Updates on Management Responsibility for Bankruptcy Law in the UAE

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The new Federal Decree-Law no. 35 of 2021 amending the provisions of Federal Decree Law no. 9 of 2016 regarding Bankruptcy and its amendments has been introduced in the United Arab Emirates (hereinafter referred to as the “New Decree”) to come into force on November 1, 2021. The New Decree brings a fundamental and crucial change in the position of law which now grants individual liability to the shareholders of the company (subject to additional conditions), in the event that the company’s funds are insufficient to cover even twenty percent of the company’s liabilities.

Responsibility of the management of the company:

According to article 144 of the new bankruptcy decree:

  • If the court has decided to declare the company bankrupt and the funds of the company are not sufficient to pay at least twenty percent (20%) of its debts, it may compel the members of the board of directors or the managers or one of them to pay the balance of the debt of the company or part thereof, each within the limit of the liability for these debts, if it is proved that one of them has committed the acts referred to in paragraphs (a), (b) and (c) of article 147 of this decree-law, without prejudice to clause no. 2 and 3 of this article.
  • Any of the members of the board of directors or managers against whom a judgment has been rendered in accordance with the text of clause no. (i) of this section may appeal against such judgment in accordance with the provisions of the Civil Procedure Act. However, the appeal of the judgment rendered against the members of the board of directors or the managers does not have the effect of suspending the execution of the judgment declaring the bankruptcy of the company nor of prejudice to its proof. Thus, obliging the judgment debtor to an immediate payment, because the steps of execution of the judgment will not be interrupted even during the duration of an appeal procedure.

The new decree thus engages individual liability of shareholders in the event of the commission of one of the following acts (Ref: article 147):

  • Engages in business methods without regard to one’s risk, such as selling goods at below market value to receive funds to avoid or delay the commencement of bankruptcy proceedings.
  • Engages in transactions with the third party to dispose of property without compensation or against an insufficient amount and without certain advantage or not proportionate to the debtor’s property.
  • Releases the debts of any creditor to harm other creditors during the period of default or in the status of the account receivable.

The new amendments to the bankruptcy law follow the recent landmark decision in the United Arab Emirates in the Marka Holdings PJSC case. The said company was declared bankrupt by the judgment of the Court of Dubai and the liquidation of the assets was ordered. In addition, the company’s board members were ordered to pay Aed 448 million to their creditors and also held the company’s directors personally liable for the debt.

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