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Sukuk.me: 'Bankruptcy laws untested' |
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Turnaround and restructuring specialist Alvarez & Marsal, the firm tasked with the winding down of the once venerable Lehman Brothers, believes that when it comes to restructuring and bankruptcies, the local regulatory environment is "a lot more time-consuming and conservative" as compared with that in the more developed, Western markets, but one big corporate failure could get things moving.
"So far, the [region's] governments have been able to keep businesses going. But once you see a failure, then that will test the laws and then things will get started – we need that one case where nobody is willing to prop them up," Antonio Alvarez III, Senior Managing Partner, Alvarez & Marsal, told Emirates Business.
That is what happened when, on September 15 last year, the US Federal Reserve allowed Lehman to go bust, resulting in the largest financial bankruptcy in the country's history.
While the jury is still out on whether or not that was the right thing to do – it has taken trillions of dollars worth of stimulus by governments across the world since then to stem the resulting loss of confidence in and among financial institutions – analysts agree that the coordinated response by global governments might not have occurred were it not for that one big failure. "The key thing that we have in the Middle East is that the laws haven't been tested yet and so it's probably going to result in a lot of out-of-court solutions. Maybe, some of these will never even make it to the press because they will be out of court, private, consensual solutions," he said.
Alvarez said while there have not been many major bankruptcies yet, it is just a matter of time before some are announced.
"I don't think it's a question of companies being so strong that they don't need it [bankruptcy protection]. It's really a matter of being in a point in a cycle – we still haven't seen any. We think the ones that have come out have been able to get financing somehow, and we think there are more that are close to coming out. And it's uncertain whether they will be able to get the kind of financing the earlier ones have received."
Since it set up its practice in the Middle East over two years ago, A&M has provided restructuring, performance improvement, dispute analysis and transaction support services to clients in the UAE, Saudi Arabia, Kuwait, Qatar and Turkey. The sectors where these services were delivered are quite diverse ranging from construction, family business, conglomerates, retail, banking, manufacturing, real estate, and aviation, said Alvarez, but declined to provide names of clients.
"It's very different – it's [the turnaround process] a lot longer, and it's [largely] untested," he said when asked how the regulatory environment in the region compared with that in the US and Europe. "[It's] very stringent. It's a lot more time-consuming and conservative."
The firm believes the regulatory environment in the UAE is more evolved than its regional peers. "I believe the UAE has progressed more than other [regional] jurisdictions," said Lina Terminini, Director, A&M Middle East.
Source: Business 24-7
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