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Main contractor’s liquidation and impact on sub-contractors

UAE’s oldest and most prestigious law firms discussed the consequences faced by the subcontractors and the legal steps to be pursed

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Dubai – Abdulla Alawadi & Associates, one of UAE’s oldest and most prestigious law firms discussed the consequences faced by the subcontractors and the legal steps to be pursed if they are going to be impacted by the liquidation of the main contractor.

“Sub-contractors and suppliers dealing directly with the main contractor in cases of liquidation of the main contractor such as Arabtec could experience a significant impact on their businesses and may also have to bear other financial challenges during this period. This will all depend on the final decision that the stakeholders will adopt, within this grace period of two months granted after the declaration of the liquidation decision. Once a liquidator has been assigned by the company via a decision, registration of that decision is compulsory at the ‘Registrar of Companies’ to be valid,” said Abdulla Alawadi, Chairman of the law firm Abdulla Alawadi & Associates.

“Subsequently, the manager of the company will cease acting, step out of the picture and the liquidator will be entitled to maintain, administer, collect, evaluate the assets of the company and claim any rights due. In the current scenario, subcontractors will have to keep an eye on local gazettes to know the liquidator named for the process. Post that they will have to submit hard or soft copies of their debt bonds and any supporting documentation to the liquidator. The subcontractors will have to wait for the liquidator’s report to be submitted before the competent judge for approval and the liquidation of assets,” stated Hesham El-Samra, Senior Associate – Litigation.

“On the other hand, the situation of suppliers not dealing with Arabtec or willing to enter the UAE market now is more promising and there’s a good chance to expand and grow since the competition will ease up a little bit. Furthermore, it will take suppliers engaged with Arabtec sometime to get over this situation and they may have to raise external sources of funding to meet their current obligations,” added Hesham.
Impact of such liquidation on the developers and end customers

“From the perspective of developers, it is obvious that liquidation of this magnitude coupled with the challenges posed by the pandemic has created a state of chaos in different aspects. Firstly, payments from developers to contractors/subcontractors are in constant scarcity or have even completely stopped. Secondly, the reduction of the headcount of construction workers made it even harder to deliver projects on time. Thirdly, other procedural aspects forced itself onto the scene and obstructed the delivery of units to purchasers, such as the VAT on developers, which could amount to millions of dirhams for major developers,” added Adv. Alawadi.

The pandemic had already confused in the industry, primarily, concerning the handover prolongation costs, other rights and obligations, all of which impacted unitholders, employers, engineers, developers, contractors, and subcontractors, among other stakeholders.

“In case of the liquidation of the main contractor and if the developer is unable to complete the project on time then, the purchaser/customer has the right to cite the relevant articles and defend his rights where claims can be initiated for unjust enrichment or termination of the agreement. Other aspects must be taken into consideration, like acting in good faith and serving formal notification to the party in breach. Considering the above, if the court ruled for the termination of the contract, then refund, i.e. what has been already paid by the purchaser and damages, might be granted,” concluded Hesham. [email protected]

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