UAE New Bankruptcy Law: Safeguarding Economy and Creditor Rights
The UAE is poised to implement a groundbreaking Bankruptcy Law on May 1, 2024, signaling a significant step towards fortifying the national economy, protecting creditors' rights, and providing debtors with effective mechanisms to settle debts and potentially avoid bankruptcy.
Implementation Date Set for May 1, 2024
With the help of the courts, this revolutionary statute aims to find a middle ground between the rights of creditors and the ability of debtors to manage their own businesses. It supports amicable settlements, which open up more options for debtors to negotiate their way out of financial difficulties.
Specialised Bankruptcy Courts Introduced
Bankruptcy courts are created by the law, and they have their own special division called the "Financial Reorganisation and Bankruptcy Unit." Procedures involving preventative settlement, restructuring, or bankruptcy are to be overseen by this section.
Enhanced Protection for Creditors
Streamlined processes prevent separate enforcement proceedings for creditors. The law empowers the court to impose a moratorium on creditor actions, providing a window for debtors to formulate and ratify a restructuring plan.
Duration of the Moratorium
A three-month claims moratorium, extendable by the debtor for up to six months, accompanies the initiation of preventative settlement processes. Debtors work during this period to secure creditor approval for the preventative settlement plan.
Extended Moratorium for Restructuring
The moratorium imposed during restructuring procedures is much more flexible than under the previous legislation, as it lasts until the restructuring plan is ratified.
New Financing Possibilities
Under certain circumstances, debtors might seek out additional financing, which takes precedence over their current conventional obligations, and this new financing can be secured with or without collateral.
Determination of the Date of Ceasing Payments
The court must now determine the date of the debtor(s) ceasing payments upon issuing a final judgement for preventive composition, restructuring, or bankruptcy, impacting past acts by the debtor(s).
Enforceability of Bankruptcy Court Decisions
All decisions and judgements from the bankruptcy court are deemed enforceable, simplifying the execution process under the new law.
Precautionary Decisions
In instances involving preventative composition or restructuring, bankruptcy courts can now postpone current claims against debtors and make precautionary rulings until final verdicts are announced.
Ratification of the Restructuring Plan
In cases of creditor refusal, debtors can petition the bankruptcy court to ratify the restructuring plan, subject to the court ensuring creditor rights are preserved.
Personal Liability for Managers
Managers, board members, and liquidators face personal liability for specific actions detrimental to creditors, aligning with provisions from the previous law.
Preventive Settlement Procedure
When a debtor's business continues to be viable and they fulfil the legal requirements, they may begin the preventative settlement process.
Appealability of Bankruptcy Decisions
All decisions and judgements from the bankruptcy court are subject to appeal within 30 days, offering parties recourse in cases of dispute.
Prioritising Fairness, Transparency, and Efficiency
The new UAE Bankruptcy Law promotes an environment that is favourable to growth and resilience for businesses by reflecting a thorough framework that prioritises justice, transparency, and efficiency.
