First trade creditor files suit against Nakheel
Lawsuit claims 50 mln dirhams in money owed, damages.
September 21, 2010 11:16 by Reuters
The first trade creditor has filed a lawsuit against Dubai World’s Nakheel property developer unit with the special tribunal set up to handle disputes over its debt restructuring, which could further delay a settlement.
The tribunal said the suit, filed in mid-August, was served by Dubai-based Construction Delivery Group (CDG).
CDG’s lawsuit contends that it is owed 50 million UAE dirhams ($13.6 million) in principal, interest and damages related to a facilities management contract for properties at the Palm Jumeirah, one Dubai’s three artificial palm-shaped islands.
The value of the contract is more than 100 million dirhams, a source familiar with CDG said.
Legal experts have said that creditor claims against Dubai World or its subsidiaries with the tribunal could potentially cause the restructuring to come to a standstill until the matter is resolved in court.
“The companies met time and time again and ultimately agreed to disagree,” said the source familiar with CDG, adding the negotiations had been difficult, in part because employees at Nakheel that worked on the contract were no longer with the developer.
State-run conglomerate Dubai World reached agreement with 99 percent of its bank creditors earlier this month to restructure $24.9 billion in debt.
Under Nakheel’s restructuring plan, trade creditors have been offered 40 percent of what they are owed in cash and an Islamic bond, or sukuk, in lieu of the rest.
CDG does not have an arbitration clause in its contract, unlike most trade creditors, which has prevented them pursuing a case before the tribunal’s three international judges, who were given the task in December of overseeing the restructuring of the Dubai World group debt and settling any disputes.
The tribunal is as yet an untested entity, which is a matter of concern to CDG, the source said.
“There’s no case history on these guys,” he said. “It’s an unknown.”
Nakheel will require approval from 95 percent of trade creditors and 100 percent of bank lenders in order to issue the sukuk promised under the deal, and it had hoped to get consent by an Aug. 31 target date.
In June, Nakheel said it had achieved 75 percent approval among trade creditors for its restructuring proposal, allowing it to start making cash payments to large creditors and restart projects put on hold during the downturn
CDG’s suit raises concerns that negotiations are not going smoothly.
“It’s certainly not good for Nakheel and has the potential to delay the process,” said a source close to Nakheel.
He added that if Nakheel felt that many of the creditors were opting to go through the court for repayment, it would consider invoking a voluntary restructuring arrangement.
“But the general feeling is that the company is quietly confident that it has more on board than off,” he said, adding that negotiations were continuing.
A representative of CDG declined to speak about the case, and a representative from Nakheel was not available to comment.
(Reporting by Shaheen Pasha; Editing by Will Waterman)