Debt Collection Agency in Dubai Emirates

‍

The UAE oil crisis triggered job cuts and a decline in the tourism industry in 2016. Significantly, the Persian Gulf nation has seen a rise in its customer bad debts, a condition which has fueled the recent increase in debt management agencies scrutiny.

The UAE credit bureau introduced new credit policies to restrict delinquencies in the small and medium-sized business sectors to alleviate the financial crisis. The insights of debt collection in the United Arab Emirates will be discussed in this document.

1. General information

1.1. Although payment terms in the UAE are usually 30 days, payment terms of 60 days are not unusual.

Larger entities like large oil and gas firms typically have shorter DSOs (Days Revenue Outstanding) than smaller and medium-sized businesses.

1.2. In 2015, the average DSO for small and medium-sized businesses was 91 and 93 days, while the average DSO for large and mega-sized enterprises was 80 and 62 days, respectively.

1.3. Before 2016, UAE debt collection companies had few tools for managing delayed payments. However, on 29 September 2016 the UAE launched its first detailed insolvency legislation, repealing the outdated Commercial Contracts Act (UAE Federal Law No. 18 of 1993).

1.4. The new legislation repeals Chapter V of the Legal Code of 1993, which encapsulates the rules governing the current system of insolvency.

There are some essential provisions which include the Appointment of a new debt management board known as the Financial Management Group.

1.5. Among other things, the Committee is responsible for overseeing the mechanism of financial restructuring outside the judicial reach, nominating financial restructuring consultants, maintaining an electronic record of entities granted bankruptcy decisions, promoting programs to raise public awareness of the goals of the statute, providing periodic reports on the accomplishments of the legislation;

1.6. Establishment of a new minimum requirement (AED 100,000) for bankruptcy proceedings triggered by creditors.

The old law allowed creditors to file for insolvency proceedings against debtors regardless of the size of their debts.

1.7. The repeal of clauses in the Commercial Code of 1993 that criminalized debtor defaults.

In recent years, debt-ridden owners of small and medium-sized businesses have opted to flee the country instead of spending jail time because of their defaults. In some cases, the foreign owners of these firms are still responsible in the country of origin for their debts. Indian debtors who leave the UAE, for example, may be detained in another country which has extradition treaties with the Persian Gulf republic.

2. Practices of court proceedings

2.1. The UAE legal system is based on Shariah and civil law. Most commercial cases are adjudicated at civil law courts, however. In addition, the UAE also has courts of civil law with jurisdiction in existing Free Zones.

2.2. There are currently no less than 45 Free Zones within the state. Free zones such as the Dubai International Financial Center are allowed to create unique, political and commercial legal frameworks. Until now, UAE investors have access to an amicable agreement before a Reconciliation and Settlement Commission, a procedure that ends with a letter of claim informing the claimant of his financial obligations.

2.3. Ordinary court proceedings compelling debtors to fulfill their obligations within 15 days of the summons being released, if they have not lodged a complaint against the proceedings.

It must however be noted that injunctive relief and attachment orders against UAE nationals are extremely difficult to obtain.

2.4. Creditors must prove beyond reasonable doubt that there is a substantial risk of the debtor's share of the estate being broken before courts can recommend issuing warrants for attachment or injunctive relief.

Furthermore, all court proceedings are in Arabic, thus reinforcing the need to focus on local UAE solicitor officers.

3. Insolvency cases

3.1. Insolvency or debt recovery proceedings in the UAE begin before the Court of First Instance. The parties have the right to appeal to the Court of Appeals within 30 days, after the court issues a decision.

The parties are allowed to introduce additional witnesses and evidence in the Court of Appeals to back up their claims.

3.2. The Court of Appeals' decision holds unless the parties send further appeals to the Cassation Court within 30 days. Any Court of Cassation decision is binding and creditors can properly evaluate debtors' ability to meet their financial obligations before dealing with expensive proceedings.

3.3. It should also be remembered that, within 10 days from any reported bankruptcy decision, all creditors will apply their claims to the liquidator. The liquidator will then rate creditors in compliance with their claims and allocate rewards as necessary.