By Yaser Dajani

A combination of worthless guarantees, concealed assets and patchy legal enforcement have held back debt recovery in the Middle East. Now, this is all changing. From innovative cross-border legal strategies and remedies, to the use of forensic accounting to track down hidden assets, partnership between lawyers, investigators and third-party funders has taken the effectiveness of debt recovery to a new level. As a lender or investor, how can you capitalize on the non-performing loan (NPL) transformation?

Earlier in the year, I was invited by the publishers of CDR Essential Intelligence to share what I had learned on the frontline of NPL tracing and recovery in the Middle East. This was a great opportunity to shine a light on a market that is evolving at a remarkable rate.

In my previous article, I looked at why NPLs in the Middle East have reached such high levels and why recovery has so far proved to be so difficult. Here, I want to explore the groundbreaking developments that mean that billions of dollars of assets are now ready to be reclaimed.

The rise of cross-border recovery

For banks, recovery is an opportunity to clean up their balance sheets, reduce regulatory capital demands and, ultimately, boost their profitability. 

While regulations are moving in the right direction, patchy enforcement, and protracted legal wrangling within the United Arab Emirates (UAE) and other markets with high NPL levels mean that debt recovery levels are low. However, recovery is now on the radar, as third-party NPL portfolio investors and funders move into the market.

The UAE highlights the potential with its. NPL portfolio was valued at around US$22 billion in 2022, though that figure is now lower. A significant portion of that debt is potentially recoverable from guarantors in jurisdictions outside the UAE. Third-party litigation funders offer banks a triple win by footing the upfront costs, taking on the risk of recovery and assembling the specialist experts needed to pursue successful claims, even those that had previously been seen as off-limits.

The power of collaboration

Litigation funders do not acquire the debt portfolio, though some are ready to do so subject to their view on the ability to monetize the debt (which of itself is a major challenge). Rather, they focus on a particular portfolio or significant cases that aligns with their business strategy and risk appetite. This cost-efficient cross-border litigation model makes them valuable partners for banks and investigators in navigating the intricate landscape of NPL recovery.

Through our first-hand experience, we have observed how external counsel, investigators and funders bring a blend of innovation and expertise to the table. Among the legal remedies that have proven invaluable are Section 1782 Discovery, Norwich Pharmacal Orders, Bankers Trust Orders, and Provisional Liquidation and Receivership Proceedings. 

The opportunities opened up include securing court orders to aid the discovery and disclosure of information on corporate, financial, and tangible assets to help pave the way for targeted recoveries.

Additionally, our forensic accounting teams have nominated our own court-appointed liquidators to take control of companies and compel directors and third-parties to disclose evidence and actionable intelligence in support of asset tracing and recovery. 

Combatting dissipation 

The other key weapon in this new armory are steps to combat the dispersal and concealment of assets – dissipation – which is one of the biggest barriers to asset recovery.

We have been able to deploy forensic accounting techniques to track down assets across complex international trails. In a recent case, we investigated and uncovered asset dissipation as part of our work in support of a worldwide freezing order. The supporting evidence included a fund flow analysis to reveal the concealed cash. We were also able to piece together a timeline of the dissipation to help us pursue and recover the transferred assets.

Open for business

So, the once largely off-limits Middle East NPL market is finally opening up. The emergence of third-party funders and advanced investigative techniques underscores the potential for innovative solutions in navigating the complexities of NPL recovery. Ultimately, addressing NPLs requires a coordinated effort, leveraging regulatory reforms, international cooperation, and specialist expertise to maximize debt recovery and foster financial stability in the region.

Find out more

To find out more about the NPL challenges and how recovery is evolving, please see Cutting through the complexities of NPLs in the Middle East: Lessons from the frontline

Let’s talk 

If you would like to discuss any of the issues raised in this article or chat about how we can support asset tracing and debt recovery, please feel free to get in touch.

Yaser DajaniYaser Dajani
Managing Director 


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