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Bankruptcy filing highlights stress

Daniel Thomas Gulf News
An artist's impression of Al Murjan's White Bay development in Umm Al Quwain

An artist's impression of Al Murjan's White Bay development in Umm Al Quwain


Dubai It was one of the most recent visible signs of the cash flow constraints faced by the local property market when Al Murjan Real Estate, the company behind a $3-billion stalled residential development in Umm Al Quwain, filed for insolvency in November. This episode attracted attention not just because it was the first court-mandated bankruptcy of a distressed property project after the financial crisis began, but also because it puts the spotlight back on a number of projects put on hold in the country.



"Whether other developers in similar positions will file for bankruptcy remains to be seen but one would estimate that other developers are in a similar financial position as Al Murjan," says Shahram Safai, partner at law firm Afridi & Angell.

At the same time, while this is the first court-mandated bankruptcy of a distressed property project in the country, the law has, for the last 17 years, remained largely unchanged, points out Safai. "So, the Al Murjan episode is a clear sign of the current economic climate."

For the investors caught up in the troubled situation, there is apparently enough reason for concern. Buyers at the 8,000-home White Bay development now face a long legal process in order to recover their money. "The principle of bankruptcy is that after a given period, it wipes the slate clean, allowing the company to restart. If the company is liquidated as a result, it cannot restart and the assets are sold off and the money used to repay creditors [investors]. Often, the costs of liquidation are high and the assets few, so typically, the creditors only receive a fraction of what they have paid," says Adrian Camps, managing director and CEO of Fine and Country, specialists in the marketing of exclusive properties. Umm Al Quwain has an escrow law and the object of placing the investor's funds in escrow is to protect them from such problems. "If the funds are in escrow, then this will provide some degree of protection, but often, only a proportion of funds are transferred to escrow, so the remainder are vulnerable," warns Camps.


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