United Arab Emirates: Bankruptcy Law Update: Additional Relief Options for Debtors Announced
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“On October 21, 2020, the UAE Cabinet approved amendments to United Arab Emirates Federal Law No. 9 of 2016, known as the Bankruptcy Law, which aims to alleviate the financial hardship caused by the COVID-19 pandemic as well as other “emergency situations”.
While details of the new changes have not yet been released, these are meant to provide debtors with a wider range of options to mitigate losses and meet their obligations in a structured framework while providing them with the ability to sue. their current business activities.
One of these provisions will revise the current requirement that a debtor initiate proceedings to declare bankruptcy if it is in difficulty. Another provision will give debtors a 12-month grace period during which, with leave of the court, the debtor can delay the filing and reach a settlement with its creditors. The Amendments also provide that a debtor can retain greater control of their funds that are necessary for the pursuit of their business activities during this grace period. Likewise, the amendments provide the debtor with other possibilities to obtain new financing under certain terms and conditions.
It remains to be seen how ’emergency’ will be defined and what interpretation the courts give to that definition, as many business difficulties can be due to a combination of emergencies, such as COVID-19, as well as pre-existing issues related to economic issues. more generic.
Whether the courts apply a threshold test in determining when the “urgency” created the bankruptcy situation will be a key factor in determining the universe of debtors who can benefit from it.
Likewise, greater clarity will be sought as to the specifics of the grace period, and whether this will involve a general stay of proceedings against a debtor who has requested court authorization, or a more structured debtor-operator regime.
Despite these questions, we expect the changes to have a positive effect on the market and benefit some debtors who are looking for options to return to solvency. We will provide further updates in due course. “
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