What are the changes to UAE bankruptcy law due to pandemic?


The introduction of bankruptcy law was a big step forward and was influenced by the characteristics of a number of insolvency law regimes in other jurisdictions, as well as by trends in international law. insolvency. On October 24, 2020, the UAE Cabinet announced its decision to amend Federal Law No. 9 of 2016 (the “Bankruptcy Law”) by adding certain provisions covering emergency situations, including pandemics and natural disasters, as businesses around the world face new and serious situations. challenges in the wake of the COVID-19 pandemic. The changes outlined by Corporate Lawyers of Dubai are also intended to ensure compliance with obligations and mitigate losses on default without prejudice to bankruptcy law, while allowing creditors to secure their rights.

Learn more about the changes

This was to enable individuals and businesses to overcome credit problems in “emergency situations”. Initially, when bankruptcy law was introduced, the test for establishing a debtor’s bankruptcy was rather clinical and impersonal, but the changes introduced have completely changed the way a debtor’s default is analyzed. From now on, its situation and its environment are also taken into account.

The new changes provide that the debtor is exempted from initiating bankruptcy proceedings. Courts should also allow a generous one-year grace period to negotiate mutual terms with their creditors. The Court is not, however, permitted to extend time limits, including the grace period, by more than double the length that would be granted to the debtor under normal circumstances.

sThe court will not include the funds necessary to keep the business afloat in the proceedings, bearing in mind the very difficult times the debtor would already face. This includes sealing a debtor’s business premises or property. This gives troubled debtors protection from formal bankruptcy proceedings and a break to continue operating. However, secured creditors retain the right to apply to the court for an order allowing them to realize on security against the debtor. While creditors with debt greater than AED 100,000 can still ask the court to initiate bankruptcy proceedings against a debtor who has not settled a claim for payment within 30 days, the creditor’s claim will not be successful. considered by the court only at the end of the emergency financial crisis. In the face of all this, the court will consider whether or not the default of the debtor is caused by the emergency financial crisis. It remains to be seen if and when the UAE cabinet will determine that there is an emergency financial crisis and how the new measures will work in practice.

End note

This is a welcome development for the UAE insolvency regime. The success of the new regime will ultimately depend on how effectively it is used in practice. These changes to the UAE’s bankruptcy law may have provided an alternative to what would previously have been perceived as impending bankruptcy. This move towards a more flexible and internationally aligned approach that should help UAE companies overcome their financial difficulties and, where possible, avoid liquidation.

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