The UAE’s legal community has given a cautious welcome to the first tranche of draft regulations from the Abu Dhabi Global Market, in particular provisions pertaining to the handling of company insolvency and reorganisation.
While a panel of 16 banks and financial stakeholders in the new financial free zone have had several months to review the draft regulations, international and local law firms were busy trying to get their heads round the implications of the proposed regulations, published on the centre’s website yesterday, which run to more than 1,000 pages.
“On an initial review it seems that a lot of thought has gone into [the draft regulations] and they are very comprehensive, particularly the companies regulations and the insolvency regulations,” said Stephen Forster, Partner and Head of Abu Dhabi, Al Tamimi & Company.
The lack of modern insolvency laws in Abu Dhabi and the wider UAE has been one of the UAE business community’s most persistent complaints
Among other things, the draft regulations provide a means “whereby a company [or possibly, a creditor or a member of the company ...] can propose and seek creditor or member approval and the subsequent sanction of the court, for a scheme involving an arrangement or compromise between the company and its creditors or members.”
Crucially, the draft regulations state that the ADGM’s court will sanction such an arrangement if it receives approval from creditors holding at least 75 per cent of the company’s debt.
Such an arrangement was used by Dubai’s Drydocks World in 2012, when it filed for a company voluntary arrangement in the Dubai World Tribunal to win approval for a restructuring of debt in the face of challenges from hostile creditors, marking the first court-driven restructuring in the UAE’s history.
The draft regulations on insolvency are a welcome development, but also serve to highlight the deficiencies of the UAE’s onshore insolvency regime, said James Farn, the head of banking and finance at the Hadef & Partners law firm in Abu Dhabi.
“When you see such regulations, it begs the question, why can’t the existing legislation be amended for the whole of the UAE rather than just the ADGM?” he said.
“It does smack of sidestepping the perceived deficiencies in the federal legislation rather than tackling the issues head on.”
Mr Forster described as “particularly interesting” the direct application of English common law in line with jurisdictions such as Hong Kong and Singapore.
The ADGM’s draft regulations took a more selective approach to the application of English law than was adopted by the Dubai International Financial Centre, according to Tim Plews, the head of Middle East Financial Services and Markets at Clifford Chance.
“The DIFC’s approach is a very general reference to English law, and includes parts of English law that have come from EU law,” he said, noting that EU law makes up of more than 50 per cent of recent legislation passed in the UK.
“The ADGM’s approach so far appears to be very selective about what it want from English law, referring specifically to particular statutes, many of which have very little EU law.”
Lawyers and other interested parties have until February 5 to submit comments on the draft regulations.
jeverington@thenational.ae
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