must declare bankruptcy within a month of ceasing to pay debts. Directors and executives (based in UAE) continuing to trade companies that are insolvent risk a two year prison sentence if their company fails to pay its debts within the 30 days. Failure to follow this procedure can have criminal implications for the company’s directors or officers.
The law does not provide a definition of bankruptcy but the Commercial Code provides that any trader that is not able to pay its commercial debts when due by reason of its financial instability may be declared bankrupt.
There is an urgency to encourage awareness of the legislation that already exists as it would certainly enable businesses in difficulty to consider their options at the earliest possible opportunity. Such options may, depending on the circumstances, include entering into a formal or informal composition with creditors.
Head - Life and Pensions
Earnest Insurance Brokers