Dubai's DIFC introduces scheme of arrangement
In yet another example of the Dubai International Financial Centre (DIFC) making its company and insolvency law even more versatile, the DIFC has introduced a mechanism which will operate in a similar manner to a scheme of arrangement under English law. The law came into effect on 12 November 2018.
- The new mechanism allows a company incorporated in the DIFC to enter into a compromise or arrangement with its creditors (or a class of its creditors) or its shareholders (or a class of its shareholders).
- The mechanism is applicable to creditors whether they are secured or unsecured.
- The application may be made by the company, a creditor or shareholder of the company and (in the case of a company being wound up), its liquidator.
- The voting thresholds are the familiar 3/4 in value and a majority in number of the creditors (or class of creditors) or 3/4 of the voting rights of the shareholders (or class of shareholders) present and voting at the relevant meeting.
This is fantastic news for DIFC corporates and stakeholders seeking to achieve an efficient, flexible and value-accretive restructuring. The text of the legislation is equally minimalistic as its English provenance. In England, most of the law in relation to schemes (such as the all-important composition of classes) has evolved from case law. We expect that the DIFC judiciary will consider that body of case law when deciding on cases arising under the new mechanism.
The introduction of the scheme comes hot on the heels of the proposed upgrades to the DIFC insolvency law, which we reported on in October 2018, which included a proposal for a new rehabilitation process which would go a step further and include a cross-class cramdown.
It remains to be seen how the new mechanism will operate alongside any new rehabilitation process but one thing is certain: the DIFC’s restructuring toolkit just got bigger and we can look forward to even more to come.