The Steps Involved In Debt Collection In Dubai

Doing business in Dubai is a goal for many foreign business owners, particularly those operating within the established free trade zones. This allows for tax-free business operation and also provides investor-friendly options for 100% foreign owners of businesses within these established trade zones.

In general, companies in the area and throughout the United Arab Emirates are very good at paying their bills on time. This is particularly true with the mid to large sized established domestic and international businesses operating in the Emirate. One reason payment is so consistent with these companies is the severe penalties, including prison sentences, which are possible for non-payment.

While the small to large sized established domestic and internationally owned companies is a low risk of problems with debt collection, the same is not always true for the small companies that spring up inside and outside the free zone areas. Due to the significant legal sentencing possible, often the owners of these businesses simply close up and leave when debts cannot be paid, creating additional problems with debt collection.

It is important to realize that for foreign business owners working with sponsors, it is not uncommon for the foreign investor to simply leave the UAE if and when debts start to occur. The sponsor, the UAE national, is not held accountable unless they are directly involved in the business management and administration. To protect themselves, sponsors typically avoid entering into these agreements just for this reason.

There are some important reasons to contact a legal firm with experience in working in the UAE and specifically with debt collection issues. There are several steps that business owners will be expected to take before going to court, which is very different than may be the process in other countries. This is particularly true for companies and businesses without experience in the Middle Eastern business protocols and practices.

Typical Terms of Payment

As in most areas of the world, Business to Business or B2B invoices for goods or services is typically written with 30-day terms. It is not uncommon in the UAE to see that doubled to 60-day terms and sometimes even 90 depending on the arrangement between the buyer and seller.

Should the buyer not pay within these terms, the seller (creditor) is able to charge interest at the rate stated in the contract with the buyer. If there isn’t a contract in place, the creditor can use the market rate for business loans, but it cannot exceed a rate of 12%.

Start With Negotiations

There are no specific bankruptcy courts in the UAE, so these types of cases are heard by the general court system that handles domestic legal issues. Most attorneys in Dubai recommend avoiding the courts as there can be significant delays in hearing the case and it is often challenging for a law firm to predict how the court will rule when the facts are not very clear to the case.

Most business professionals in Dubai will work directly with each other to resolve these types of debt situations due to the uncertain nature of the court. This in itself can be a challenge for those not familiar with the practice and the culture.

In some cases, the non-payment of the debt may be a result of a dispute over the contract. The buyer may not be satisfied with the product or service and is withholding payment. With direct negotiations between the business owners, it may be possible to come to a mutually agreeable way to correct the problem and complete the contract payment requirement.

An attorney can provide consultation and options during these direct negotiations. As working directly with the other business owner or owners involved is the best possibility for a speedy resolution of the debt, this is the ideal option if a resolution can be developed.

Alternative Dispute Resolution

A legal firm can also provide support for a business attempting to collect through the use of dispute resolution processes including arbitration. Mediation and arbitration offer a more structured approach with legal representation on both sides to attempt to provide a solution that will be agreeable to both the business the owes the money and the business that is owed the funds.

While it is more time consuming to go through alternative dispute processes and it does require several meetings in most situations, it is also a better option for many business owners to consider. With legal support and counsel in place, the business can be assured they are making a decision that is in their best interests while also avoiding the potential issues of going through the court system.

When hiring an attorney or a legal firm for alternative dispute resolution, it is important to choose a firm that has experience in dispute resolution, your industry as well as in litigation. This allows you to have the best possible legal counsel throughout the case, including the structuring of repayments and the protection of all parties to the agreement during and after the settlement is finalized.

In Dubai, all disputes that have a total value of less than AED 50,000 will go before the Centre for Amicable Settlement of Disputes. This first step must be completed before any other legal options will be considered through the courts.

Court Action

When alternative dispute resolution is not possible or if it is unsuccessful, there is the option to move into court proceedings. In Dubai, the court that hears the case and the type of legal standards used will be dependent on the type of company. For examples, different free zone authorities, particularly in Dubai free zones, will use Common Law based rules while other registered companies in UAE will be heard by local courts that will use Civil Law and Sharia Law.

At this point, it is critical to have an experienced legal team on your side as the business attempting to collect the debt. This can be a complex process with several different options based on the specifics of the case.

Typically, when the alternative dispute attempt fails, the next step is a summary judgment, but that can only occur after a registered Demand Letter is sent to the debtor. This summary judgment is served, and the debtor then has 15 days to argue a defense or to pay the debt. The option to provide a defense then triggers a lawsuit, which is very different in format than what a lawsuit would be in the United States or in Europe.

It is important for foreigner business owners to understand this is very different than Western courts. One simple example of this is the format of the courts. There are no oral hearing and typically “litigation” exchanges. Instead, all documents and arguments are provided to the court in writing. All correspondence is required in written Arabic as well.

Additionally, and this is very different than a typical Western court judgment, punitive damages or consequential losses are not typically awarded through the courts. Compensatory damages can be awarded, but it can be very challenging to enforce the award, particularly if the debtor simply leaves the country and fails to make the payments ordered by the court. Visit the website www.stalawfirm.com for more information.

 

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