UAE Bankruptcy Law Amendments


As announced this week, the UAE Cabinet has approved a new amendment (Amendment Act) to Federal Law No. 9 of 2016 (Corporate Bankruptcy Law). The amending law follows the previous amendment to the corporate bankruptcy law in 2019 (in accordance with Federal Law No. 23 of 2019).

The amending law has not yet been published in the Official Gazette and, therefore, its date of entry into force has not yet been confirmed. However, in this alert, we take a look at the intended content of the amending law.

Primary Change – Emergency Financial Crisis

In an unprecedented move by UAE lawmakers, the amending law seeks to address times when an “emergency financial crisis” exists.

To deal with such situations, the amending law adds a new chapter (chapter 15) to section four of the corporate bankruptcy law entitled “Bankruptcy proceedings during the emergency financial crisis”.

An emergency financial crisis is defined as “A general situation that affects trade or investment in the country, such as a pandemic, natural or environmental disaster, war, etc.. “Although a definition is included in the amending law, the law provides that the UAE Cabinet will determine when such a situation exists, as well as for how long. This would seem to indicate that a Cabinet decision of the United Arab Emirates would be required before the parties could invoke the provisions of Chapter 15.

The newly introduced provisions under Chapter 15 provide certain protections for debtors during an emergency financial crisis, which can be summarized as follows:

Filing bankruptcy

When a debtor has stopped paying its debts for more than thirty working days due to the emergency financial crisis, that debtor is not required to file for bankruptcy. This is contrary to the normal situation under corporate bankruptcy law which requires a debtor who has stopped paying debts for more than thirty working days to file for bankruptcy.

However, if the debtor chooses to file for bankruptcy (which may result in a restructuring or liquidation of the debtor) during an emergency financial crisis, the court may accept that request. In doing so, the court may choose not to appoint a trustee in the bankruptcy proceedings, provided the debtor proves to the court that their financial disruption resulted from the emergency financial crisis. The amending law also provides that if a debtor files for bankruptcy during an emergency financial crisis, the court should not take any precautionary action against the debtor’s assets that are necessary for the operation of the debtor’s business during the period. emergency financial crisis.

Interestingly, the Court will not accept any application for bankruptcy by a creditor or group of creditors against a debtor during the emergency financial crisis. Such restriction applies to all debtors and is not limited to debtors who have stopped paying their debts due to the emergency financial crisis. Although such a restriction limits the rights available to creditors, practically in the UAE it was an avenue rarely used by creditors.

Settlement with creditors

If the court accepts the debtor’s request for bankruptcy, the debtor can ask the court for up to forty working days to negotiate a settlement with his creditors. Once the Court accepts the request, this Court approval must be published in two newspapers (in English and Arabic) and include an invitation to the creditors to negotiate a settlement with the debtor within twenty working days from the date. publication of the invitation. The settlement period offered by the debtor to their creditors should not exceed twelve months, which in many cases can be a difficult requirement for debtors to meet.

Once a settlement is reached with creditors holding at least two-thirds of the total debt, that settlement is binding on all creditors, even those who were not involved in the negotiations. Settlement negotiations must be recorded in writing between the debtor and the creditors (including electronically).

The settlement agreement must be approved by the court, which will consider any objections from creditors who have not approved the settlement. After approval by the court, the settlement agreement will be considered final and binding on all creditors.

Existing bankruptcy proceedings

The amending law stipulates that bankruptcy proceedings filed and accepted by the court before the declaration of an emergency financial crisis will continue and that the court is entitled to extend the time limits set by the corporate bankruptcy law ( by doubling the prescribed deadlines). The court can also modify or modify some of the contractual obligations of the debtor set out in Articles 165 to 167 of the Corporate Bankruptcy Act (which deal with the impact of the bankruptcy proceedings on the contractual agreements to which the debtor is a party) .

Liability of directors

Under the amending law, during an emergency financial crisis, directors and officers of a debtor company may pay the unpaid wages and salaries of company employees (excluding allowances, salary increases and other conditional payments). The need for such provisions stems from the position under corporate bankruptcy law, where directors could be held liable if they dispose of company assets or make payments while insolvent. The amending law aims to confirm that directors / managers can pay wages and salaries during an emergency financial crisis, provided they act prudently and in good faith to serve the best interests of the debtor.

New money

While the corporate bankruptcy law already contains some new money provisions, the amending law confirms that the debtor can apply to the court for new financing (secured or unsecured) during an emergency financial crisis. . The new financings approved by the Court will have priority over the ordinary debts existing at the time of the opening of the bankruptcy proceedings.

The new funding can be secured by a security interest in the debtor’s assets. If the assets are already subject to a security, the new financing can benefit from a second rank security.

The amending law states that if there is an existing security interest in the debtor’s assets, the new money lender cannot obtain security in the same asset unless the value of the asset exceeds the holder’s guaranteed amount. current security. If the new money lender is an approved financial institution, it can obtain collateral on a secured asset even if the value of the asset does not exceed the guaranteed amount of the current collateral holder, up to thirty percent. the value of that asset (but subject to the priority of the existing security holder).

Other modifications

The amending law amended three other provisions of the corporate bankruptcy law:

Suspension of legal proceedings

Articles 32 and 162 deal with the suspension of legal proceedings against the debtor following bankruptcy or the opening of a preventive composition. In each of these cases, corporate bankruptcy law provides that all legal proceedings against the debtor must be stayed.

The amending law fills a loophole that existed in the corporate bankruptcy law in that it did not provide an end date for the suspension. Under the amending law, it is specified that the legal proceedings will only be suspended until (i) the ratification of the restructuring plan (in the context of bankruptcy proceedings) or the ratification of the composition plan (in the preventive composition) or (ii) the expiration of a period of ten months from the date of opening of the bankruptcy or the preventive composition procedure. The Court may extend this period for another four months.

Secured creditors can ask the court to grant them an exception to the stay of proceedings so that they can assert their rights. This situation is similar to the one that prevailed before the amendment.


The amendment to Article 185 provides that, when declaring bankruptcy and liquidation of a debtor, secured creditors have priority over all other creditors, followed by preferred creditors (who hold the privileged claims by law) .

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