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Dubai turns to the DIFC courts for international law

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For the restructuring of an estimated $60 billion in debts at Dubai World the Dubai Government has chosen to empower its court system at the Dubai International Financial Centre to judge all cases pertaining to this matter.

Cases will be heard in English and not Arabic, and the law to be applied will be a modified version of the Chapter 11 procedure famous for bankruptcy proceedings in the United States. Chapter 11 presents creditors with an agreed debt rescheduling plan which then applies equally to all parties.

Chapter 11

The recent Chapter 11 proceedings for General Motors, Chrysler or CIT show how large corporations can be successfully restructured, albeit usually with big losses for their creditors. The principle applied is that an orderly liquidation is preferable to a bun fight, and that this benefits all concerned.

By choosing to have the Dubai World restructuring adjudicated by the DIFC courts the Government of Dubai is taking another step to introduce international best practice into the emirate. But so far this is a one-off decision, and it is not clear if it establishes a precedent for the future growth of the DIFC courts to supplant their local counterparts.

All cases involving the Dubai World restructuring will be heard by a special tribunal of three judges: Sir Anthony Evans, chief justice of the DIFC courts, and a former high court judge of England and Wales; Michael Hwang, deputy DIFC chief justice, and a former Singapore supreme court judge; and Sir John Murray, a DIFC judge and former court of appeal justice from the UK.

Creditors will be assured that they are getting a level playing field, and that local courts, for example, are not going to put local banks ahead of the international banks.

Decree Corporation

Dubai has also fully clarified the legal position of Dubai World as a ‘decree corporation’ with ‘a unique legal status’ meaning that ‘the obligations of Dubai World are not guaranteed by the Government’.

So the debt problems of Dubai World are ring fenced from the rest of Dubai, and within this conglomerate they are likely to be confined to the property divisions of Nakheel and Limitless. The tribunal will make a majority ruling on any cases filed against them.

For the next step in this process we only have to consult Decree No57 for 2009 issued yesterday. This allows Dubai World to present the tribunal with a proposal to its creditors for a voluntary arrangement and if this is accepted the tribunal will then impose an automatic moratorium on its debts.

How long these proceedings will take is a tough call. Chapter 11 in the US can take a matter of weeks. But there is no precedent for what is happening in Dubai. That said it looks as if the DIFC courts will be burning the midnight oil over the traditional festive season. The sooner Dubai World’s debts are restructured the better for all concerned.

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Written by Peter Cooper

December 15, 2009 at 8:42 am

One Response

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  1. I read an analyst quote last week something like “either they are very astute or have no idea what they are doing”.

    This is starting to look very well organised and considered. The front page photo this morning of Shk Khalifa and Shk Mo walking down red carpet yesterday is quite telling.

    Unlike the US, UAE seems to be taking approach of amputating the dead meat, letting them fail, so that it can get on with doing the business of business. At business school they called it “bring out your dead”, a very effective method of renewal.

    Sat driving out to fossil rock the number of trucks on E311 was unbelievable. They just went on and on. A bit like the UAE really.

    Nigel

    December 15, 2009 at 10:00 am


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