New amendments say “COVID-19 is to blame”


What’s new?

Under the current UAE bankruptcy law, courts were required to apply a much more objective test when declaring a debtor bankrupt. With the new changes, there now appears to be a subjective element in the court’s assessment of the debtor’s position, as the court can now consider the terms surrounding the debtor’s default (s) and choose to grant them a generous twelve-month grace period to negotiate mutual terms with their creditors out of court.

This certainly shows a certain degree of leniency compared to the usual and mandatory procedure of going directly to the courts to declare the debtor bankrupt and then appoint a trustee to take over the business.

While many businesses are facing financial hardship and have fallen (or are on the verge of falling) on ​​their debts due to the direct or indirect impact of COVID-19, the new amendments to the Law on UAE bankruptcies may have provided an alternative route for what previously would have been perceived as impending bankruptcy. The amendments also introduce mechanisms for debtors to obtain new financing under certain rules, which is necessary to pay their debts and continue their operations.

The official text of the new provisions of the law is eagerly awaited as it is certainly a proactive step in the UAE’s efforts to constantly update the legislative and regulatory frameworks and help build investor confidence, business resilience and sustainability in the United Arab Emirates.

It is therefore recommended that companies facing credit difficulties carefully consider the further relief provided by these recent amendments to the UAE bankruptcy law.

For more information, please do not hesitate to contact one of the attorneys above or your usual contact at Baker McKenzie.

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