When an international company goes into administration and employees in the UAE are concerned about their end-of-service entitlements, it is important to be aware of several legal points, experts say.
International oilfield services company Petrofac laid off 180 people in the UAE earlier this month, after a multibillion-dollar Dutch offshore wind contract was cancelled, as the firm struggles with mounting debts. Reports claim total unpaid gratuities could exceed Dh27 million.
On October 27, Petrofac said its board had applied to the High Court of England and Wales to appoint administrators for its holding company after Dutch grid operator Tennet cancelled a major offshore wind contract in the Netherlands.
Preferred creditors
“If an employer enters formal restructuring or bankruptcy and cannot pay gratuity, employees [including expatriates] become creditors in the court‑supervised process,” says Michael Kortbawi, partner at BSA Law.
“Unpaid end‑of‑service benefits [UAE gratuity], and wages and salaries that are paid periodically rank as ‘preferred’ debts ahead of ordinary unsecured creditors. However, this preferred category is capped so that the total paid under this preference does not exceed the equivalent of three months’ wages/salary per employee.”
Any balance above that cap should be treated as an ordinary unsecured claim and may be paid only pro rata, along with other unsecured creditors, if funds remain, Mr Kortbawi says.
Ludmila Yamalova, managing partner at law firm HPL Yamalova and Plewka, says a company entering administration in another country does not necessarily mean that its UAE operations will immediately be affected.
“Much depends on the corporate structure of the group, how the overseas parent is linked to the UAE entity, and whether liabilities are shared or ring-fenced. Each jurisdiction treats corporate separateness differently, so the effect is not automatic,” she says.