21 Nov 2023

Hadef & Partners successfully advises Drake & Scull on novel restructuring

Authored by: Mohammed Al Dhaheri and Abdul Hannan Mian

Introduction:

In the evolving legal framework of bankruptcy and restructuring in the UAE, Hadef & Partners successfully advised and represented Drake & Scull International PJSC in a first of its kind restructuring under the Emergency Restructuring Procedures introduced in the wake of financial instability caused by the COVID-19 pandemic. Federal Law No. 9 of 2016 on Bankruptcy (the "Bankruptcy Law") was promulgated with a view to support companies facing financial hardship while enabling their revival by restructuring their debts. The key aim of this law is to provide insolvent entities an opportunity to redeem their operations and assist them to settle their financial obligations over a stipulated period of time with the support of experts and under court supervision. By extension of this over-arching vision, the UAE promulgated the Emergency Restructuring Procedures (the "Emergency Procedures") for companies facing financial turbulence during an unexpected financial crisis as specifically designated pursuant to a UAE Cabinet Resolution under Chapter 15 of this law.

In Brief:

  1. The Bankruptcy Law provides for corporate insolvency and restructuring. The Emergency Financial Crisis Chapter was introduced into the Bankruptcy Law to protect companies facing a financial crisis caused by an unanticipated economic downturn.
  2. The Emergency Restructuring Procedures must be coupled with a specific UAE Cabinet Resolution identifying the applicable downturn period whereby the restructuring is restricted to a period of 12 months. In January 2021, the period between 1 April 2020 and 31 July 2021 was designated as the downturn period applicable to the financial instability caused by the COVID 19 pandemic.
  3. Hadef & Partners successfully undertook the mandate to assist Drake & Scull International PJSC with setting out a strategy to restructure its debts through a court approved restructuring plan navigating the nuances of these novel and untested procedures.

The Issues

Drake & Scull International PJSC, a publicly listed construction company, faced significant financial hardship which was further exacerbated by the onset of the COVID-19 pandemic. During this period, the UAE introduced a new section into the Bankruptcy Law titled Emergency Restructuring Procedures (for companies affected by the pandemic) as promulgated under Federal Law No. 21 of 2020 amending provisions of the Bankruptcy Law. However, the untested nature of these procedures, their requirements, the strict restructuring threshold and the uncertainty of outcome caused understandable apprehension among insolvent debtors in opting into these procedures.

The Emergency Procedures

The amendment to the Bankruptcy Law empowered the UAE Cabinet to set out the period for a designated emergency financial crisis. In this case, such period was designated by Cabinet Resolution in January 2021 and covered the period between 1 April 2020 and 31 July 2021.

A key difference between the Emergency Procedures and other mechanisms under the Bankruptcy Law is the creditor voting requirement. While the general requirement for ratification of a restructuring plan requires a dual majority of two-thirds of creditors by value as well as by number, under the Emergency Procedures this requirement is reduced to achieving a two-thirds majority of creditors by value alone.

Prior to approaching the court, Hadef & Partners, together with a number of advisors, were involved in discussion and negotiation with an ad-hoc creditor group consisting of major financial institutions before the Financial Reorganization Committee (the “FRC”). Under the FRC’s supervision, a restructuring plan was prepared and agreed with the ad-hoc creditor group. To assist in achieving the necessary creditor vote, the FRC appointed an expert to collate votes on the restructuring plan.

The Court Proceedings

In the application to commence proceedings under the Emergency Procedures before the Dubai courts, and with a view to expedite the process, an extension of time was sought to reach an amicable resolution with creditors in advance of the review by the court of the proposed plan and its ratification.

The Dubai court of first instance rejected the application and did not permit proceedings under the Emergency Procedures. The judgment was appealed and the Dubai court of appeal commenced restructuring proceedings and allowed the voting of creditors to commence on the proposed restructuring plan. In March 2022, the required level of creditor votes was obtained, however the court, disregarding the request to commence proceedings under the Emergency Procedures, decided to proceed under the general provisions of restructuring in bankruptcy.

As this decision had potential to delay implementation of an already approved plan, the matter was appealed to the Dubai court of cassation where we argued that the case met the threshold for commencing restructuring under the Emergency Procedures. The court of cassation agreed with our submission and the matter was returned to the court of appeal for re-adjudication.

Accordingly, the court commenced restructuring under the Emergency Procedures and ordered:

  1. ratification of the restructuring plan, as approved by the creditors, in accordance with the Emergency Procedures;
  2. appointment of a trustee to implement the restructuring plan;
  3. publication of notifications inviting creditors who did not vote on the restructuring plan to register their debts before confirmation of the final list of creditors;
  4. implementation of the restructuring plan to be concluded within a period of 12 months.

We are not currently aware of any other restructuring in bankruptcy proceedings which has been successfully approved under the Emergency Procedures. The success by Hadef & Partners in achieving this debtor initiated restructuring before the Dubai courts comes shortly after the KBBO Group’s successful restructuring in which Hadef & Partners was also able to successfully attain ratification of a major restructuring plan in an amount of about AED 7 billion, where the claims submitted by creditors were in excess of AED 30 billion.

Our continued success in handling complex matters involving novel procedures and principles under the Bankruptcy Law is a testament to the expertise of our cross-disciplinary teams and our deep knowledge of UAE law and the judicial process in all Emirates.

The Hadef & Partners team in this matter was led by Mohammed Al Dhaheri, Kadry Zaghawa and Michael Farchakh from our Dispute Resolution Team, and Ahmad Sergieh and Bilal Snaineh from our corporate team..

If you would like more information on restructuring, bankruptcy and insolvency mechanisms established in the UAE, feel free to contact Mohammed Al Dhaheri or Abdul Hannan Mian from our Dispute Resolution team, Ahmad Sergieh or Bilal Snaineh from our Corporate team.

 
 

This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.