Dubai: A Field Study In Insolvency
Those of us who witnessed the surge and growth of UAE over the past decade in the
economic and the social front are all praise of the dynamic sheik and ruler of Dubai, who is also the reason of envy for many a state ruler. The dream to build a city on par with New York or London and to forge an identity for the UAE as a major international player in trade will take more time to be realized. Dubais state-owned investment company Dubai World which launched some of the most talked about construction and development projects in the world, including the Palm islands has taken a fall. Indicators also point that another state-owned property developer, Nakheel and Emaar, were following the Dubai World to insolvency.
The billions borrowed from European and American banks lays buried in the sands and dust of Dubai with not much chance of repayment today. And the Dubai that was rising up like Babel is going through the worst period of forced liquidations in its economic history. The biggest hurdle faced by every company based or in operation in Dubai is the drastic decline in cash flow. The banks operational in Dubai, foreign as well as the local banks have cut down their lending and put the borrowers through strict procedures before they loan, and so the cash flow has almost come to a stop. There is not enough money to pay the employees or even to go through with the usual running cost of the companies. Most of the big attractions of Dubai have been mortgaged to the maximum possible bank limit and now are on the verge of insolvency.
When a state owned player falls hard, there is very little chance for the others in the private sector to withstand todays economic climate. And when the banks are in no position to trust and lend to the developers, the developers do not have enough to pay their contractors and suppliers. Money flow has almost come to a standstill and almost every firm in Dubai is faced with insolvency. But in spite of their insolvent status some are still in business, stretching their strengths and resources to the maximum possible limit before filing for bankruptcy. This wait-and-watch strategy is pushing some companies into bigger debts, and consequently, insolvency.
Failing businesses and companies are required to file in for bankruptcy under the UAE law within a month of entering a situation wherein they are unable to pay one's debts within the agreed time.
Most of the companies facing insolvency in Dubai are either into construction or into related fields. And the number of companies who are turning insolvent are on the rise every day. Insolvency researchers and experts are enjoying a field day in Dubai and are expecting busier days ahead. Though the government has brought in the best brains from around the world to help with the reconstruction package, the biggest threat facing them is not liquidity but insolvency. By selling a few of its domestic and overseas assets the finance gurus are trying to help create a minor and temporary relief for now.
by: Yossarian Smythe
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