NEWS April 24 2018

Bankruptcy in the UAE

A new stand-alone Federal Bankruptcy Law was issued in December 2016 under the federal decree No. (9). Prior to this, there was no specific bankruptcy legislation in the UAE, meaning it was difficult for companies to restructure, causing company heads to flee the country rather than face jail for bad debts. The UAE has since come a long way and recently a committee was established by the UAE’s Vice President and Prime Minister and Ruler of Dubai, Sheikh Mohammed bin Rashed Al Maktoum, in order to support the Bankruptcy Law.


What is Bankruptcy?

Bankruptcy is a situation in which an individual or entity is not able to repay their outstanding debts, leading to them being declared bankrupt. Bankruptcy is the final stage of insolvency whereby a petition is filed in the court by the debtor, or by any creditor. During this process, the personal property of the insolvent is confiscated by the court who authorise a person commonly known as a trustee. The trustee then distributes the amount received from the property amongst the various creditors.

The actions set out in this part regulate the following:

  • Declaration of the bankruptcy of the debtor and fair liquidation of his assets to fulfill his obligations.
  • Supporting the debtor by assisting the same to implement a scheme of restructuring his business.


The Difference between Bankruptcy and Liquidation

A company or an individual can be declared bankrupt, however only a company can liquidate. Liquidation of a company does not necessarily mean that it is bankrupt, compulsory liquidation simply becomes unavoidable when a company does not have funds to continue its day to day transactions, its creditors are not being paid or due to legal issues. In the UAE voluntary liquidation is also an option, whereby the shareholders decide to liquidate for reasons varying from the company serving no purpose to a group of companies restructuring.


Initiating Bankruptcy Proceedings

  • The debtor should submit an application to the court for initiating the bankruptcy proceedings if they have not paid debts due for a period of more than thirty consecutive working days due to the instability of their financial position.
  • If the debtor is subject to a competent regulatory authority then they should notify this entity in writing of the intention to submit the application 15 working days prior to the submission.
  • Creditor/s who have an outstanding debt owed of at least AED 100,000 may also submit an application for initiating the proceedings. This application can only be submitted if the debtor fails to pay, following written notice by the creditor demanding that the debts be paid within thirty consecutive working days, and the following two conditions are met;
  1. The debt shall be précised and very well-known either by a court judgment or by an acknowledgment from the debtor.
  2. The debtor has to be in an extremely difficult financial situation.

After the secured and unsecured debts have been paid, the person declared as bankrupt is then given a reprieve by the court.


Financial Restructuring Committee

In March 2018, His Highness Sheikh Mohammed ordered the establishment of a committee to oversee the financial restructuring of companies in the country. Comprising of nine members from federal and local departments, the Financial Reorganisation Committee will be responsible for overseeing financial restructuring procedures outside the scope of the court, which includes the appointment of experts and the establishment of an electronic record of individuals with a bankruptcy ruling. The committee, to be chaired by the Finance Ministry’s undersecretary, will also have the responsibility of raising awareness of the bankruptcy law.



The new legislation is not a guarantee that a person will avoid a prison sentence. If an individual fails to pay their debts and deliberately avoids filing for bankruptcy they could face up to five years in jail and a fine of up to AED 1million.

However, the 2016 Bankruptcy Law and subsequent Financial Restructuring Committee were issued to assist companies and their investors reach an amicable solution with their creditors. Ultimately, if the rules are followed there will be a positive outcome for both parties; the debtor shouldn't feel their only option is to abscond or face a prison sentence, in fact, they will be provided with help to restructure their business and the creditor will not lose out on their dues. 

Hosam Hassan is an associate in the litigation department. For advice on bankruptcy or liquidation in the UAE contact our litigation or corporate teams on 04 354 4444 or [email protected]

You might also be interested in...
NEWS November 02 2020
Financing An International Trade
NEWS October 04 2020
DIFC’s Data Protection Law
NEWS June 30 2020
Public Prosecution in Dubai
NEWS June 22 2020
Covid-19 & Force Majeure
NEWS June 15 2020
Use of Electronic Signatures
NEWS May 04 2020
Piercing the Corporate Veil
NEWS January 16 2020
Bona Fide Principle Prevails
NEWS September 04 2018
Franchising in the UAE
NEWS November 14 2018
Extradition Requests in the UAE
NEWS February 07 2018
Seminar: UAE Civil Procedures Law
NEWS March 19 2018
Recent Developments at the RDC
NEWS August 01 2018
Charities and Endowments in Dubai
NEWS September 17 2017
Our Litigation Team Award Winners
NEWS December 05 2022
Interest on Late Payments in the UAE
NEWS February 07 2024
Abu Dhabi Welcomes arbitrateAD

For better web experience, please use the website in portrait mode