Doing a “runner,” or the downside of debt in the UAE

There has been much written about the abandoned cars at the Dubai airport, of the newly unemployed expats who just fled the country after the the 30-day visa expiration deadline. The numbers in many of the stories were exaggerated — and there is no official count — but the cars were an irresistible metaphor for writers seeking to illustrate the decline in the emirate’s economic fortunes. Immigration visas are given through employer sponsorship. If you lose your job, well, that employer no longer sponsors you.

A seemingly abandoned car gathers dust on a Dubai street.

Recently, there has been another wrinkle to the story. Essentially, if you can’t pay your outstanding credit card bills or loans, you face going to jail. There are no bankruptcy laws in the UAE, no system by which a debtor can set up a payment plan or wipe out debts like we have in the West. A bounced check is a felony. And the prime way people secure, say, a loan or a year’s rent is by writing post-dated checks.

Like in the West, many people here made really bad decisions and got in way over their heads, barely covering minimum payments while they had jobs. When they lost their jobs and the money dried up, some decided they had no choice but to do a “runner,” pick up one day without telling anyone and flee the country. The UAE is looking at ways to make changes in the financial system — and certainly much of the blame lies with individuals themselves who exercised less-than-prudent financial judgment — but these stories have become the latest manifestation of the downside of the credit crunch in Dubai.

The most notable example of this came last June when a high-profile executive of an events company here in Dubai fled the country, leaving behind a “Letter to Dubai,” apologizing for his actions.

“On a personal level, I have been through the most soul destroying and emotionally horrific 4 days of my life, and am likely to continue to do so for some time as my integrity is repeatedly called into question and rumours of me stealing people’s money, amongst other accusations, grow out of control in Dubai. … The unfortunate reality is that the businesses debt accumulation has grown exponentially since the last quarter of 2008, with further liabilities being accumulated with the desperate objective of keeping the business alive and avoiding what so many other businesses have done, simply stopped paying their staff. Tragically, the debt of the business reached a level on Thursday 18th June that personal threats were being made against me and my family which left me no choice but to leave 4 years of passion behind and take my family out of the country before start of business Sunday 21st June. I have since been informed that certain individuals arrived at my place of residence in Dubai at the start of Sunday, confirming that the follow through on many of the threats was very real.

I am not running away from debt, I am purely protecting those dearest to me and getting out of a country which, due to the lack of structured bankruptcy laws and a banking system which has zero flexibility on loan repayments, drives people to make horrible decisions.

One of our business writers, Bradley Hope, did a jailhouse interview with an executive at a super-yacht company who ran into trouble when his company bounced a 16 million-dirham check that bore his signature.

“The cheque, he said, was supposed to be held as security for a loan from RAK Ceramics to his company, V1 Advanced Composite Technologies, and not cashed until the required funds were present. As he languished in jail, Mr Bender started defaulting on other obligations: a loan from the bank that was used to pay for the wedding, credit cards, money owed to suppliers and employee salaries. He now faces as many as 16 more years in prison. He already has served two.”

Last weekend, in what has been one of the most emailed stories in the paper, the Personal Finance section (which J edits) ran the story of Chris Fisher, a celebrity DJ who lived the high life here for 10 years. Last August, faced with 280,000 dirhams in debt, he fled the country and is now back in the UK, penniless and living off of welfare.

“In the heyday, I was earning around Dh50,000 a month,” he says. ”When Dubai was booming, corporations would think nothing of splashing out tens of thousands of dirhams for an opening, staff party or product launch.”

Mr Fisher’s new home is a spare room in Liverpool loaned to him by a relative. Unemployed and penniless, his riches-to-rags experience has been shared by more than a few UAE-based expats this year.

It will be interesting to see how things evolve here, from changes in laws to banks creating workout programs to people just getting it into their heads that living way beyond your means is a recipe for disaster. Makes me glad Mom and Dad Shah instilled in me such a cautious attitude about debt.