United Arab Emirates: Dubai World: New Insolvency Regime

On 14 December 2009, the Dubai Government announced, in response to the widely publicised concerns over Dubai World's debt position, the establishment of a bespoke insolvency regime which is exclusively applicable to Dubai World, its subsidiary organisations and individuals within those organisations.

The relevant decree, Decree No. 57 of 2009 ("the Decree") facilitates two things:

(1) It establishes a unique tribunal, seated within the Dubai International Financial Centre ("DIFC"), tasked with hearing an d deciding demands or claims against (i) Dubai World, (ii) Dubai World subsidiaries and (iii) "any person related to the settlement of the financial obligations" of those organisations (which expressly includes employees and directors of Dubai World entities).

(2) It creates an entirely new substantive insolvency law which is exclusively applicable to Dubai World and its subsidiaries.

The Decree has been issued out of appreciation of the fact that Dubai World was itself established by special decree and, therefore, is arguably not subject to any of the existing UAE insolvency frameworks (which are principally to be found in the Commercial Transactions Law, Federal Law No. 18 of 1993).

THE TRIBUNAL

Members: The tribunal is to comprise, initially, Sir Anthony Evans (the Chief Justice of the DIFC Court and a former High Court Judge of England & Wales), Michael Hwang (Deputy Chief Justice of the DIFC Court and former Judicial Commissioner of the Supreme Court of Singapore) and Sir John Chadwick (a DIFC Court Judge and former member of the Court of Appeal of England & Wales). The stature of this tribunal's members, their credibility on the international stage and their pre-existing links with Dubai and the DIFC should give rise to a significant amount of comfort on the part of Dubai World creditors.

Jurisdiction: On its face, the jurisdiction of the tribunal is very broad indeed. It is expressed to apply to "any demand or claim" made against Dubai World or any of its subsidiaries. In practice, however, there may well be a distinction between claims associated with the Dubai World reorganisation and, for example, pure contractual disputes. In the case of the latter, if the tribunal were to accept jurisdiction to hear pure contractual disputes, there may well be some debate in relation to the interrelationship between the Decree and (i) UAE Federal Law principles and (ii) treaties to which the UAE is a signatory concerning the recognition of international arbitration agreements.

Powers and processes: The powers and processes of the tribunal are derived, in the main, from the DIFC Court Law (DIFC Law No. (10) of 2004 Concerning the Court of DIFC). The DIFC Court Law has, however, been tailored by the schedule to the Decree in order for it to apply to the dealings of the tribunal. Nevertheless, the processes by which the tribunal will conduct itself are based on a common law model, and the types of powers it will have at its disposal will be largely similar to, by way of illustration, those of a High Court Judge of England & Wales. Importantly to many observers, the dealings of the tribunal will be, in the main, conducted in public and will therefore be transparent. The decisions of the tribunal will be final, binding and not subject to appeal.

Law to be applied: The substantive laws to be applied by the tribunal are provided for in the text of the Decree itself. Interestingly, these include the Laws which are applicable in the Emirate (in other words, 'Dubai Law') but also more generic legal concepts including principles of justice and equity.

THE INSOLVENCY LAW

The Decree creates an entirely new and bespoke insolvency law which will only have application to Dubai World and its subsidiaries.

This law is set out in the schedule to the Decree and it adopts, in large part, the DIFC Insolvency Law (DIFC Law No. (3) of 2009 Concerning the Law of Insolvency). However, significant portions of the DIFC Insolvency Law have been excluded. Such exclusions include, by way of illustration, the sections dealing with the ability to appoint a Receiver and/or an Administrative Receiver.

The Decree provides that a Dubai World entity may, unilaterally, under certain circumstances, request the newly established tribunal to convene at which point an automatic moratorium shall apply. It is expressly stated in Article 8 of this section of the schedule that such a moratorium will apply to "all creditors, secured or unsecured and without their consent, in respect of such Corporation [Dubai World entity] and its assets wherever located". Accordingly, a creditor of a Dubai World entity may be prevented, without notice, from bringing claims or from enforcing its security wherever in the world it may look to do so. Creditors should be, and are, carefully assessing their positions in light of these and other provisions. Further, the exact scope of this new law is likely to be the subject of some considerable comment moving forward.

INITIAL OBSERVATIONS

The speed and efficiency at which this regime has been established in light of the current circumstances surrounding Dubai World's debt position, and the internationally recognized principles which can be found throughout this new insolvency framework, are undoubtedly positive developments for Dubai and Dubai World creditors alike. However, the precise application of the new insolvency law, and the scope of the tribunal's jurisdiction, are being carefully scrutinized by lawyers and are likely to give rise to a number of potentially unique legal questions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.