With the advent of litigation funding, asset recovery firms are extending their fingers to the UAE debt cookie jar.
This is mainly due to the reliable legal system whose commercial courts are perceived globally as both progressive (note Deloitte being registered as a court expert and its appointment as Court Trustee in bankruptcy proceedings) and effective (note Execution Judges expeditiously sending out disclosure orders to property registries and bank account freezing orders being implemented within 24 hours). Having adequate tools to seek information on debtor assets is instrumental.
This is also due to the fact that there have been quite the number of headline-worthy defaults on debt financings by UAE banks to enterprises that once had a sizeable regional if not global footprint (see UK publicly listed healthcare provider NMC and construction giant Arabtec downfalls).
The litigation financing model has also greatly been stretched over the years and has turned into a legitimate opportunity for investors with a risk appetite (this isn’t exactly stocks and bonds). This perception has poured over across markets stretching from New York to London to Dubai especially after Burford Capital’s recent win against the Argentinian government whilst financing a lawsuit for breach of contract associated with the partial expropriation / renationalization of the shares of energy firm YPF S.A., and which led to it announcing its judgment-share of USD 5 Billion after having invested USD 50 Million into the litigation.
As court systems continue to improve and as the overall rule of law becomes more robust in jurisdictions across the world, people have become increasingly litigious; but on the other hand, as globalization adds layers and dimensions to itself (see cryptocurrency, cross-border trusts, shell companies, digital remittance houses), it also becomes further complicated to enforce against sophisticated judgment-debtors that are not afraid to employ the tricks up their lawyers’ sleeves to avoid enforcement against their assets.
This hardship has led to statistics and surveys showing there are corporate giants and more specifically financial institutions leaving unsatisfied judgment papers piled up in their archive rooms due to the lack of resources, logistics, capacity or just the overall inclination to spend on more costly alternative legal proceedings in the pursuit of assets that may just be across the nearest shoreline.
As such, and after having already litigated towards obtaining a court verdict up until which they had to go through the agony of hearing deliberations on contract law throughout a lengthy trial while their lawyer says “That comma in Clause 2 could change the entire case’s outcome”; the last thing I would want as a judgment-holder is to spend another several months being lectured about ‘Paulian Actions’ to see whether we can claw back funds that our judgment-debtor had transferred to their mother company in the Caymans (incoming: “Well, it depends…”).
In light of this, judgment-holders are becoming more and more receptive to the idea of selling their verdicts in exchange for a discounted sum to buyers such as asset recovery firms who as a result of some angel investors’ capital financings have put together a team of persistent individuals well versed in how to circumvent the hardships of cross-border enforcement (freezing order here…freezing order there).
We just witnessed this in the UAE in an event that was not talked about enough: the acquisition of what has been declared as the first portfolio sale of distressed / non-performing loans worth USD 357 Million (by Grant Thornton from ADCB).
This should certainly lead to other banks salivating at the mouth to sell off what they perceive to be their stack of dead loans which in turn can be resurrected by the highest (and more willing) bidder.
‘Passing your judgment’ might just be OK after all…
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