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Sub-contractors, suppliers facing 'significant impact' from Arabtec downfall

Legal expert Abdulla Alawadi says liquidation of Arabtec will add to 'chaos' already being faced by UAE construction industry from coronavirus pandemic.

Sub-contractors and suppliers dealing with Arabtec are facing "significant impact" on their businesses amid plans to liquidate the construction giant, according to the chairman of a UAE-based law firm.

Abdulla Alawadi, chairman of the law firm Abdulla Alawadi & Associates, also said the liquidation of Arabtec would add to the "chaos" that developers are already having to deal with amid the ongoing coronavirus pandemic.

"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," he said.

"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, there are other procedural aspects that 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,” he added.

His comments come as Abdulla Alawadi & Associates, one of UAE’s oldest law firms, outlined the consequences faced by the subcontractors and the legal steps to be pursued if they are going to be impacted by the liquidation.

Arabtec's board of directors are due to meet on Monday to discuss the next steps of the liquidation process.

“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," said Alawadi.

Hesham El-Samra, senior associate – litigation, said that subcontractors will have to keep an eye on local gazettes to know the liquidator named for the liquidation process, adding that they will have to wait for the liquidator's report to be submitted before the competent judge for approval and the liquidation of assets.

He also said that the prospect of suppliers avoiding the UAE market after the Arabtec situation could offer "a good chance to expand" for others as competition eases up.

El-Samra also said that some suppliers may have to raise external funds to meet their current obligations as they try to emerge from Arabtec-related difficulties.

The coronavirus pandemic has already caused confusion in the industry, primarily, concerning the handover prolongation costs, other rights and obligations, all of which impacted unit holders, employers, engineers, developers, contractors, and subcontractors.

“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,” added El-Samra.

Dubai-based Arabtec Holding last week announced it expects an application to liquidate the company will be submitted by the end of November, meeting a deadline set by shareholders.

A filing to the Dubai Financial Market by Antoine Abi Rached, the company's general counsel and board secretary also said that the appointment of a trustee or liquidator will be subject to the  "absolute discretion of the competent court which will consider the application to commence the process under the Federal Bankrptcy Law.

On September 30, Arabtec shareholders had voted to discontinue with the company and dissolve it due to its untenable financial situation.

The resolution of the shareholders granted the Arabtec board a maximum period of two months to allow for discussions with the main stakeholders and Arabtec expects to meet this deadline.

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