The National reported that up to 3,000 vehicles have been left at in Dubai International airport’s car parks. Even this figure is reportedly low, with unsubstantiated rumors that as many as 4,000 vehicles are sitting locked up with keys in the ignition. The cars’ (now former) owners appear to have abandoned them and flown to their home countries, unlikely to return.

The simplest explanation is the most likely, and most worrying: people leaving the UAE with whatever funds they can get their hands on. Some have taken to selling the entire contents of their home on Web sites such as Dubizzle.com. One enterprising businessman, called Hamed, is offering cash deals to people looking to sell their legally transferable goods. “It’s not just the cars being left behind at the airport. There’s also furniture, beds, stuff like that,” he says. It’s a new take on the property bubble; people fleeing because they will not have the funds to make loan payments.

Businesses are failing too. But the option to publicly declare bankruptcy or put a company into administration is rarely, if ever, put into practice. Dubai-based al-Barakah Properties publicly declared itself insolvent with 400 million dirhams of debts after worried investors tried to cash their post-dated checks, which then bounced. The chief executive, Imran Khan is currently in hiding, indicating he will only return to address creditor concerns once the current police cases against him are dropped so that he can address their requirements.

But this route is rarely taken, notes Alec Emmerson, a consultant at international law firm Clyde & Co., and one of the few experienced insolvency practitioners based in the Middle East. “The traditional way of bailing business in the UAE,” he says, “is to empty the bank accounts and go to wherever you came from, if you’re a foreigner.”

Declaring insolvency can mean up to five years in jail, and issuers of rubber checks can also expect to end up in a cell. This last point does not necessarily help creditors. “I think the system actually encourages people to pack up and go instead of staying and working it out,” says Emmerson. “Unfortunately, there is no easy process here that allows third-party creditors to go along to the court and petition for bankruptcy here, and the process is pretty convoluted,” he adds.

The answer is clear according to Nasser al-Saidi, chief economist at DIFC. The current UAE insolvency and bankruptcy laws need to be reformed. “Strengthening insolvency laws is crucial. If you look at our frameworks across the region, they haven’t evolved in the past 30 or 40 years,” he says. “If there’s a silver lining out of the financial crisis of 2008 as far as we’re concerned, it is the realization that we need to modernize our bankruptcy and insolvency framework and procedures.”

The DIFC has its own insolvency law, similar to the British Insolvency Act. But an as-yet unpublished report by Hawkamah, in conjunction with the World Bank, the OECD and insolvency practitioners INSOL International, says GCC nations lag behind OECD nations on insolvency and bankruptcy. “If the effort is put in, we could see these results change within two to three years,” says al-Saidi.

Clearer insolvency laws could reduce the number of businesses that implode, but reforming them seems a long way off. Nevertheless, Emmerson notes that such laws may not need to be used extensively in the UAE. “We’ve still got a vibrant economy in the UAE, both in Dubai and Abu Dhabi and the other emirates, so we’re not talking about a general meltdown,” he says. “Although there will be quite a lot of grief during this year, the vast majority of businesses will go through it.”

Still, Swiss Bank UBS says the current population of Dubai will shrink by up to a tenth by 2010. It should be noted that those who are likely to suffer will come from the many small and medium enterprises across the emirate. These are the businesses that will decrease the surplus population. And for now, cars will continue to be abandoned at the airport. Time will tell whether insolvency legislation reform can stop this.            

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