Many companies resort to restructuring in the face of financial challenges. It’s a process where an entity revamps its financial and operational framework to mitigate distress and boost business performance.
In the United Arab Emirates, the restructuring and insolvency landscape has evolved substantially. And it has taken inspiration from best practices across the globe. After announcing its Insolvency Regulations 2015, based on the U.K. Insolvency Act and the Insolvency Rules 1986, the government has introduced significant amendments – until finally launching the Insolvency Regulations 2022.
All the developments in this frontier have led to a three-tiered approach followed in Abu Dhabi and the broader UAE. It comprises consensual reorganization, restructuring in bankruptcy or rehabilitation, and liquidation as a last resort.
Profound transformation
The Abu Dhabi Global Market is the International Financial Center of the UAE capital. And it has emerged as a pivotal hub for corporate restructuring and insolvency.
Hamad Sayah Al Mazrouei said, “We’re witnessing a dynamic shift in the MENA restructuring landscape, driven by major global economies, corporate defaults, insolvencies, surging interest rates and inflation that are redefining our strategies.” He is the CEO of ADGM Registration Authority. Al Mazrouei was speaking at the 2nd Annual Financial Restructuring MENA Conference in ADGM held in February.
“The journey began post-2008, as the distressed debt market emerged from the shadows of the Global Financial Crisis. Back then, the absence of robust bankruptcy laws led many to seek resolution in more established jurisdictions or on a mutual basis via special regulations,” he added.
“Over the last several years, improvements to the insolvency regimes in GCC countries drastically changed the picture. Fast forward to today, and the transformation is profound. The GCC’s enhanced insolvency frameworks have elevated the region, with the UAE, and Abu Dhabi in particular, pioneering restructuring as a critical, specialized discipline,” Al Mazrouei said.
A culture of rescue and rehabilitation
From an investor’s standpoint, businesses need to demonstrate financial stability to earn the trust and confidence of their prospects. ADGM’s overarching goal is to attract new global and regional businesses and create opportunities for them. As such, the ICF has cultivated a “rescue and rehabilitation culture.” Specifically, ADGM offers several tools and options for businesses to restructure their debt.
Talking about the restructuring cluster, Arvind Ramamurthy said, “ADGM enables a robust ecosystem that includes insolvency and restructuring regimes. As such, it attracts globally established restructuring firms, funds and consultancies that invest in special situations and provide bespoke solutions.” Ramamurthy is the chief of market development at ADGM.
Polina Lyadnova said: “While restructuring may not necessarily be on the investors’ mind at the time of entering the market, having a robust regime aiming at business rehabilitation clearly creates a positive investment climate.” Lyadnova is a partner in the restructuring practice at Cleary Gottlieb Steen & Hamilton LLP.
“It also incentivizes rather unique investment opportunities for certain market players as well as allowing more traditional financial institutions to more proactively manage their balance sheets, which becomes increasingly important in view of the changing regulatory environment,” she added.
Prominent players
Several prominent players call ADGM home. These include funds, such as SC Lowy, Blantyre Capital and Fidera Group. ADGM also houses specialist law firms, including DLA Piper, Quinn Emanuel and Clearly Gottlieb. There are also renowned restructuring firms (Alvarez and Marsal, FTI Consulting, Teneo and Rothschild).
“The evolution of legal and regulatory frameworks in ADGM is a positive development, further increasing the attractiveness for alternative capital providers to invest in the region”, said Mubashir Mukadam. He is the founder and CIO of Blantyre Capital.
He continued, “We believe there will be many opportunities to collaborate and partner with good local businesses and traditional lenders to provide flexible capital solutions that create value.”
What has changed
Challenging financial periods are part of operating a business. To help businesses weather such times, ADGM has established a comprehensive ecosystem for corporate restructuring and insolvency.
Specifically, it has leveraged its Courts and Arbitration Center. With the government’s amendments, ADGM Courts can now manage the entire process of insolvency cases – from initial filings to hearings and adjournments. Complementing this more efficient procedure, the ADGM Arbitration Center offers a digitized space for arbitration hearings and mediations. This space also adheres to best practices in international dispute resolution.
Vikas Papriwal said, “The ADGM’s framework overhaul is allowing for more dynamic restructurings and solutions.” He is the senior managing director and head of Middle East and Africa at prominent restructuring firm FTI Consulting.
He added, “Initial market trends suggest that implementation of these new laws and regulations will see them be increasingly relied upon by investors, banks and borrowers in stressed and distressed situations paving the way for a new dawn for proactive solutions to complex problems in UAE the restructuring market. What we have also seen at ADGM is an ability to attract key Special Situation Funds to the region which should provide further optionality for successful restructuring outcomes.”
More ammendments
In 2020, amendments to the Insolvency Regulations 2015 clarified procedural matters and aligned them with the ADGM Courts eCourts platform.
The introduction of a new insolvency framework in 2022 has further streamlined the registration and oversight of insolvency practitioners. This development eliminates the requirement for practitioners to have a registered office within ADGM. Furthermore, it replaces the tedious annual renewal requirement with an annual confirmation statement. The statement must contain details of any appointments under the Insolvency Regulations 2022. Also it must ensure compliance with the Insolvency Practitioner Rules. With this, the government has significantly reduced administrative burdens, encouraging more practitioners to register within ADGM’s ecosystem.
Dominik Nagly, partner at Fidera said, “Fidera as a specialist in process complexity has been greatly appreciative of the sophistication of ADGM insolvency laws and their evolution. ADGM judiciary is among the most competent and efficient of any leading court systems internationally.”
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Notable examples
Since 2020, ADGM has witnessed a number of insolvency proceedings. A notable example of how ADGM Courts have successfully handled corporate insolvency litigation is the case of NMC Healthcare Limited.
The major cross-border case represents a significant affirmation of the effectiveness of the ADGM jurisdiction in resolving intricate bankruptcy matters and safeguarding value for all involved stakeholders. Documentation for loans and restructuring, which designates the ADGM Courts as the primary jurisdiction for resolving disputes, has facilitated greater utilization of the established framework. This led to favorable outcomes in cases necessitating complex solutions.
Abu Dhabi to remain at the forefront
With a more robust and efficient framework in place, ADGM will remain an important part of the global restructuring and insolvency landscape. Stakeholders can reap the advantages of tapping into ADGM’s proven legal decrees and regulatory framework. All of which are business-friendly and appealing to international investors.
In his speech at the Financial Restructuring MENA Conference, Al Mazrouei was optimistic about the trajectory of the broader UAE’s restructuring ecosystem.
“From regulations for insolvency and private credit funds to resolving cross-border insolvency disputes, ADGM has built end-to-end support providing a strong/ progressive and sustainable business environment,” he said.
“Looking forward, the UAE’s restructuring sector is set for unprecedented growth, driven by ongoing economic reforms, technological advancements and market shifts. Abu Dhabi is poised to remain at the forefront, serving as a pivotal hub for corporate restructuring in the Middle East and beyond.”
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