Pioneering deals and nascent bankruptcy law provide pathway for future restructuring processes in the UAE

2024 was a landmark year for restructurings in the UAE, with the first large-scale processes ratified by the UAE courts since the introduction of a comprehensive bankruptcy regime in 2016. The year also saw further refinement to the regime, with a new bankruptcy law replacing the 2016 iteration. 

The restructurings of the contractor Drake and Scull (which had a major role in the construction of Louvre Abu Dhabi, among other projects), manufacturing business JBF RAK and Emirates Hospitals Group, were led by A&O Shearman and were notable in that they marked a departure from the previous norm of fully consensual processes. All involved multi-creditor capital structures and were delivered with a high degree of sophistication to international best practice. 

UAE policymakers borrow from successful restructuring regimes across the world

In developing and, more recently, refining the new law, UAE policymakers borrowed from successful models across the world, engaging with the World Bank over several years and incorporating features seen principally in the U.S. Chapter 11 process. 

The result is a system that now includes (among other things) the ability to compromise dissenting creditors and a framework for the injection of priority financing during a court-sanctioned restructuring process. 

All three of the situations noted above required a minority of dissenting creditors to be crammed down, with two rounds of priority financing being approved within the Emirates Hospitals Group restructuring. The receptiveness and pragmatism demonstrated by the local courts when it came to following best practice from other jurisdictions has been a particularly promising development in recent months. This proved useful in terms of charting a path forward, given that the law and the processes were previously untested.

Hope for more efficient processes in future

Historically, restructurings in the UAE have taken a long time to implement, in some cases more than a decade. While each of the restructurings delivered during 2024 were multi-year processes owing to their complexity and pioneering nature, there are reasons to believe that future restructurings delivered under the bankruptcy regime can be implemented on a more compressed timetable.

In particular the growing experience of local banks with the legal processes, the anticipated continued involvement of credit funds in relevant situations and the increased familiarity of judges with the kinds of issues that court-sanctioned restructurings tend to create, are all reasons for optimism in this regard. 

A key change in this regard that was introduced under the latest bankruptcy law, effective from May 2024, was the establishment of specialized bankruptcy courts and a bankruptcy unit. The initiative is designed to streamline formal restructuring processes and provide more consistency and predictability in outcomes, and is expected to expedite the restructuring process going forward.