In recent years, the United Arab Emirates has established structured regulations for bankruptcy proceedings, providing a pathway for both individuals and businesses struggling with debt. The Federal Decree-Law No. 51 of 2023 addresses the intricacies of bankruptcy, aiming to stabilize financial conditions while protecting creditor rights and facilitating debt settlements when possible. This legislation focuses on restructuring over liquidation to preserve asset value and ensure efficient proceedings.
The UAE Bankruptcy Law, as outlined by Federal Decree-Law 51 of 2023, covers entities under the Commercial Companies Law, natural persons permitted to operate businesses, and licensed professional civil companies such as those in legal or engineering fields. However, certain entities are exempt, including public companies, free zone entities with independent regulations, and financial institutions under the UAE Central Bank’s jurisdiction.
Eligibility to file for bankruptcy in the UAE varies depending on the applicant’s debt type and status. For a natural person, the minimum debt requirement is AED 300,000, while legal entities must owe at least AED 500,000. Creditors—secured or unsecured—also have thresholds to meet, with amounts reaching up to AED 10,000,000 for regulated entities. The significant aspect here is the ability to prove insolvency or failure to meet financial obligations, at which point an application can be made by a debtor, creditor, or regulatory authority.
The bankruptcy filing process starts with determining eligibility. Debtors must showcase an inability to pay debts within 60 days of cessation, providing comprehensive financial documentation. Creditors, on the other hand, must prove outstanding debts and notify the debtor 30 days prior. Regulatory bodies may initiate proceedings if the entity in question shows signs of financial distress. All necessary documentation must be submitted to the Bankruptcy Department, accompanied by applicable fees or guarantees.
Upon submission, the Bankruptcy Department notifies all relevant parties, including any creditors and regulatory authorities involved. Following a review process, the court may decide to commence preventive settlement or full bankruptcy proceedings. A temporary cessation of payments is then declared, and decisions are communicated to all concerned parties, potentially via public notices.
Once bankruptcy is declared, options include preventive settlement, financial restructuring, or liquidation—each aimed at debt resolution without total business dismantlement. Preventive settlement seeks an initial debt agreement to avoid insolvency. Financial restructuring modifies debt terms to sustain operations, and if these fail, formal bankruptcy proceedings begin. The court supervises the process, appointing a trustee and overseeing claims filed by creditors. These processes contribute to economic stability and market confidence, steering distressed enterprises away from immediate liquidation.
Bankruptcy in the UAE is designed to balance the interests of debtors and creditors, promoting financial recovery and stability. The outlined procedures allow entities to either restructure or settle debts, ensuring fair treatment and preserving asset value. By adhering to these comprehensive rules, businesses and individuals can navigate financial difficulties effectively.
Source: Hhslawyers
