United Arab Emirates: New UAE Bankruptcy Law: Concerns And Answers

Last Updated: 15 August 2017
Article by Carlos Marcos

The new UAE Federal Decree Law No. 9 of 2016 (the "Bankruptcy Law") was finally approved by the UAE Cabinet on 4 September 2016. This new Law is expected to put some light on the regulation on how companies should deal with their financial health issues.

To date, the regulation governing the bankruptcy of UAE-based companies was spread through a set of laws, mainly UAE Federal Law No. 5 of 1985 (the "Civil Code"), UAE Federal Law No. 18 of 1993 (the "Commercial Code"), UAE Federal Law No. 8 of 1984 (the "Companies Law") and UAE Federal Law No. 3 of 1987 (the "Criminal Law"). However, such legal framework does not provide with useful mechanisms that could help out a company to overcome its financial problems.

Due to the lack of such effectiveness, the market was forced to look for alternative remedies to fill up the lack of a proper legal system and satisfy the interest of both creditors and debtors. Those remedies include both extra and judicial actions such as:

  • Debtor-Creditor Agreements: by which the parties agree to appoint an expert who would help the parties to reach a settlement agreement;
  • Financial Restructurings: big companies with enough turnovers were tended to force the banks to refinance their debts by threatening with failing to pay previous loans in case of denial; while SMEs used to arrange new repayment plants that cut off any investment plan.
  • Criminal sanctions: in UAE, companies usually guarantee their payment by means of cheques signed under the name of the creditor. Bouncing a cheque is a criminal action under the Criminal Law, which might have an effect in the way the liquidation procedure takes place.

However, the above-listed mechanisms have not been producing the purported results. In line with that, mainly three concerns have been raised since long ago regarding the reasons for that lack of effectivity: the absence of a specialized institution which could deal with bankruptcy procedures, the absence of well-regulated bankruptcy procedures or the interference of the Criminal Law in such commercial matter.

In that regard, this Article aims to present a general view on how these three main critics have been addressed by the new Bankruptcy Law, as well as explain what can be expected from the new legal scenario.

Financial Restructuring Committee

As per Article 3.1 of the UAE Bankruptcy Law, the UAE Council of Ministers, known as the Cabinet, shall issue a resolution forming the so-called Financial Restructuring Committee (the "Committee"). The Committee's role is still to be defined in detail through such resolution; however, the Bankruptcy Law has advanced some of the Committee's functions.

Hence, it is expected that the Committee will deal mainly with two matters. Firstly, the Committee shall oversee the management of the enterprises' financial restructuring procedures (explained in Section 2) by the assistance of experts in order to facilitate consensual agreements between creditors and debtors.

In addition to that, the Committee shall set up and regulate a registry for the disqualified persons and directors against whom judgments have been issued imposing bankruptcy restrictions and orders. This kind of registry has been demanded for a long time by companies operating in the UAE market that were unable to find out the financial health of the companies they were financing.

Bankruptcy Proceedings

Before the approval of the new Bankruptcy Law, the bankruptcy proceedings were regulated under the Commercial Code and were limited to court-driven proceeding addressed to liquidate companies rather than assist in restructuring their debts.

Contrary to the set of rules contained in the Commercial Code, the Bankruptcy Law provides with two type of proceedings that a company could undergo when dealing with its financial issue. These proceedings, which may be grouped into Preventive Composition Proceedings or Bankruptcy Proceedings, would vary depending on the status of the company.

A. Preventive Composition Proceedings

A debtor may apply for a Preventive Composition Proceeding "if he encounters financial hardship that requires assistance to reach a settlement with his creditors" and if he is not in default of his payment duties for more than 30 days consecutive days.

According to the Article 5 of the Bankruptcy Law, "the purpose of the preventive composition procedure is to assist the debtor to reach settlements with his creditors under a preventive composition scheme, under supervision of the Court" and by the assistance of a trustee.

The Preventive proceedings are handled by a trustee with the assistance of the Debtor and the supervision of the Court. Such proceedings shall conclude with the elaboration of a Preventive Composition Scheme that shall contain the terms and conditions of the debt settlement, which the creditors shall approve.

Being the aim of this procedure to protect the Debtor's patrimony, the Debtor is prevented from disposing of his patrimony and the creditors shall see their proceedings against the Debtor suspended, unless otherwise is decided by the Court.

B. Bankruptcy Proceedings

The Bankruptcy Proceeding may be filed by (a) the Debtor, if he ceases repayment of his debt on maturity dates for over 30 days consecutive business days; (b) the creditor/s holding an ordinary debt of at least AED 100,000, if the debtor fails to repay the due debt within 30 consecutive business days from the date of being notified; and (c) the Court, upon request from the Public Prosecutor proving that the debtor is in the condition of account receivable.

These procedures governed by the Bankruptcy Law regulate a double scenario depending on the financial health of the company: (i) the Debtor's restructuring, if possible, by assisting him to apply the business restructuring scheme; and (ii) the Debtor's declaration of bankruptcy, by assisting in proceeding with a fair liquidation of properties to discharge his obligations.

  • The Debtor's restructuring procedure is, as the Preventive Composition Proceedings, handled by a trustee with the assistance of the Debtor and the supervision of the Court. Such proceeding shall conclude with the elaboration of a Restructuring Scheme within 3 months that shall contain the terms and conditions of the debt settlement, which will be voted by the creditors.
  • The Debtor's declaration of bankruptcy shall take place via judgment when a settlement of the debts could not be reached regardless of the reason. Upon issuance of the judgment, the creditors shall file their claim within 10 business days or otherwise such claims will be discarded.

The bankruptcy proceeding will also be handled by a trustee appointed by Court, who will audit and liquidate the Debtor's assets that do not fall under the protect assets provisions contained within Article 132 of the Bankruptcy Law.

Having liquidated the assets, the trustee shall distribute the liquidation revenues based on priorities among creditors as per the provision of the Law. Pursuant to the Chapter 6 of Section 5 of the Bankruptcy Law, the priority payments shall be as follows:

I. Trustee's expenses in the procedures of selling the guarantees properties;
II. Creditors holding guaranteed debts;
III. Judicial, expert or trustee's fees or expenses;
IV. Labor entitlements of employees;
V. Debts of maintenance paid by the Debtor as per a competent court's judgment

C. Criminal Sanctions

Despite the numerous claims for the criminal sanctions to be removed from the bankruptcy proceeding, those are still a type of sanctioning tools that UAE Courts may impose. Hence, the Bankruptcy Law's Section 6 of Chapter 7 sets out a set of scenarios in which an imprisonment sentence can be imposed on the board of directors, managers, liquidators, trustee or expert when their actions cause damage to the Debtor's patrimony in the detriment of the creditors.  The length of these imprisonment sentences may range between 1 to 5 years.

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.

Similar Articles
Relevancy Powered by MondaqAI
BSA Ahmad Bin Hezeem & Associates LLP
BSA Ahmad Bin Hezeem & Associates LLP
Afridi & Angell Legal Consultants
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
BSA Ahmad Bin Hezeem & Associates LLP
BSA Ahmad Bin Hezeem & Associates LLP
Afridi & Angell Legal Consultants
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions