Bankruptcy law fresh lease of life for SMEs

The Small and Medium Enterprises (SMEs) will benefit the most from the new bankruptcy law whose final draft was approved by the UAE cabinet on Sunday. It will help them ease their functioning while bolstering them to shore up investment. Earlier, the SMEs — as well as other companies and businesses — who failed to pay back their debts faced punitive action: prison for dishonoured cheques. The UAE Banks Federation records point out that bad debts from SMEs was around Dh5 billion, as many loans taken by the players in this segment remained unpaid. Loan default was a huge hurdle that the banks faced. This made them wary of lending to the SMEs. Due to the non-performing loans, many banks were forced to refuse loans.
The new law, after it is finally okayed by the Federal National Council, will now encourage lenders to facilitate SMEs to restructure their bad loans. It will offer an option of a precautionary debt settlement without going through criminal proceedings. The law will also assist the SMEs to clear their debts by providing a comprehensive legal framework.
Today, there are more than 300,000 SMEs which are contributing 60% to UAE’s GDP. With the country pursuing sustainable economic diversification, it is imperative that SMEs are given a huge impetus. The adoption of the new legislation will spur SMEs towards the right direction and spawn competitiveness in the country’s business environment. What’s most important is that innovation will get a boost, as entrepreneurs work in a secure and less volatile ambience. New ventures will come up and diversify the economy.
For any business to succeed, it is crucial that there is a synergy between the creditor, investor and client. They can gain from each other when there is mutual trust among them. The law could catalyze this confidence that can be the cornerstone of their long-term relationship.
Earlier due to the criminal charges that could have been initiated against the defaulter, the door to a viable solution used to get closed. However, this law not just decriminalizes the defaulter but supports him to find a remedy to a problem in a fruitful manner.
While issuing the draft of the law, the UAE cabinet stressed that it was meant to strengthen the legal sustainability. The legal experts have done a good job by ensuring that the federal law gives a good amount of flexibility to the SMEs to work and survive in an environment where they feel protected, rather than threatened by the market swings.
The bankruptcy law is sure to prove as a fresh lease of life for the SMEs. Coping with the insolvency, they will no more try to find the exit route in their most trying times. The law would work as their survival kit.
The next decade will certainly be the decade of SMEs. The sector will shape the economic landscape of the UAE. With laws that remove the bottlenecks to their growth, the SMEs can flourish and thrive. With right nurturing and facilitation, SMEs will make UAE’s economy more resilient and robust.