UAE economic growth brings rise in court disputes, say lawyers

July 9, 2024, 11:32 AM

People in downtown Dubai. The emirate welcomed 19,000 new companies to the Dubai Chamber of Commerce in the first quarter of this year, a 17.6 percent annual jump — People in downtown Dubai. The emirate welcomed 19,000 new companies to the Dubai Chamber of Commerce in the first quarter of this year, an 18 percent annual jump

Non-payment cases increasing
19,000 new businesses this year
Inflation and cost of living pressure

Debt recovery cases in Dubai and the wider UAE are increasing, a pair of local law firms told AGBI, citing anecdotal evidence from their practices.

Behind the trend, they said, are various factors, chief among them being the influx into the emirates of new businesses from around the world.

Also contributing are a host of economic factors linked to the pandemic, as well as geopolitical causes such as the conflicts in Ukraine and Gaza and supply chain disruptions in the Red Sea.

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Because the growing number of cases comes amid an expansion of the business landscape in the Gulf nation, it does not necessarily point to any increase in the percentage of contracts that end up in court for non-payment, according to Ahmad Lootah, managing partner of Hussain Lootah & Associates.

Lootah noted that the many new startups establishing themselves in Dubai and the UAE from nearly every corner of the globe testify to the emirates’ business-friendly environment and further enrich it with their diversity of backgrounds. But they also bring some added risk.

“These entities may encounter challenges in navigating a new jurisdiction, as well as balancing their expectations with operational realities,” he said.

“The influx … also introduces startups with varying levels of commitment to valuing long-term relationships with clients and suppliers, and differing capacities in managing cash flow effectively.”

More than 19,000 new companies became members of the Dubai Chamber of Commerce, one of three chambers under the umbrella of Dubai Chambers, in the first quarter of this year, an 18 percent annual jump.

The emirate’s financial regulator, the Dubai Financial Services Authority, said the number of the companies it licensed in 2023 rose 25 percent year on year.

Business licences active in Abu Dhabi hit 143,617 in 2023, an 11 percent increase over the previous year.

Such growth is taking place on the backdrop of an increasingly complex global geopolitical environment spanning wars, unrest and big-power competition, all of which emerged just as the world began recovering from the pandemic, according to Mohammed Nedal Dajani, senior associate of the BSA Ahmad Bin Hezeem & Associates law firm.

Persistent inflation, the rising cost of living and high interest rates also put pressure on the finances of individuals and companies alike.

“These factors have all contributed to an increase in (particularly finance-based) court cases, which is further propelled by the new laws decriminalising bounced cheques and implementing a fast-track process to collect the amounts thereof,” he said.

The law decriminalising bounced cheques went into effect in the UAE in early 2022.

More recently, an upgraded, widely praised bankruptcy and restructuring law came into force in May, along with a specialist court.

This modernised insolvency framework as well as the UAE’s new corporate tax carry with them increased record keeping requirements for businesses.

Dajani said this could prove an important boost to overcoming the most difficult aspect of debt recovery cases, or the “the lack of publicly available resources… to trace or confirm assets or source of income which can be attached or to execute against is always a challenge”.

Already, there are signs that the new laws might be contributing to a decline in debtors fleeing the country to avoid repaying their banks.

“We’ve seen up to 90 percent decrease in skips,” Rohit Garg, group head of business banking at Emirates NBD, told AGBI in May.

Court battles over corporate debt, and legal disputes in general, typically lag other forms of voluntary resolutions given they are an expensive and time-consuming mechanism of last resort.

Small and medium enterprises tend to be the most affected by their clients’ failure to pay their bills.

“SMEs can safeguard their interests through proactive measures such as drafting comprehensive legal agreements, conducting thorough due diligence processes, and securing appropriate security guarantees to mitigate potential risks,” Lootah said.