UAE Bankruptcy Law: Key Changes, Procedures & How It Affects Businesses

The United Arab Emirates (UAE) has adopted a new bankruptcy law, Federal Law Decree No. 51 of 2023, which came into effect on May 1, 2024. This legislation is implemented to replace the previous law from 2016 to enhance the financial restructuring and insolvency framework of the country. The aim of the law is to protect the rights of the creditors as well as the debtors and promote out of court settlements in order to preserve the economic stability.

The main objectives of the new UAE Bankruptcy Law

The new law has the following main objectives:

• Amicable Settlements: The law puts more emphasis on the resolution of financial problems through negotiation, so that the debtors and creditors can come up with solutions that are favorable to both of them without having to go to court.
• Protective Composition: Debtors are now in a better position to seek protective composition procedures, which allow them to present restructuring plans to their creditors and avoid bankruptcy.
• Establishing Specialized Bankruptcy Courts: Specially appointed courts shall deal with bankruptcy cases in order to guarantee that insolvency proceedings are well managed by experts.

UAE Bankruptcy Law 2024: Main Procedures

The law provides for three main procedures in the management of financial distress as shown below:

1. Preventive Settlement: Enables viable firms which are experiencing financial challenges to discuss with their creditors the possibility of debt restructuring and the firm’s ability to continue operating.
2. Restructuring: A more formal process that involves the court’s supervision of the reorganization of the debtor’s obligations in order to return to a sustainable financial position.
3. Bankruptcy:  When restructuring is impossible, bankruptcy proceedings help to equitably allocate the assets of the debtor among the creditors.

 Moratorium on Creditor Actions

Upon initiating preventive settlement or restructuring procedures, the court can impose a moratorium on creditor actions. This prevents the creditors from pursuing or continuing with legal proceedings against the debtor while the company is being restructured. The moratorium is three months and can be extended; however, it cannot be more than six months in total.

New Financing Options for Businesses in Financial Distress

In preventive settlement and restructuring, the law allows debtors to get new financing with the approval of the court. This financing can be taken with or without collateral and the new financing can be made to take precedence over the existing debts. Such provisions help guarantee that businesses have the funds they need to carry on operating while being financial structures.

Liability of Managers and Directors under UAE Bankruptcy Law

Managers, board members and liquidators may be personally liable for certain adverse actions such as, assuming high levels of risk or preferring some creditors over others. This liability applies to such actions as been taken within two years before the cessation of payments. The claims against these individuals must be filed in two years from the time of bankruptcy.

Appeals and Enforcement of Court Decisions

All decisions and judgments given by the bankruptcy court are appealable within 30 days from the date of the decision being rendered. Furthermore, such decisions are treated as writs of execution, which means that they can be enforced without the need for further legal processes.

How HHS Lawyers Can Help with UAE Bankruptcy Law

It is important to seek the advice of a legal professional in order to understand the new UAE bankruptcy law. At HHS Bankruptcy Lawyers in Dubai, we are insolvency and restructuring lawyers and we provide legal services to both debtors and creditors.

We are able to help with:

• Debt Analysis and Restructuring Plans: We offer solutions that help in the management and restructuring of the debts in order to return the company to financial health.
• Legal Representation: Our attorneys represent clients in court proceedings, and safeguard their rights and interests throughout the insolvency process.
• Negotiation and Mediation: We work to ensure that the debtors and creditors come to a mutual agreement without having to go to court.

It is recommended that you seek HHS Lawyers’ advice at an early stage as this will make a big difference in the outcome of the insolvency proceedings. At HHS Lawyers, we have a proactive approach and have in-depth knowledge of the UAE bankruptcy laws to be able to give you the best solutions for your situation.

Conclusion

The UAE Bankruptcy Law 2024 is a major leap forward for the financial legal system of the nation. The law aims to achieve amicable settlement, expand protective composition, and create specialized bankruptcy courts in order to protect the rights of the creditors and the debtors as well as to sustainability of the economy.

It is therefore important to find out the provisions of these laws as a business, or as a creditor, if you want to protect your rights. To get the right legal advice on these issues, please contact HHS Lawyers.