Arcapita Bankruptcy Filing Highlights Wider Transparency Issue

Corporate collapses and debt restructurings have been common in the Persian Gulf since the financial crisis. But the U.S. bankruptcy filing by the Bahrain-based investment firm Arcapita has presented an unusual sight for the region – a debt-laden company which is planning to sell all its assets to repay creditors and wind up its operations. While nothing new in the developed world, bankruptcy proceedings overseen by courts and done transparently are virtually unknown in Arcapita’s native Bahrain or in the rest of the oil-rich Gulf, where failure carries a social stigma and debt-laden, financially broken companies are often allowed to straggle along instead of publicly going out of business. Even when Gulf companies do want to wind themselves up, lawyers say local systems are rarely used because they’re unpredictable. “There have been hardly ever any companies that have gone bust, and that’s simply because one thing you want when you put a company into bankruptcy is certainty about the outcome,” said Adrian Low, a banking and finance lawyer at Clyde & Co. in Dubai, speaking about the situation in the Middle East in general. Arcapita’s winding-up is taking place in plain view because it filed for Chapter 11 bankruptcy in New York, which it was able to do because it made substantial investments in the U.S. The case, filed last March, is expected to conclude this summer. The absence of a properly-functioning bankruptcy regime back in the Gulf has hindered the region’s economic recovery, lawyers and consultants say. As well as keeping unhealthy companies alive for too long, slowing the rebound from the 2008-2009 financial crisis, it has stifled access to credit and stunted the development of financial markets. “The financial markets need bankruptcy laws to be flexible to allow for the redeployment of capital,” said Nasser Saidi, an economist and former Lebanese central banker who runs a Dubai-based advisory firm, and has been a vocal advocate of bankruptcy reform in the region. “That’s a main function of capital markets, but you see they are not functioning well in the Middle East.” Read the rest at http://blogs.wsj.com/middleeast/2013/05/16/arcapita-bankruptcy-filing-highlights-wider-transparency-issue/