Economies must recycle to grow, sending well-intentioned but ultimately unsuccessful ventures into the dustbin. And because of failure's role in the great commercial sorting mechanism, the ease of going bankrupt ironically has a major role to play in an economy's overall success. That is why it is at once unfortunate and heartening to see cases such as that of Orion Holding Overseas, which was yesterday ordered into liquidation by the Dubai International Financial Centre (DIFC) Court.
It was the third liquidation to go through the DIFC, and it surely will not be the last. Lawyers expect a wave of companies wound up this year as firms beset by the global downturn determine they are beyond rescue. The DIFC's regulations, imported mainly from English law, are well-equipped to handle the coming flood. But regulations outside of the DIFC may not be. Observers have long complained that legal structures for insolvency outside of the DIFC, an economic free zone with a modern set of commercial laws, need to be reformed.
It takes several years, on average, for a company in the Gulf to shut down, a World Bank report says. Only a handful of insolvencies have been tried in the UAE's courts, leaving the local laws largely untested. It is hard to tell how many firms such as Orion exist outside of the DIFC but the number is sure to be large. Without a solid insolvency regime, those firms will spend too much time and money teetering on the brink of failure - resources better dedicated towards starting over.
@Email:afitch@thenational.ae