Bankruptcy Law in UAE

The UAE Bankruptcy Law applies to Companies governed by Commercial Companies Law, Majority of the Free Zone companies, Civil companies, which professional businesses, Government owned companies not established under CCL and Sole Establishment. Under UAE Bankruptcy Law, a Financial Committee has been appointed for supervising the enforcement of the law – the committee is intended to make sure that the procedure taken for restructuring under the latest law is commercial, industry-focused and modern – in response to certain criticisms faced under previous regime.

What is
bankruptcy?

Bankruptcy is a legal proceeding amalgamating a business that is unable to repay the outstanding dues/liabilities. The process of bankruptcy starts with a petition registered by the debtor, which happens normally, or on behalf of creditors, which occurs very rare. The assets of the borrowers are calculated and assessed, and these assets could be used to compensate a part of business liabilities. Bankruptcy offers the bankrupt, again an opportunity to start out afresh by discharging debts that normally cannot be paid, while offering creditors, an opportunity to ensure some course of recompense based on the business’ assets accessible for liquidation. In the abstract, the aptitude for filing the Bankruptcy can support the general economy by granting the businesses man a second chance by offering creditors with certain amount of debt repayment and obtain access to consumer credit.

Facing with foreclosure or in any financial difficulty such as, the ultimate option or pis aller in this situation must be filing a bankruptcy in the court. Announcing yourself a bankrupt is that the only legal way to eliminate your financial setbacks. However, the method of filing for Bankruptcy is simpler said than done. When you apply for insolvency, you have to describe the presiding bankruptcy judge about how you got yourself into this financial rut. In the meantime, the court will ask the defaulter to file the whole list of assets and the remaining debts with him.

The UAE government has published the latest Bankruptcy law. Law 9 of 2016 was publicized in the Official Gazette on 29 September 2016 and enter into force on 29 December 2016. It attempts to rationalize and refurbish the bankruptcy procedures which are accessible for UAE companies onshore in compliance with international best practice, while holding responsibility for directors of failed organizations. The Emirates’ bankruptcy laws have historically been influenced by French civil law traditions in line with other areas of UAE legislation. Federal Decree Law No. 9/2016 has also amalgamated modern French law mechanics, and best practice concepts found in German, US and English insolvency legislation without avoiding those basic principles. Application and scope of the Federal Decree Law No. 9/2016 refers to companies which are constituted in agreement with the UAE Commercial Companies Law (Federal Law No. 2/2015), corporate entities and individuals trading for profit (such as accountants and lawyers). However, there are few exceptions including governmental bodies, and companies amalgamated within free zones (like DIFC and ADGM) which have their own all-inclusive insolvency laws which provide for composition, restructuring or liquidation procedures.

Entities which are completely or partially owned by the local or Federal government and are not set up in accordance with the Federal Law No. 2/2015 may desire to opt into Federal Decree Law No. 9/2016 in conformity with their constitutional documents.
In the UAE there also are variety of economic enterprises established as decree companies, whose levels of state holdings differ from being direct to indirect or absolute beneficial ownership stakes. UAE legislation doesn’t generally offer an explicit definition of a ‘government entity’ so it’s vague if decree-formed commercial companies which are indirectly held through government-owned investment.

Based on this, businesses that are currently in desperate straits and are getting to be in trouble in short time are eligible to ease immediate finance and assisting the business to postpone the payments like bank loans, supplier bills, etc. from one year to the maximum of three years. This gives the business a new start and enhance the organization (Bankruptcy – Protective Composition).

For business firms that are already in big financial constraints and in a state yet to be restructured, the Court will get involved and supply restructuring assistance. So that, business firms can take up to three years to pay off their current liabilities and that they get new financial assistance too as well for business restructuring (Bankruptcy – Restructure).

Businesses that are already shut down or discontinued as a result of economic crisis can use bankruptcy procedures for liquidation in legal means and could dispose of all the business liabilities (Bankruptcy – Liquidation).

Even if the business is shut down for quite a long time, yet using the bankruptcy in legal way could help you to write down off all the debts, dues and liabilities and liquidating the business in appropriate way.

Business men, managers, directors, etc. whoever engaged with business liabilities can use this feature of bankruptcy to flee from all the business tribulation and rescue themselves from all the related legal problems.

By filing Bankruptcy before the court, those commercial firms, the owner/director/manager of the business enterprises are alleviated from all the legal issues once and for all. All existing cases are being annulled and therefore the owners/directors/managers are becoming free from all kinds of cases, like criminal, civil, commercial, etc. Anyone who wins the Bankruptcy case, is not allowed to start a new business for the subsequent 3 years, but will be able to stay at any work visa in UAE and continue the work so long as he desires to continue it.

Obviously if all are going to be settled well, then the business man could brush aside all the liabilities from his shoulders, still there’s catch – the person who is declared as bankrupt will not be able to start any kind of business for the subsequent 3 years from the date of judgment date but he is allowed to work in any other organization on and employment visa.

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