The UAE economy is witnessing tremendous growth and remarkable development, which has led to an increase in the number and diversity of commercial projects. The UAE has achieved great economic successes in recent years, driven by huge investments in infrastructure and strategic sectors such as energy, tourism, technology, etc. This economic boom has led to an increase in the number of companies and commercial projects in the UAE, which has imposed new challenges in terms of managing bankruptcy cases and dealing with distressed companies.

In line with this economic development, the need for an effective legal framework to manage bankruptcy cases in a way that preserves the rights of all concerned parties and contributes to enhancing the stability of the investment environment in the UAE emerges. Managing bankruptcy cases properly in accordance with the provisions of the law is a pivotal factor in maintaining investor confidence and attracting more investments to the UAE, To meet this need, a Federal Decree-Law No. 51/2023 was recently issued issuing the Financial Restructuring and Bankruptcy Law, which provides a modern legal system for managing bankruptcy cases in the UAE. This law is an important step towards developing the legislative environment related to distressed companies and preserving the rights of all concerned parties.

Scope of application of the Financial Restructuring and Bankruptcy Law

  1. Companies subject to the provisions of the Commercial Companies Law.
  2. Any natural person who has the status of a merchant.
  3. Licensed civil companies of a professional nature.

The following are exempt from the application of the provisions of this law:

  1. Companies wholly or partially owned by the federal or local government, whose establishment legislation, memorandum of association or bylaws stipulate that they are subject to special provisions regulating preventive settlement, restructuring or bankruptcy procedures other than this law.
  2. Companies and institutions in free zones subject to special provisions regulating preventive settlement, restructuring or bankruptcy procedures.
  3. Banks, financial institutions and insurance companies licensed by the Central Bank and subject to special legislation regulating preventive settlement, restructuring and bankruptcy procedures, within the limits of such legislation.
  4. The debtor’s debts that were incurred by him and were for personal, family or consumer purposes, including the purchase of goods or services or the purchase of real estate for his own residence or for his family.

Definition of Bankruptcy

The law defines bankruptcy as “the state of the debtor’s inability to pay his debts due now or fulfill his financial obligations.” Under this definition, bankruptcy is not limited only to the inability to pay debts, but also includes the inability to fulfill other financial obligations due. This broad definition allows the provisions of the law to be applied to a variety of cases of financial distress for companies.

Legal procedures for managing bankruptcy cases

The Financial Restructuring and Bankruptcy Law specifies the legal procedures followed in managing bankruptcy cases, starting from the bankruptcy declaration request to the appointment of a liquidator and the distribution of the debtor’s assets to the creditors. These procedures include the following:

  1. Bankruptcy declaration request: The debtor or one of the creditors can file a bankruptcy declaration request for the debtor with the competent court.
  2. Appointment of a liquidator: After accepting the bankruptcy declaration request, the court appoints a liquidator to manage the debtor’s assets and liquidate them for the benefit of the creditors.
  3. Preparing a financial status report: The liquidator is required to prepare a comprehensive report on the debtor’s financial status, assets and liabilities, and submit it to the court.
  4. Managing and selling the debtor’s assets: The liquidator manages and sells the debtor’s assets in appropriate ways to collect the largest possible amount of debts.
  5. Distributing the proceeds to creditors: After selling the assets, the liquidator distributes the proceeds of the sale to creditors according to the priority order stipulated in the law.

In this way, the law regulates the legal procedures that ensure the management of bankruptcy cases in an organized and tight manner, preserving the rights of all concerned parties.

The authorities concerned with bankruptcy cases

First Bankruptcy Court

  • Federal and local courts shall have jurisdiction, in accordance with the rules of jurisdiction contained in the Civil Procedures Law, to adjudicate disputes arising from the application of this law and to adjudicate on requests submitted to them in accordance with its provisions. The competent judicial authority shall determine the location of the courts competent to adjudicate disputes arising from the application of this law and to adjudicate on requests submitted to them in accordance with its provisions, provided that a court, or one or more circuits shall be formed in those courts, competent to adjudicate on those disputes and requests. Such court or circuit shall be referred to, as the case may be, as the bankruptcy court.

Second Experts and auditors assisting the bankruptcy court:

  1. The bankruptcy court may seek the assistance of a sufficient number of experts and auditors chosen by the competent judicial authority.
  2. If the expert or auditor is not registered in the list of experts with the competent judicial authority, he must take an oath before the President of the Bankruptcy Court to perform his work with honesty, integrity and loyalty and to observe the principles and traditions of the profession, and a record of the oath shall be prepared and deposited in the expert’s file with the Bankruptcy Department.
  3. Experts and auditors shall undertake the work of expertise in any matter in which the court deems it necessary to seek the assistance of an expert.

The decisions issued by the Bankruptcy Court in accordance with this law shall be executive instruments, and the Bankruptcy Department shall place the executive formula on them in accordance with the procedures prescribed by law. These decisions shall be enforceable immediately upon their issuance and without announcement, and they may not be contested, and their implementation may not be suspended unless the Bankruptcy Court decides to reverse the decision subject to implementation or suspend its implementation on its own initiative or upon the request of the debtor, a creditor, the trustee or other interested parties, or pursuant to a ruling issued by the Court of Appeal in a request to suspend the implementation of the decision submitted in the appeal document against the decision, or while the Court of Appeal is considering the appeal.

Third Bankruptcy Department

  • An organizational unit called “Bankruptcy Department” shall be established at the headquarters of the Bankruptcy Court.
  • Its head shall be a judge of at least the level of appeal.

The Bankruptcy Department shall be responsible for the following

  1. Receiving and recording the applications submitted in accordance with the provisions of this law.
  2. Sending notifications to the concerned parties in accordance with the provisions of this law.
  3. Verifying that the applications for preventive settlement, restructuring, bankruptcy declaration and other applications meet the information, data and documents stipulated in this law.
  4. Notifying the concerned parties of the decisions issued by the Bankruptcy Court pursuant to this law, and announcing them.
  5. Monitoring the management of the debtor’s funds and business, the speed of the procedures and the implementation of the necessary precautionary measures decided by the Bankruptcy Court, in the manner specified in this law.
  6. Meeting with creditors to discuss with them what the Bankruptcy Court deems necessary to present to them, and the head of the Bankruptcy Administration or his representative shall chair this type of meeting.
  7. Summoning the debtor, his heirs, clients, employees or any other person to hear their statements in any matter related to the debtor’s debts, funds or business.
  8. Any other powers stipulated in this law, or assigned by the head of the competent judicial authority.

Financial Restructuring and Bankruptcy Unit

The unit is responsible for the following:

  1. Coordinating with the competent regulatory authorities and bankruptcy courts to manage the financial restructuring and bankruptcy procedures for institutions and companies subject to the regulatory authorities.
  2. Expressing an opinion on the requests submitted to open the procedures and the preventive settlement proposal and the restructuring and reconciliation plan and the plan to liquidate and distribute the debtor’s assets, with regard to the debts of institutions and companies subject to the supervision of the regulatory authorities, after coordination with the competent regulatory authority.
  3. Approving the list of experts in financial restructuring and bankruptcy affairs to carry out the work of trustees or other work in accordance with the provisions of this law, and approving the conditions and procedures for inclusion and registration in the list of experts.
  4. Developing an indicative schedule of the fees of trustees and auditors who are appointed in accordance with the provisions of this law, and any costs they incur due to preventive settlement, restructuring or bankruptcy procedures, and submitting it to the Minister for approval.
  5. Establishing and organizing a bankruptcy register in which the applications submitted regarding financial restructuring and bankruptcy subject to the provisions of this law are recorded, as well as the procedures taken therein.
  6. Establishing and organizing a register for persons against whom judicial rulings have been issued imposing any restrictions ordered by the court or canceling them in accordance with the provisions of this law. The executive regulations of this law shall specify the form of the register, the data to be included therein, the persons entitled to view it, the conditions thereof, and other relevant provisions.
  7. Supervising the unified electronic platform established with the aim of building an integrated database for the purposes of this law, through coordination and electronic linking with the competent federal and local courts, the bankruptcy administration, and other relevant entities.
  8. Coordinating with the competent judicial authority to work on preparing, qualifying, and training judges, trustees, and lawyers on the procedures related to restructuring and bankruptcy practiced by the courts, in line with international standards.
  9. Submitting periodic reports to the Minister on its work, achievements, and proposals regarding the tasks assigned to it.
  10. Any other powers stipulated in this law or assigned to it by a decision issued by the Council of Ministers.

Who is entitled to submit a bankruptcy application

The debtor

  1. The debtor may submit to the bankruptcy administration a request to open preventive settlement procedures, restructuring or declaring bankruptcy. The period shall be within (60) sixty days from the date of cessation of payment, or from the date on which he has information indicating that he will be unable to pay his debts when due. However, this is unless any of the creditors or regulatory authorities have submitted a request to open the procedures within the aforementioned period, and failure to submit the request within the deadlines stipulated in this clause shall not result in the request not being accepted.
  2. The debtor’s submission of a request to open bankruptcy proceedings shall result in the debtor being prevented from disposing of his funds as of the date of submission, and any disposal of his funds shall be nullified as of that date. This shall not apply to funds that may not be seized or funds necessary for the debtor’s expenses and those he supports, and the legal costs related to the request to open the proceedings. The debtor shall manage his funds and business unless the bankruptcy court decides, on its own initiative or upon the request of the debtor, one of the creditors, the trustee, or the unit, if the debtor is subject to a supervisory authority, to appoint a temporary trustee to manage the debtor’s funds and business.

Creditors

An ordinary creditor or a group of ordinary creditors may submit a request to open restructuring or bankruptcy proceedings in the event that the debtor stops paying one or more debts to them. However, this debt must be unconditional, undisputed, and due for payment. Also, the value of the debt must not be less than the amount specified in the executive regulations of this law on the date of submitting the request. The applicant must have previously warned the debtor of the necessity of paying the debt owed by him within (30) thirty days from the date of the warning, and the debtor did not take the initiative to pay it.

submitting the request from the supervisory authorities

  1. The right of the authorities: The supervisory authority may submit a request to open restructuring procedures or a request to declare bankruptcy regarding any debtor subject to its supervision.
  2. Conditions for the request: Provided that it provides evidence that the debtor is in a state of default or in a state of insolvency or disturbance in his financial position.

Notification period

It must notify and give him an opportunity to respond within a period not exceeding (30) thirty days from the date of notification, and failure to submit the request within the deadlines stipulated in this clause does not result in the request not being accepted.

The request shall be submitted by the debtor or the supervisory authority, stating the required procedure and its reason, and the requests submitted previously and what was done in them, if any, and the following documents must be attached to the request:

  1. A memorandum containing a brief description of the debtor’s economic and financial situation and information about his assets, in addition to detailed data about his employees, and a statement of the value of their dues to the debtor, if any.
  2. A copy of the debtor’s commercial or industrial license and his commercial register.
  3. A copy of the commercial books or financial statements related to the debtor’s business for the three (3) fiscal years preceding the date of submitting the application.
  4. A statement of the cases filed by and against the debtor, and the estimated amount of each. This statement shall not be considered an acknowledgment by the debtor of the validity of these debts.
  5. A statement of all cases, enforcement procedures, or other procedures that will be suspended as a result of the issuance of the decision to open the proceedings, in accordance with this law or based on the decision of the bankruptcy court.
  6. A report including the following:
  7. The debtor’s cash liquidity forecasts, and profit and loss forecasts for the one-year period following the submission of the application.
  8. A statement of the names of known creditors and debtors, their electronic and regular addresses, their telephone numbers, the value of their rights or debts, and the guarantees provided for them, if any, and the classification of these creditors and debtors.
  9. A detailed statement of the debtor’s assets and the approximate value of each of these assets on the date of submitting the application, and a statement of any guarantees or rights of third parties arising therefrom.
  10. A statement of real estate transactions or transactions on movable and immovable assets based on the debtor’s records and commercial books, and the value of each transaction, its date and the recipient of the transaction during (3) three years prior to the date of submitting the application, accompanied by a statement from the competent authorities regarding transactions on movable or immovable assets that were recorded in the records of those authorities.
  11. Nominating a trustee nominated by the applicant to assume the duties of the restructuring trustee or bankruptcy trustee, in accordance with the provisions of this law.
  12. A statement of whether the debtor is able to manage his assets and wishes to manage them and the basis for that, or whether the interest of the creditors requires the appointment of a trustee to assume the management and the justification and basis for that.
  13. A statement of any precautionary measures that the interest of the creditors requires to be taken and whether the interest of the creditors requires that they be taken urgently and the justification and basis for that.
  14. Whether the debtor for whom a request for a preventive settlement or restructuring has been submitted needs to obtain financing during the period from the date of issuance of the decision to open the procedures until the approval of the preventive settlement or restructuring plan or not, and in the first case, a statement of the total estimated value of the financing he will need during the aforementioned period and its purposes, duration, guarantees and its impact on the preventive settlement or restructuring plan and on the rights of the creditors whose debts are secured and other creditors.
  15. If the applicant is a representative of a legal entity, a copy of the decision of the competent authority in the company authorizing him to submit a request to open the procedures must be attached to the application, as well as a copy of the company’s incorporation documents and memorandum of association and any amendments thereto.
  16. Any other information, data or documents that support the information contained in the application or requested by the Bankruptcy Department.

If the applicant is unable to provide any of the data, information or documents required in accordance with the provisions of this article, he must state the justifications for this in his application.

Effects of issuing a judgment declaring bankruptcy

Deprivation of exercising political rights temporarily deprives the person from exercising political rights, from membership in the Federal National Council, from holding a public position or task, and from being a member of the board of directors of sports federations and clubs or a director or member of the board of directors of any company.

Other provisions:

  • If the debtor is a company, it is permissible to submit a request to open procedures regarding its debts even if it is in liquidation or has been declared invalid and continues as a de facto company.
  • If there are multiple requests submitted by the debtor, the request to open preventive settlement procedures must be submitted to the restructuring request, and the restructuring request must be submitted to the bankruptcy declaration request. The earlier request is considered the original request and the subsequent one is considered a reserve request. The reserve request may not be decided upon unless the court has not issued a decision to accept the original request.
  • If the creditor or any of the creditors changes their claim to their debt due to the settlement of that debt or the agreement with the debtor to postpone its payment or for any other reason after submitting the request, the debtor shall not be deemed to have stopped payment if the remaining debt to the remaining creditors is less than the prescribed quorum.
  • The bankruptcy court shall decide on the request within (10) ten days from the date of expiry of the specified periods for responding to it.

 

Bankruptcy cases in the United Arab Emirates are a subject of legal complexities and significant economic impacts on all parties involved Federal Decree-Law No. 51/2023 issuing the Financial Restructuring and Bankruptcy Law is an important step towards establishing an effective legal system to address these issues in a fair manner that preserves the interests of all parties.

At our company, we realize the importance of these issues and believe in the role of expert bankruptcy lawyers in providing effective solutions to our clients Therefore, we provide specialized legal services in the field of bankruptcy cases with over 25 years of experience and a success rate exceeding 96% of cases Our team includes the most famous bankruptcy and commercial cases lawyers in the United Arab Emirates who have extensive experience and deep knowledge of the provisions of the law and the latest developments in this field.

We believe that every case represents an opportunity to rebuild and revive troubled businesses, and we always strive to provide the best services to our clients to help them overcome this difficult stage with success and stability Do not hesitate to contact us for specialized legal advice in the field of bankruptcy and restructuring cases.