UAE Bankruptcy Law: New Amendments Say ‘COVID-19 Blame’

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In short

In addition to the comprehensive economic support and stimulus program launched by the Central Bank of the UAE to reduce the financial impact of the COVID-19 pandemic, the UAE has introduced sweeping changes to the bankruptcy law of United Arab Emirates, offering distressed debtors a degree of leniency during these times of economic uncertainty and market disruption caused by circumstances beyond their control.

The main changes include: adding new provisions to the law relating to “emergencies” such as pandemics and natural and environmental disasters; the rights of the new debtor to delay filing for bankruptcy and to resort to a settlement agreement with creditors; and mechanisms for obtaining new funding under certain rules and conditions.

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 grace period of twelve months 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 difficulties 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 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.

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