The Implication of Bankruptcy Law on Foreign Direct Investment: A Comparative Analysis between Saudi Arabia and United Arab Emirates

Abstract

The global financial crisis of 2008/2009 led to the collapse of economies and the investors felt the brunt of the crisis as their investments suffered heavily as a consequence. The investors in countries whose legal framework lacked provisions for bankruptcy and insolvency proceedings suffered major losses. Therefore, this study sought to examine the influence of bankruptcy laws on the investor’s decisions to attract Foreign Direct Investments in the Kingdom of Saudi Arabia and the United Arab Emirates. The study used a comparative approach between the United Arab Emirates and the Kingdom of Saudi Arabia to determine the differences in their laws and its contribution to the Foreign Direct Investments inflow between 2010 and 2019. The United Arab Emirates and Kingdom of Saudi Arabia were chosen because both countries are oil-based economies and are working to diversify their economies to attract foreign investors. The study found that the United Arab Emirates has two major laws on bankruptcy and insolvency, the Bankruptcy Law 2016 and the Dubai International Financial Centre Insolvency Law 2019. The main provisions of the laws are on the insolvency procedures including the filing for bankruptcy, the options for resolutions including new financing, insolvency with restructuring, insolvency with liquidation and protective composition. The Dubai International Financial Centre is also crucial in promoting clear proceedings in multi-jurisdictional disputes. In the Kingdom of Saudi Arabia, the new bankruptcy law 2018 was implemented to attract foreign investors and has provisions for preventive composition, rehabilitation and insolvency administration, but lacks a multijurisdictional approach to resolving disputes. The Foreign Direct Investments flow in the United Arab Emirates was found to be better as compared to the Kingdom of Saudi Arabia inflow which stood at 0.5% in 2019 below its set target of 5.7% by 2020. This study therefore, concludes that Foreign Direct Investments decisions are linked to the bankruptcy legal framework. Sadly, in the Kingdom of Saudi Arabia, the framework is largely untested. Therefore, this study recommends that the government promote transparency in the resolution of bankruptcy proceedings and minimize interferences. There is also a need for a multijurisdictional approach to dispute resolution.