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KBBO group restructuring approval is a milestone in UAE bankruptcy law regime

Majority of creditors for the KBBO group and associated entities to be restructured

The court approval for Abu Dhabi-based KBBO Group’s restructuring, the largest successful onshore bankruptcy case in the UAE, marks a key milestone for the landmark legislation that will have wider positive implications for the business community, legal experts said.

KBBO Group was one of the biggest shareholders of collapsed firm NMC Health. KBBO’s founder Khalifa bin Butti Al Muhairi filed for bankruptcy through an Abu Dhabi court two years ago after NMC’s collapse. NMC, which was founded by Indian businessman BR Shetty in the mid-1970s, ran into difficulties after short-seller Muddy Waters questioned its financial reporting and doubts emerged over the size of stakes owned by its biggest shareholders. NMC also disclosed more than $4 billion in hidden debt, which led to London-listed NMC Health being placed in administration in April 2020.

The court approval was subsequent to the approval on August 14 2023 from the majority of creditors for the KBBO group and associated entities to be restructured under the UAE Bankruptcy Law, which was introduced in late 2016.

The KBBO Group restructuring includes 29 corporate applicants and two shareholders and will be implemented in order to maximise the return for all of the creditors with Dh7 to Dh12 billion of claims, including multiple complex cross-guarantee positions.

The court approval was gained by Deloitte trustees comprising Deloitte Turnaround and Restructuring partners Paul Leggett and David Stark, along with Salem Ballama.

Leggett expects the UAE Bankruptcy Law to be widely adopted in the years to come, and companies, bankers, and their lawyers should be encouraged to utilize the legal framework, “particularly to circumvent some of the challenges of out-of-court restructurings and as an alternative to a liquidation process.”

The KBBO Group, founded in 2008 by a group of businesses and investors, comprises three divisions: Emirates Hospital Group (hospitals and clinics), a consumer products division (including the brand Freshly Frozen Foods), and an investments arm holding interests in a diverse range of businesses.

While the UAE Courts have been dealing with bankruptcy cases under the Bankruptcy Law since it came into force in late 2016, these were principally creditor-led filings with very few debtor-led examples. “It is fair to say that the number of bankruptcy cases filed in aggregate across the Emirates was not significant in circumstances where more filings would have been expected,” wrote legal experts at Clyde & Co.

The UAE Bankruptcy Law provides a possible avenue for an insolvent debtor to restructure the company or otherwise proceed into liquidation if the court considers that restructuring is not possible. “These statutory mechanisms are intended to benefit the interests of creditors of a distressed company by providing a level of confidence in the legal process and by maximising the likelihood that creditors will be paid in a debtor’s bankruptcy situation,” explained Keith Hutchison and Sheriff Maher of Clyde & Co.

Under the law, a debtor is required to file for bankruptcy if it is in default of payment of a due debt for more than 30 UAE business days due to its unstable financial condition or where the assets of such debtor are, at any time, insufficient to cover its debts that are due and payable to its creditors. A creditor may also initiate bankruptcy proceedings in respect of a debtor where it holds a debt of at least Dh100,000 and has issued a written demand to the debtor for repayment which has not been satisfied within 30 UAE business days.