Author: Mohamed Shoeib Counsel at NJA
Introduction
During the past few years, the United Arab Emirates (UAE) has taken significant steps to reform its insolvency framework, addressing economic realities while providing robust legal solutions for businesses and individuals facing financial difficulties. As the Chief Legal Officer at a leading Dubai-based law firm, I am here to offer insights into the UAE’s bankruptcy and personal insolvency laws.
Bankruptcy Laws in the UAE
In 2016, the UAE introduced a new bankruptcy law, Federal Law No. 9 of 2016, providing a formal restructuring regime for businesses in financial distress, which was not present in the earlier legal framework. This law aims to support businesses facing financial difficulties, enabling them to restructure and continue operating instead of being forced into premature liquidation.
Key Aspects of the Bankruptcy Law:
1- Preventive Composition
This provision allows financially distressed but not insolvent businesses to reach a settlement with creditors, supervised by the court, while continuing operations.
2- Bankruptcy and Restructuring
If a debtor is insolvent or faces imminent insolvency, they can request bankruptcy and propose a restructuring plan to its creditors.
3- Bankruptcy and Liquidation
If restructuring isn’t feasible or the restructuring plan isn’t approved by the creditors, the court may order the liquidation of the debtor’s assets to pay off the debts.
Personal Insolvency Laws in the UAE
Recognizing the need for a legal framework addressing personal insolvency, the UAE enacted Federal Law No. 19 of 2019, known as the Insolvency Law. This law provides mechanisms for individuals facing financial difficulties, allowing them to settle their debts and offering them a fresh start without being subject to criminal prosecution.
Key Aspects of the Personal Insolvency Law:
1- Settlement of Debts
The law enables individuals to propose a debt settlement plan to their creditors, supervised by a court-appointed expert. If creditors representing at least two-thirds of the total debt approve the plan, it becomes binding on all creditors.
2- Insolvency and Liquidation
If a debt settlement plan is not possible, or if it fails, the debtor can file for insolvency. In most cases, the court will appoint a trustee to liquidate the debtor’s assets and distribute the proceeds to the creditors.
Advice on Navigating Bankruptcy and Personal Insolvency Laws
1- Engage Professional Assistance
Understanding and navigating bankruptcy and personal insolvency laws in the UAE can be complex. Engaging professional legal assistance can be crucial in effectively dealing with financial distress.
2- Early Action is Key
As soon as financial difficulties arise, businesses and individuals should take action. Delay can complicate matters and reduce the range of available options.
3- Communication with Creditors
Open and honest communication with creditors can often help manage their expectations and potentially lead to agreeable arrangements outside the formal legal process.
In Conclusion
Bankruptcy and personal insolvency laws in the UAE are designed to offer a lifeline to businesses and individuals facing financial hardship. While these laws provide much-needed options, navigating them can be challenging. It is highly advisable to engage experienced legal counsel to guide you through the process.
For personalized advice on your situation, please do not hesitate to contact our experienced team.
Disclaimer
(Disclaimer: Please note that the information provided in this article is for informational purposes only and does not constitute legal advice. We recommend that you seek the advice of a legal professional before making any decisions regarding insolvency and bankruptcy.)
