With the introduction of business rescue by the new Companies
Act (which came into effect on 1 May this year), a company director
is obligated to either pass a resolution for business rescue
or for liquidation, as soon as he or she becomes aware that the
company is trading in a financially distressed situation or
notify all stakeholders of the basis for not doing so.
Although making creditors aware of the company's
financial difficulty is mandatory, Eric Levenstein, director at
Werksmans Attorneys, points out that it could prove to be a double
He explains, "Directors need to be aware of the
notifications that they are now required to give to creditors,
warning them of the fact that their company is financially
distressed. If a director decides not to place a company in
financial distress into business rescue, then he or she is under a
statutory obligation to deliver a written notice to each affected
creditor, confirming that the company is financially distressed,
but is not being placed into business rescue. Although reasons for
such a move must be provided, it could potentially put the company
at further financial risk as many creditors may refuse to provide
essential goods or services if there is a chance that they will not
"This point is evident in the Act which informs creditors
that if they supply a company with goods on credit after being
forewarned of financial distress, then it is at their own
If a director is clearly made aware of the fact that his or her
company is financially distressed and decides not to send out the
required notice, such action could be seen to be
reckless and he or she could be held personally liable for the
debts of the company and face criminal prosecution.
The definition of 'financial distress' means that either
it appears unlikely that the company will be able to pay all of its
debts as they fall due and payable in the next six months; or it
appears to be reasonably likely that the company will become
insolvent within the next six months.
Levenstein concludes, "In the current local and world
financial markets, a frank and realistic review by directors of
the financial position in which their company's trade
will be essential for survival and to avoid personal
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In our article " Characteristics of the Commercial Agency Law of the United Arab Emirates" published with Mondaq on 27.09.2016, we outlined the general applicability of the UAE Commercial Agency Law (Federal Law No. 18 of 1981 including its amendments).
Ministerial Decision No. 124/2016 came into force on 27 April 2016 and, in summary, prohibits the registration of company names that are a proper noun or the collective name of a tribe with the letters "Al" preceding it...
It is without doubt that in-house collection offers some advantages because it can move swiftly to recover small debts.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).