By Leonardo Lemes
Editor's Note: Leonardo Lemes is a Private Sector Development Consultant in the World Bank's Global Insolvency Technical Assistance Program.
On December 14, 2009 the Government of Dubai, under the patronage of Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE, issued Decree 57 ("The Decree") exclusively to supervise existing and future formal reorganization and restructuring of the Dubai World Group of companies (DWG). DWG manages and supervises a portfolio of businesses and projects for the Dubai government across a wide range of industry segments, and projects to promote the emirate's economic growth.
The decree is a customized version (with specific alterations) of the existing Insolvency Law and the Insolvency Regulations of the Dubai International Financial Center (DIFC), which is regarded as cost-effective, efficient, timely, and balances the interests of debtors and creditors. It features a comprehensive financial restructuring and reorganization framework to manage the disputes related to resolving the financial position of Dubai World and its subsidiaries.
DWG is a holding company that enjoys a special status within Dubai. It was created by royal decree and, as such, is not incorporated under the UAE Federal Commercial Companies Law and, therefore, does not have the ability to seek protection under the provision of the UAE Commercial Code that governs bankruptcy and insolvency. Due to the company’s vast geographical coverage, unique status, and complex structure, the decree seeks to create a special legal regime to streamline any restructuring that the company and its subsidiaries would undergo.
Among other alterations to the DIFC laws and regulations, the decree establishes a tribunal of three to five internationally recognized judges, which will be empowered to supervise, and authorized to adjudicate, the financial reorganization or restructuring of Dubai World and its subsidiaries. The tribunal is initially composed of three senior international judges from the DIFC Courts including Sir Anthony Evans, Chief Justice of the DIFC Courts and former High Court Judge of England and Wales, Michael Hwang, SC, Deputy Chief Justice of the DIFC Courts and former Judicial Commissioner of the Supreme Court of Singapore, and Justice Sir John Murray Chadwick, Judge of the DIFC Courts and former Judge of the Court of Appeal of England and Wales.
Aside from establishing the Tribunal, the procedures set out in Decree 57 establish the means by which Dubai World and subsidiaries may enter into voluntary arrangements with their creditors. It also establishes a legal code, based on the Insolvency laws, rules, and regulations of the DIFC, as these have been found to be comprehensive and in line with internationally accepted standards.
However, the Government modified the aforementioned to include provisions to provide, among other things, an automatic stay or moratorium that applies to all creditors, provisions that require creditors to submit proof of claims within 60 days after the date of the notification to the Tribunal (which also begins a period of 120 days for the company to propose a Voluntary Arrangement to its creditors), and provisions to allow the Tribunal to approve priority financing during the course of a reorganization. In addition, the aforementioned laws, rules, and regulations are in English rather than Arabic, which the Government determined to be appropriate to complex reorganizations involving many international investors and stakeholders.
Dr. Lowai M.K. Belhoul, the Director General of the Legal Affairs Department of the Government of Dubai, stated: "The Decree establishes a clear, transparent and effective legal framework incorporating international best practices in restructuring." The Decree was seen by legal commentators as a welcome move towards providing a systematic approach to the restructuring of Dubai World and its subsidiaries. However, how this new law will play out in practice remains uncertain. Should this be a successful approach, it could influence other countries in the region to further their reform efforts as many pledged in the Abu Dhabi Declaration in May, 2009.