In 2016, the United Arab Emirates (UAE) witnessed significant development in the country’s legal framework for handling corporate insolvencies with the introduction of the Federal Decree-Law No. 9/2016 on Bankruptcy (“Bankruptcy Law”).
Prior to the introduction of the Bankruptcy Law, most corporate insolvencies in the UAE were resolved through consensual restructuring rather than relying on untested legislation. The key objectives of the Bankruptcy Law are to streamline and modernise the UAE’s insolvency laws, with major consideration of early restructuring measures of companies in distress. Additionally, it strives to destigmatise business failure, apply a more robust legal framework and ultimately foster a more supportive environment for businesses and investors.
Today, a new regulatory framework governing restructuring and insolvency in the UAE is about to take full effect. On 31 October 2023, Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy (the “New Law”) was published in the UAE Gazette.
The introduction of the New Law presents significant updates to the restructuring and insolvency landscape in the UAE. The law is part of a wider proposal to enhance the business environment, build investor trust, and reinforce the legal framework for enterprises in the UAE.
Key developments include:
- Specialised Courts:
A specialised approach to handling cases. A dedicated section of the Courts, led by a Court of Appeal judge, is now responsible for overseeing bankruptcy and restructuring matters.
- Creditor Protection:
Secured creditors are enabled to enforce against assets during bankruptcy proceedings through the Bankruptcy Court, streamlining the process and avoiding separate enforcement proceedings.
- Extended Moratorium:
The Court can impose a moratorium on creditor actions from the commencement of judicial and execution measures against debtors, until the restructuring plan is ratified, without a specified time limitation. Exceptions are made for employment and family law matters to protect the rights of employees and spouses.
The emphasis on avoiding potential damage to the Bankruptcy Estate during restructuring is a notable feature of the New Law in the UAE. The law recognizes the need to balance the interests of various stakeholders, including creditors, employees, and spouses. This protection is crucial to facilitate a smooth and effective restructuring.
- Resolution Focus:
The law encourages amicable settlements and expands the scope for debtors seeking Protective Composition, reflecting a focus on resolving financial difficulties through negotiation.
- Awaiting Detailed Regulations:
Detailed regulations, including criteria such as the minimum debt value for initiating bankruptcy proceedings, are yet to be issued.
- Filing Objections and Grievances
The New Law sets forth specific conditions for filing objections and grievances on decisions of the Court or the Trustee. This is an important aspect of any legal framework, providing a structured process for addressing concerns and ensuring a fair and transparent resolution.
- Effective Date:
The New Law replaces Federal Decree Law No. 9 of 2016 on Bankruptcy and is set to become effective from May 1, 2024.
For further advice on the provisions of the current Bankruptcy Law and the New Law, please feel free to reach out to our team at Horizons.
- Areen Jayousi
Contact phone: +971 50 284 2926
- Rowan Noor
Associate – Dispute Resolution