The newly-enacted law (Law No. 1 of 2019) compliments the Dubai International Financial Centre’s commitment to international best practice, with the Insolvency Law aiming to balance the needs of all stakeholders in the context of distressed and bankruptcy related situations in DIFC, facilitating a more efficient and effective bankruptcy restructuring regime.

The new debtor in possession insolvency procedures introduced are a first for the Middle East region. The law was enacted on 30 May by the Ruler of Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE.

His Excellency Essa Kazim, Governor of DIFC, said: “Ensuring that businesses and investors can operate across the region with confidence is crucial to our role in connecting the economies of East and West. We are committed to continuously enhancing our legislative infrastructure in order to give leading global institutions the certainty and access they need to capture the opportunities within the MEASA region, through Dubai.”

The new Insolvency Law and Regulations came into effect on 13 June 2019. The law introduces a new debtor in possession bankruptcy regime in line with best practice globally which will also place the DIFC at the forefront of complicated debt restructurings.

The law provides for a new administration process where there is evidence of mismanagement or misconduct. The law also enhances the rules governing winding up procedures; and incorporates the UNCITRAL Model Law on cross border insolvency proceedings with certain modifications for application in the DIFC.

The new law was subject to substantial research and global benchmarking, as well as thorough public consultation. Its enactment is widely seen as a response to the failure of the Dubai-based private equity group Abraaj and its DIFC-based unit Abraaj Capital.

Investigations into the collapse of Abraaj are ongoing and not limited to Dubai. On 11 April 2019,the US Securities and Exchange Commission (SEC) charged Abraaj CEO Arif M. Naqvi and Abraaj Investment Management Limited with misappropriating funds from a private equity fund client.

The SEC alleges that Naqvi and his firm raised money for the Abraaj Growth Markets Health Fund, collecting more than $100 million over three years from US-based charitable organizations and other US investors.

According to the SEC's complaint, Naqvi misappropriated money from the Health Fund and commingled the assets with corporate funds of Abraaj Investment Management Limited and its parent company, and used it for purposes unrelated to the Health Fund. The SEC alleges that Naqvi and his firm made misrepresentations to investors and issued false and misleading financial statements to hide that they were spending investor money in unrelated ways.

Naqvi himself is currently under 24-hour curfew in his London residence and wearing an electronic tag, having been released on bail from prison after posting a £15m ($19m) bond in late May. The US authorities have asked for his extradition.