Just as a modern and efficient insolvency framework is important for corporates, it is as important to have personal bankruptcy laws in place as well in order to facilitate entrepreneurs and encourage new entrants to the market, said Nasser Saeedi, chief economist of the Dubai International Financial Centre (DIFC).
There is a near vacuum in our region concerning the provisions for personal bankruptcy. This absence affects entrepreneurship and the taking of risks as well as the development of housing finance and mortgage markets; the mainstay of modern debt markets. Indeed, the absence of a sound and transparent framework for personal bankruptcy can lead to distress and unintended, severe consequences for individuals and families,” Saeedi said.
The practice of accepting personal guarantees in lieu of collateral needs is widely prevalent in the region. Experts said this practice defeats the purpose of establishing limited liability companies and the access to credit of small and medium enterprise (SMEs).
“The legal provisions relating to bounced cheques need to be revisited. Cheques are a means of payment and not a debt instrument and there should be an end to criminal penalties associated with bounced cheques, said Saeedi.
The UAE — like many developing countries — has no specific takeover code or mergers and acquisitions (M&A) law. The absence of specific legal and regulatory provisions for M&A and takeovers impedes the efficiency of the process of corporate life, death and metamorphosis.’
A company acquiring or taking over a business may need to restructure, dispose of or wind down segments of the business. The M&A process requires a clear and transparent framework relating to the rights and obligations of stakeholders that is largely absent in the Mena region. Consequently, it is not surprising that the region has one of the lowest international M&A rates.
“We need to strengthen the resilience and responsiveness of our economies and financial systems to shocks. This requires an enabling framework for dealing with M&A, restructuring and reorganising and insolvency. “To undertake reform of insolvency regimes requires us to take a holistic view. Reform and modernisation is also required of related areas, namely labour laws, company law, M&A and takeover codes,” said Saeedi. There is a near vacuum in our region concerning the provisions for personal bankruptcy.”
Nasser Saeedi, Chief economist, Dubai International Financial Centre
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