The UAE legislative authority has recently introduced the Executive Regulations ("Regulations") under Federal Decree-Law No. 51/2023, which governs the Financial Reorganization and Bankruptcy Law ("UAE Bankruptcy Law"). These Regulations, outlined in Cabinet Decision No. 94/2024, bring forward significant clarifications and procedural enhancements aimed at improving the management of insolvency and reorganization cases within the UAE.
One of the most notable aspects of the Regulations is a clear distinction between the procedural requirements prescribed for a debtor and creditor in initiating bankruptcy proceedings. Below are the key provisions that outline the framework for both parties:
- Supervisory Authorities (Article 2):
The Regulations identify the UAE Central Bank and the Securities and Commodities Authority (SCA) as supervisory bodies. These authorities hold a pivotal role in monitoring compliance and maintaining the integrity of the bankruptcy processes.
- Record-Keeping by the Bankruptcy Unit (Article 3):
The Bankruptcy Unit is tasked with maintaining comprehensive records of all ongoing bankruptcy matters. These records must include crucial details such as the names of the involved parties, the relevant court, and the trustee or supervisor appointed by the court. Parties with legitimate interest may apply for access to this information, but approval will depend on the Unit's assessment of the applicant's relevance to the case.
- Monetary Thresholds for Bankruptcy Claims (Articles 5 & 6):
The Regulations revise the monetary limits required for both debtors and creditors to initiate bankruptcy claims. For individual debtors, the threshold has been raised to AED 300,000, up from AED 100,000 as stipulated in Article 15 of the original law. For companies, the minimum debt requirement is AED 500,000, while entities regulated by supervisory authorities face a threshold of AED 5,000,000. Creditors seeking to file a bankruptcy claim must meet a minimum debt threshold of AED 1,000,000, or AED 10,000,000 for claims involving companies regulated by the supervisory authorities. These revised thresholds aim to filter claims and ensure that only substantial cases are brought before the court.
- Supervisory Authorities' Right to Initiate Bankruptcy (Article 7):
Supervisory authorities are now empowered to initiate bankruptcy proceedings against regulated entities if their debts exceed AED 500,000. This provision strengthens the oversight role of regulatory bodies, ensuring timely intervention in cases of financial distress.
- Security Deposits for Bankruptcy Claims (Article 8):
To prevent frivolous bankruptcy filings, the Regulations introduce a requirement for a security deposit or bank guarantee equivalent to 5% of the total debt owed. This measure is designed to cover the costs associated with the initial evaluation of the claim. The head of the Bankruptcy Unit may exercise discretion to reduce or defer this deposit, or waive it entirely if costs are unlikely, ensuring genuine claims are encouraged while unnecessary matters are minimized.
- Conditions for Preventive Settlements (Article 9):
The Regulations stipulate conditions that govern the approval of proposed preventive settlements, including attendance and voting rights of the parties involved. This ensures that settlements are agreed upon transparently and with proper representation.
- Debtor Restrictions During Restructuring (Article 10):
During restructuring proceedings, debtors are prohibited from engaging in certain activities without written approval from the trustee. These include issuing or renewing guarantees, settling dues before their due date, establishing new companies, buying shares, transferring assets, and resolving judicial claims. These restrictions aim to safeguard the restructuring process and prevent the dissipation of assets that could be critical for creditor settlements.
In conclusion, the Executive Regulations under UAE Bankruptcy Law No. 51/2023 represent a significant step toward enhancing the efficiency and fairness of the bankruptcy process. By establishing clear thresholds, empowering supervisory authorities, and introducing security measures, these Regulations aim to balance the interests of debtors and creditors, promote responsible financial practices, and ensure only credible claims are brought to court.
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.
