What do you need to know about UAE bankruptcy law?

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The new bankruptcy law (Federal Law No. 9 of 2016) is considered to be a strategically improved law compared to previous insolvency laws. That said, bankruptcy law so far covers the following:

I. Enables organizations to solve money-related issues and provides the ability to rearrange their issues to stay fit;

ii. Companies that fail to remain financially viable offer them a chance to seek liquidation;

iii. Offers relief from the heaviest impact of recent criminal sanctions imposed on company executives or directors.

However, the law places restrictions on those who liquidate with the intention of avoiding debt or in cases where company assets cannot meet liabilities. In such cases, the directors and managers of the companies are open to all criminal and civil proceedings.

The applicability of the law has been widely debated since its application and implementation; therefore, here are the entities to which the bankruptcy law will apply:

I. Enterprises wholly or partly owned by government employees;

ii. Companies registered under the United Arab Emirates Commercial Companies Act;

iii. Civil societies;

iv. Several free zone companies;

v. Traders as defined by the United Arab Emirates Commercial Transactions Law.

The new law seeks to recognize various approaches to avoid cases of insolvency and liquidation of debtors’ assets, such as exhaustive financial restructuring out of jurisdiction, the arrangements for composition and the possibilities for recourse to credits under these provisions.

The law also provides for both a formal overhaul procedure and liquidation techniques when a composition plan is not suitable. In accordance with section 68 of the law, a debtor will ask if they have been in default for more than 60 days from the date of the outstanding debt due to serious financial conditions. It is important to note that the creditor has the power to request liquidation from the debtor if the outstanding debt is greater than 100,000 AED.

If the Tribunal grants the request, it will choose a trustee, who will report on the likelihood of the indebted person to restructure their business or to offer the business for acquisition or auction.

However, the restructuring order will only be issued by the court with the consent of two-thirds of the creditors. On the other hand, if the court confirms the bankruptcy, the privileges of the preferred creditors will be privileged, which includes employees and government authorities.

Critically, it is relevant to point out that if the debtor’s assets are insufficient to fulfill 20% of the obligations in any event, the court may hire individuals among the managers or administrators to pay these obligations, in situations where their duty regarding the organization’s misfortune is evident, according to the provisions of the law. In addition, chiefs or directors may face criminal charges if their organization is in debt, and they intentionally avoid filing for liquidation.


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