The Insolvency Law stipulates rationalized and time-saving procedures, which can be either initiated by the court, the borrower/debtor or the creditors who owe an amount to AED 200,000 or more.

Once the court puts out an order to start the insolvency litigations, all the debts, whether secured or not, turn into due and payable. The borrower/debtor is forbidden from managing or transacting over any of the assets, guarantying any new debts or offering any securities or guarantees, or acquiring any new financing for a period of three years from the proclamation of the insolvency judgement. Additionally, the court may command, upon its prudence or based on debtor’s request, the cessation of all criminal proceedings with respect to cheque bounced cases by the debtor and all enforcement or legal demands registered against the debtor.

With respect to the proceeds of liquidation of debtor’s assets, that are shared to the creditors based on their ranking, like they are secured creditors or preferred creditors or unguaranteed creditors in that order.

Preferred Creditors or Secured Creditors with due and payable debts can obtain court’s consent to independently impose their security against debtor’s assets. Alternatively, secured creditors get paid out from the proceeds of liquidation of debtor’s assets subject to their collateral. Any debt of secured creditors more than the liquidation proceeds of assets those are secured will be treated as unsecured debt.

The publication of the Insolvency Law is indeed a positive advancement which eventually endeavors to enhance confidence in retail lending and encourage a more secure lending atmosphere with adequate protection to debtors. As the Insolvency Law is rather new, there are many matters that are yet to be clarified by means of the actual application of the law by UAE Courts and publication of further resolutions.