The United Arab Emirates' Cabinet approved a new federal insolvency law on Sunday aimed to motivate individual citizens and expatriates to invest more.
The law, which will come into effect on Jan. 2020, is meant to protect debtors from legal prosecution, generate a financially conducive environment, as well as be a lending hand on an individual's business path.
After finding themselves financially stuck between a rock and a hard place, the first thought people have is to escape possible punishment and imprisonment by leaving the country. Instead, under this law, they are given a second chance to work through their debts and continue to provide for their families without having to uproot their lives.
This newly approved insolvency law acts as an adjunct to the already established bankruptcy law aimed at businesses.
"There was no law in the past that addressed this situation. The insolvency law was issued as a supplement to the legislative process in this regard," said Emirati lawyer Dr. Habib Al Mulla, executive chairman and managing partner at Baker and McKenzie, according to Khaleej Times.
"This will even have positive impact on the community because imprisonment of the head of the family for a civil debt will have implications on the whole family," he added.
Here's everything you need to know about the new law:
1. What are the efforts provided by the law?
Any and all individuals "facing existing or anticipated financial difficulties, rendering them unable to settle their debts" are given the opportunity to reschedule said debts and granted new concessional loans. The legal procedures will be completed as quickly as possible (to reduce fee charges) and in the fairest manner for both creditors and debtors.
The court will appoint an expert(s) to debtors to help them put a three-year (maximum) plan into place. The individual must be able to settle all their liabilities as well as fulfill any obligations set forth by their plan.
Throughout the allotted period, the person is forbidden to take any more loans until the court says otherwise - under the advisory of the appointed expert - and until the plan has been carried out, and the final goal achieved.
Debtors are also protected by the law from banks or loan sharks who usually want to make money fast from people in debt.
2. What positive effects will this law have?
The insolvency law is a step forward for both residents of the UAE as well as the country itself.
The effects that this law is predicted to have are:
- Elimination of fear of debt in the UAE. People will no longer feel the need to run from the country.
- Increase and strengthen of credit-worthiness and growth potential.
- Rise in economic competitiveness and power.
- Financial conditions encourage investment and entrepreneurship.
- The law supports already existing financial laws (pertaining to businesses) leads to increased civil debt repayment transaction transparency.
- Essentially, the UAE's "ideal hub for investment" position will be magnified.
3. How the current law works
Indebted people are afraid because under the current UAE debt law, they are considered criminals. If these individuals delay any payments with regards to their debt, they can be fined between 1,000 dirhams ($ 272) and 30,000 dirhams ($ 8,167). They can also face imprisonment with a time frame ranging from one to three months all the way up to three years, depending on the severity of the circumstances.
Article 710 of UAE's Civil Code states: "A loan is the granting of ownership of property or fungible things to another with the condition that the other should return it like in amount, kind and description to the lender upon the expiry of the period of the loan."
Whenever the economy in the country reaches a stagnant or slow state, the country wages a war on debtors.