The Re-organisation of Dubai World New insolvency laws - Ruler s Decree No. 57 of 2009

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1 The Re-rganisatin f Dubai Wrld New inslvency laws - Ruler s Decree N. 57 f 2009 On 14 December 2009 under the patrnage f HH Sheikh Mhammed Bin Rashid Al Maktum the Vice President and Prime Minister f UAE and Ruler f Dubai a decree (the Decree ) was annunced which established frmal inslvency regulatins that wuld gvern any future claims against Dubai Wrld and its subsidiaries (the Crpratin ). The Decree tk effect frm 13 December Key measures arising frm the Decree Reiterates that the debts f Dubai Wrld are nt guaranteed by the Dubai gvernment The Decree creates a specific restructuring law fr Dubai Wrld and its subsidiaries Establishes a tribunal (the Tribunal ) as the sle arbitratr t supervise any financial rerganisatin f Dubai Wrld and its subsidiaries (the Crpratin ) which will be the nly bdy authrised t adjudicate n any disputes relating t the restructuring f the Crpratin s debt bligatins The new laws are based n the current DIFC Inslvency laws as amended by the Decree itself. It specifically apples t Dubai Wrld and its subsidiaries. The laws are nt fr general applicatin althugh the UAE gvernment annunced recently that it was lking t refrm existing inslvency laws at a federal level Creates frmal inslvency prcedure fr the Crpratin thrugh a Cmpany Vluntary Arrangement ( CVA ) Creates rights fr the Crpratin t apply fr mratria staying any creditr claims and giving breathing space against creditr pressure Enables the Crpratin t make further brrwings n an unsecured r secured basis Secured creditrs appear t have n rights t appint receivers r administrative receivers in respect f the Crpratin s business and assets N grunds fr creditrs t unilaterally petitin fr winding up The Tribunal The Tribunal was established by the Decree and is initially cmprised f three senir internatinal judges, Sir Anthny Evans, Michael Hwang and Sir Jhn Murray Chadwick. Up t tw further panel members can be appinted at the request f the Chief Justice f the DIFC but such appintments must be sanctined by the Ruler f Dubai. The Tribunal has exclusive jurisdictin t hear and decide n any prceedings and claims against Dubai Wrld r its subsidiaries relating t the settlement f their financial bligatins. That jurisdictin extends t claims against the Chairman, fficers, emplyees and wrkers f Dubai Wrld and its subsidiaries. The pwers f the Tribunal allw the Tribunal, amngst ther things, t: issue interim and interlcutry rders and decisins, including injunctins r any ther rders as the Tribunal cnsiders apprpriate establish prcedures fr the submissin f prfs f claim by creditrs including the deadline fr claims (which shall nt be less than 60 days after ntificatin f intentin t submit a CVA). After that deadline has passed n further prfs f claim will be accepted and shall frever be time barred unless the Tribunal rules therwise The decisins f the Tribunal are final. There is n right f appeal. N ther curt r authrity has jurisdictin. 1

2 Why DIFC Law? The published reasns fr basing the new regulatins n the framewrk existing under the DIFC Inslvency Laws are as fllws: it is generally accepted that the DIFC Inslvency laws are the mst develped in UAE the rules and regulatins in the DIFC are in English rather than Arabic and will facilitate prcedures given that any prpsed rerganisatin will invlve creditrs and investrs frm arund the glbe It shuld be nted that the current DIFC Inslvency Laws have nt been adpted in their entirety. The Decree mdifies the existing DIFC Inslvency Laws by disapplying certain prvisins and implementing specific new rules that take precedence t the current DIFC regime. The mdificatins supprt the Crpratin in wrking twards a pr-active turnarund strategy in cnsultatin with creditrs. The significant mdificatins that may be f mst interest t creditrs are that: the nly initial inslvency prcess is a CVA and in the first instance nly the Crpratin can initiate this prcess upn applicatin fr a CVA by the Crpratin there is an autmatic stay/mratrium n claims by creditrs the Tribunal can apprve pririty funding during the rerganisatin prcess n party (neither the creditrs, the Crpratin nr its sharehlders) can cmmence winding up prcedures - nly the Tribunal can d s the right f secured creditrs t appint receivers r administrative receiver s ver secured assets appears t have been excluded Creditrs Vluntary Arrangement The new laws prvide fr nly ne frmal inslvency prcedure fr the Crpratin in the frm f a CVA. Althugh there are prvisins fr winding up and liquidatin, these can nly be implemented by the Tribunal if a prpsed CVA is rejected by the creditrs and/r equity interest hlders. Initially nly the Crpratin can apply fr a CVA by the directrs ntifying the Tribunal that they intend t prpse a CVA t creditrs (a Vluntary Arrangement Ntificatin ). This exclusive right lasts fr the first 120 days fllwing the filing f the Vluntary Arrangement Ntificatin and then is extended fr a further 180 days if the Crpratin makes a frmal prpsal fr a CVA. Bth these perids can be extended at the discretin f the Tribunal, althugh creditrs are given the pprtunity t make representatins t the Tribunal at the hearing where the extensin request is cnsidered. The nly right t apply fr the cancellatin f the exclusive perid is by shwing just cause such as bad faith. If the Crpratin has failed t submit a CVA prpsal and the exclusivity perid referred t abve has expired the creditrs and equity interest hlders have the right t submit the ir wn prpsals fr a CVA t the Tribunal. There are detailed regulatins fr determining prcedures and prcesses fr submitting the CVA prpsal and its apprval/rejectin. There are pprtunities fr the Crpratin, creditrs and equity interest hlders t make representatins t the Tribunal althugh ultimately the Tribunal will give directins as t the apprval prcess. The main pints f nte frm the apprval prcess are: 2

3 the Tribunal has the ability t divide creditrs int different classes fr vting purpses. It can make similar rulings n the divisin f equity interest hlders between different classes a meeting f each class f creditr and equity interest hlder will be held t cnsider and vte n the terms f the CVA apprval f the prpsed CVA requires tw thirds in value (f agreed claims r claims allwed by the Tribunal) f any given class f creditr r equity interest hlder wh are entitled t attend and wh vte in persn r by prxy. Once the requisite majrity is btained then the decisin is binding n all creditrs/equity interest hlders f that class if the Tribunal decides that any particular class f creditr r equity interest hlder is nt impaired by the CVA prpsal then they are cnclusively deemed t have accepted the CVA and are nt entitled t vte. The Decree sets ut a list f what is meant by nt impaired and includes any persns wh the Tribunal cnsiders are adequately cmpensated under the prpsed CVA Once the prpsed CVA is apprved by the varius classes f creditrs and equity interest hlders the Tribunal has final say in a Pst Arrangement Hearing as t whether t sanctin r reject the prpsal based n the fllwing criteria: the CVA cmplies with the Decree and has been prpsed in gd faith the CVA is nt unfairly prejudicial t any class f creditr/equity interest hlder and generally t the Crpratin s creditrs as a whle either (i) all classes f creditrs/equity interest hlders have apprved r are deemed t have apprved the prpsal r (ii) at least ne class f persns wh have been impaired have vted in favur f the prpsal any class f vters wh have rejected the prpsal will receive as much value ut f the prpsal as they wuld have received n a winding up f the Crpratin; and in respect f unsecured creditrs, either (a) they will receive the amunt f their allwed claim under the prpsal, (b) any junir claim t the unsecured creditr des nt retain r receive any prperty n accunt f such junir claim, r (c) they have vted in favur f the prpsal A class f creditrs r equity interest hlders can bject t the final sanctining f the CVA prir t the Pst Arrangement Hearing n the grunds f bad faith, prcedural irregularity and/r unfair prejudice. Mratrium Upn receipt f a Vluntary Arrangement Ntificatin frm the Crpratin an autmatic mratrium shall apply. It shuld be nted that in relatin t this initial autmatic mratrium: n ntice t, r cnsent frm, the creditrs is required it shall bind all classes f creditrs, bth secured and unsecured, and shall apply t all assets f the Crpratin regardless f lcatin it shall apply frm the date f the Vluntary Arrangement Ntificatin until the cnclusin f the CVA prceedings r the winding up prcess (if rdered by the Tribunal) In additin t the autmatic mratrium, the Crpratin has the ability t apply t the Tribunal fr a mratrium at any time at a hearing at which interested creditrs and equity interest hlders may attend and participate. The Tribunal is then empwered t apply a 3

4 mratrium n the Crpratin r any affiliate f the crpratin n terms at its discretin s lng as it acts equitably in finding that the fllwing circumstances prevail: there is a likelihd f a successful rerganisatin f the Crpratin if n mratrium is granted, there is likely t be imminent irreparable harm t the Crpratin the balance f harms tips in favur f the mving party public interest wuld be supprted by a mratrium The Tribunal can als apply fr an interim mratrium n an ex-parte basis withut cnsulting creditrs s lng as the Crpratin can demnstrate that it is equitable n the grunds f there being danger f imminent irreparable harm. The mratrium effectively stays all claims and prceedings against the Crpratin. Fr instance, withut the leave f the Tribunal: n landlrd may exercise any right f frfeiture ver any premises f the Crpratin fr breach f tenancy agreement including nn-payment f rent n steps can be taken t enfrce security by secured charge hlders n steps can be taken t repssess gds (including thse subject t hire purchase) n rights f set-ff may be exercised n ther prceedings and n executin r ther legal prcess may be cmmenced r cntinued and n distress may be levied against the Crpratin r its prperty Obtaining Credit during the CVA The Tribunal may sanctin the Crpratin t btain additinal credit at any time after a Vluntary Arrangement Ntificatin, althugh creditrs and equity interest hlders are entitled t attend a meeting and make representatins at the hearing at which the matter is cnsidered. The law expressly states that the Crpratin can cntinue t btain unsec ured credit in the rdinary curse f its business. Initially the Crpratin may nly btain either (i) unsecured credit r (ii) credit secured n prperty that is either unencumbered r where such security ranks behind the existing secured creditr. If the Crpratin is unable t raise funds n the basis referred t abve the Tribunal may sanctin the raising f credit which is secured n a super senir basis r n equal par with existing secured creditrs. The Tribunal must ensure that there is adequate prtectin fr existing secured creditrs. Appintment f receivers and administrative receivers The new laws appear t have taken away the rights f creditrs t appint receivers r administrative receivers t the business r assets f the Crpratin. Winding up & Liquidatin Only the Tribunal retains the right t cmmence winding up prceedings against the Crpratin and nly where a CVA cannt be implemented in accrdance with the new regulatins. 4

5 There are n grunds whereby creditrs can unilaterally petitin fr a winding up rder (e.g. nn-payment fllwing statutry demand). The Decree has disapplied the current creditr and cmpany rute t petitin fr winding up and liquidatin. If yu wuld like t discuss this briefing nte r wuld like further infrmatin please cntact: Andrew Nunn Partner, United Arab Emirates Tel: Mbile: andrewnunn@eversheds.cm Kuljit Ghata-Aura Partner, United Arab Emirates Tel: Mbile: kuljitghata-aura@eversheds.cm December