Bankruptcy and Insolvency

Bankruptcy and Insolvency:

Business bankruptcy in the UAE has come into force on December 2016. The law provides a legal framework to help distressed companies in the UAE to avoid bankruptcy and liquidation through different mechanisms which include:

●             Consensual out-of-court financial restructuring.

●             Composition procedures.

●             Potential to secure new loans under terms set by the law.

●             Conversion to declaration of bankruptcy and liquidation of the debtor’s assets.

 However, this law does not apply to natural individuals. The law aims to increase business stability in the UAE and investors’ confidence in the UAE market. The law applies to:

✔            Companies governed by the Commercial Companies Law.

✔            Companies which are not established under the Commercial Companies Law and which are wholly or partly owned by the federal or local government, which are not governed by particular provisions regulating protective composition procedures, financial restructuring and/or bankruptcy.

✔            Any individual who is a trader as defined in the Commercial Transactions Law (Available in Arabic only).

✔            Licensed civil companies carrying out professional activities.

The UAE Cabinet approved the Insolvency law to regulate the cases of insolvency of natural persons. This law aims at enhancing the competitiveness of the UAE by ensuring the ease of doing business, creating favourable conditions for individuals facing financial difficulties and protecting those who are unable to pay their debts because of their bankruptcy. The following are the main provisions of the law:

⮚             The law will support individuals who are facing existing or anticipated financial difficulties that make them unable to settle their debts.

⮚             The law will help individuals reschedule their debts and give them the opportunity to take new concessional loans.

⮚             The new law will protect the debtors from legal prosecution, decriminalize the financial obligations of the insolvent person and give them an opportunity to work, be productive and provide for their families.

⮚             One or more experts will be appointed by the court to settle the financial obligations debtor. The expert will coordinate with the debtor and creditor to come up with a plan to settle the financial liabilities within three years.

⮚             The new law will enter into force in January 2020.

The law also contains special provisions that contribute to the swift completion of legal procedures and reduces the fees charged for rescheduling and restructuring the debts, with a view towards finding a fair compromise for both creditors and debtors.

The law not only contributes to enhancing the credit-worthiness of the country, in the long run, and its future growth prospective, but also enhances the competitiveness and strength of its economy, thus ensuring an enabling environment that encourages entrepreneurship and provides favourable conditions for doing business.

The law, which complements existing financial laws, will contribute to increased transparency, in terms of civil debt repayment transactions, and will ultimately strengthen the UAE's position as an ideal hub for investment, where the rights of all parties are guaranteed.