The Dubai partners of Dewey & LeBoeuf, an American law firm that entered bankruptcy protection, have filed for creditor protection in the Dubai International Financial Centre (DIFC) Courts.
The suit will be a test case for the financial centre's untried insolvency laws.
Dewey & LeBoeuf filed for bankruptcy late last month amid an exodus of more than 160 of its 300 partners, after the firm was unable to service its debts.
It was the biggest collapse in American legal history.
Dewey & LeBoeuf's office in the DIFC closed its doors at the beginning of last month, but three of the firm's partners have brought claims seeking to protect the firm's local assets from being reclaimed by the company's liquidators in New York. The suit will be an important test case for DIFC insolvency laws, said Shahab Haider, the managing partner of Sajjad Haider Chartered Accountants, who has been appointed as the provisional liquidator for Dewey & LeBoeuf's Dubai operations.
"This is a unique situation in a sense," he said.
"The whole purpose of this suit is that local assets and liabilities are returned in accordance with DIFC laws. What they've done is effectively shut the operations here in the DIFC so that all local assets and liabilities are returned on an equitable basis."
If successful, the creditor protection laws will ensure the firm retains enough funds for local employees to receive end-of-service payments and payments to be made to trade creditors.
The next hearing in the case has been set for a week today.
The DIFC, Dubai's financial free zone, has its own legal system based on English common-law courts and draws on international precedents distinct from UAE laws. It recently expanded its jurisdiction to allow cases from any company in the Emirates, provided both parties have agreed to use them in advance.
The Dewey & LeBoeuf case comes soon after Drydocks World's use of Decree 57, a set of bespoke bankruptcy protection laws invoked at the Dubai World Tribunal. So far, however, these laws have only been on offer to companies involved in the US$24.9 billion (Dh91.46bn) debt restructuring of Dubai World, the conglomerate that defaulted on its payments in 2009.
The UAE's bankruptcy laws, in force since 1993, have been criticised by bankers as outdated and a hindrance to efforts to lend money to individuals and businesses.
While the World Bank's ease of doing business rankings rates the country among the top nations globally for criteria such as registering property or trading across borders, the Emirates rates 151st for resolving insolvency.
New laws governing bankruptcy are expected to be passed by the end of this year.
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