DUBAI FINANCIAL CRISIS
In Dubai, simply bouncing a cheque can land you behind bars. So it should come as little surprise that since the global economic crisis slammed a painful brake on the emirate’s extravagant expansion, the courts have been busy with creditors struggling to recover debts from once booming businesses fallen on hard times. Most of the cases so far have been small and have attracted little outside attention. But now that Dubai World is seeking to restructure $26bn (€17bn, £16bn), there is the potential for the United Arab Emirates’ legal system to be tested like never before.
If creditors or bondholders did pursue legal action, however, they would be entering uncharted territory and taking on a system criticised for being outdated, unpredictable and lacking transparency. Much of the debt is believed to involve international, local and regional banks’ exposure to syndicated and bilateral loans. Experts say many of these creditors, particularly those with higher exposure to the conglomerate, would seek to work with Dubai World in an orderly restructuring rather than risk legal action.
The full extent of Dubai World’s financial difficulties is not known. But the group is understood to be looking to keep the process out of the courts, a person familiar with the situation said. Although there are bankruptcy provisions in the UAE’s commercial codes, there is no structured work-out system such as Chapter 11 in the US, or the administration process in the UK, says Neil Cuthbert, managing partner for the Gulf region at Denton Wilde Sapte, which is representing some Dubai World creditors.
Consequently, restructuring tends to take place by consensus with creditors. If not, the creditor can mount legal action against the entity but that would be a long and challenging process, lawyers say. (more…)
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