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Overview: Amendments in Insolvency Law in UAE

Published on : 12 Dec 2020

Amendments in Insolvency Law in UAE

The laws concerning insolvencies of the United Arab Emirates-domiciled companies are fairly recent (the "Bankruptcy Law").

The Bankruptcy Law has been an important step forward and is influenced by features of a number of insolvency laws in other jurisdictions and international insolvency law trends. The Bankruptcy Law streamlines and modernizes the UAE insolvency law and, places a new emphasis on the early restructuring of indebtedness for distressed companies.

However, even more recently, the UAE has pioneered a new insolvency regime for individuals or natural persons with the issuance of the Insolvency Law Number 19 of 2019 (the "New Insolvency Law"), which is effective as of 30 November 2019.

The New Insolvency Law intends to provide sufficient protections to natural or civil persons facing financial distress and who are unable to settle their debts, unlike the Bankruptcy Law which regulates commercial companies and individuals considered as traders under the Commercial Transactions Code. The New Insolvency Law differs from the Bankruptcy Law, which was promulgated by Decree-Law Number 9 of 2016. The New Insolvency Law for Natural Persons is applicable to natural persons, who are not engaged in an economic activity and are not traders. The primary purpose of both the laws is to protect the common interests of the creditor and the debtor in a fair manner. The risk is divided between them to alleviate the debtor from the cycle of financial difficulties and enable him to pay off his accumulated debt.

Voluntary Settlement

The New Insolvency Law paves the way for the voluntary settlement process, which is equivalent to "Preventive Composition" under the Bankruptcy Law. A request for voluntary settlement shall only be submitted by the debtor, and is only possible as long as the debtor is not yet "insolvent". A debtor is considered as not insolvent when the debtor has not stopped paying his debts as they fall due for a period that exceeds 50 consecutive business days.

The voluntary settlement process protects the debtor from insolvency by formulating a settlement plan and enabling the debtor to continue to have control over managing his estate while carrying out his activities during the settlement process. Upon requesting voluntary settlement, the debtor's debts neither become due and payable nor are payments for debts accelerated.

On the other hand, the voluntary settlement process permits the creditors to be actively involved in approving the settlement plan. The creditors are prohibited from individually filing for enforcement against the assets of the debtor and cannot request for the insolvency and liquidation of the debtor. However, the secured creditors can request from the court to enforce their security for payment of any due and payable debts without having to take part in the voluntary settlement process.

Insolvency and Liquidation

The New Insolvency Law provides streamlined insolvency procedures, which can be initiated by the court, the insolvent debtor or the creditors with claims of AED 200,000 or more. All debts, whether secured or not, are due and payable, on order issued by the court to commence the insolvency proceedings. The debtor is then prohibited from:

  1. Administrating or carrying a transaction over any of his assets; 
  2. Securing any new debts; 
  3. Providing any guarantees or securities; and
  4. Obtaining any new financing for three years from the issuance of the insolvency judgment.

The court may order, based on its discretion or on the request of the debtor, the suspension of all criminal proceedings concerning any bounced cheques issued by the debtor and shall order the suspension of all enforcement and legal claims filed against the debtor.

The proceeds of the liquidation of assets are distributed to creditors as per their ranking, which means: in the order of secured creditors, preferred creditors and ordinary unsecured creditors.

Both the secured as well as preferred creditors with due and payable debts can obtain the court's approval for independently enforcing their security against the assets of the debtor. The secured creditors will otherwise be paid out of the proceeds of the liquidation of the assets subject to their security. Any debts of secured creditors exceeding the liquidation proceeds of the secured assets shall be treated as unsecured debt.

The debtor is required to attach the following documents to apply for settlement of financial obligations:

  1. Memorandum briefly describing their financial position and any data concerning their sources of income, both inside and outside the country. Their professional, vocational or professional status, the liquidity projections of the debtor and the sources of such liquidity within 12 months from the submission of the application.
  2. The creditors' names and addresses, whose debts have been defaulted or are expected to have defaulted, the debt amount, the dates of maturity and the guarantees provided to the creditors, if any.
  3. Statement providing the debtor's movable and immovable assets inside and outside the country and the approximate value of each as per the date of the application.
  4. Statement of any legal and judicial proceedings or actions taken against the debtor.
  5. Statement by the debtor of the current or anticipated financial difficulties, which made him unable to pay the debts, at the time of application, or in the future.
  6. Necessary funds to support the debtor, their family and any dependents.
  7. Debtor's proposals for the settlement of his financial obligations.
  8. Debtor shall nominate an expert to undertake the proceedings as per the provisions of the New Insolvency Law.
  9. Statement disclosing financial transfers outside the country that took place during the preceding 12 months.
  10. All other documents supporting the application, or as requested by the court.

If the debtor is unable to provide the required information, the reasons for not furnishing the required documents or information shall be stated in the application. 

The court may decide not to complete the procedures for the settlement of financial obligations and may refuse a request for settlement of financial obligations if:

  1. Court determines that the debtor has committed, or refrained from, taking action to conceal or damage any part of their property.
  2. The debtor provides false statements regarding their debts, rights or funds.
  3. The debtor has not paid any of his debts on maturity for more than 40 consecutive working days as a result of his inability to fulfil the debts.


The creditor who has committed any of the following acts is liable to imprisonment and a fine of minimum AED 10,000 and maximum AED 100,000:

  1. If they have made a claim concerning a fake or sham debt against the debtor.
  2. If they increased the debts to the debtor illegally.
  3. If they voted in any meetings on decisions concerning the debtor's settlement of financial obligations knowing that it is legally prohibited to do so.
  4. If the debtor knowingly concluded an agreement, following the court's decision to commence insolvency proceedings and the liquidation of funds, which gives him an advantage to the detriment of other creditors.

Each insolvency debtor shall be punished with imprisonment for a maximum period of two years and/or a fine of minimum AED 20,000 and maximum AED 60,000 when the insolvency debtor causes a loss to creditors by:

  1. Spending huge sums of money in a speculative business that was not required for their usual business, or in purchasing services, goods or materials for personal or domestic use which are not in commensuration with their financial situation, or they engaged in gambling, knowing that their creditors may be adversely affected.
  2. Paying the debts of one creditor, causing damage to the remaining creditors within a period of six months before submitting their request to settle their obligations or declare insolvency.
  3. Disposing of their funds in bad faith, at a lesser price than the market price to damage the creditors.
  4. Resorting to harmful means to damage the creditors to delay the declaration of insolvency and liquidating their funds.
  5. Disbursing money, knowing that it violates the terms of the plan.


The issuance of the New Insolvency Law is a positive development, ultimately aiming to boost confidence in retail lending and promoting a more secure lending environment with sufficient protections to debtors.

The New Insolvency Law addresses a debtor's inability to pay their debts due to bankruptcy and debt default, known as the 'insolvency of the natural person.

The promulgation of the insolvency law will govern the insolvency of a natural person and increase the transparency on civil debt repayment transactions and the general security of financial transactions. This shall further enhance the financial stability in the UAE by accelerating the growth and making it easier for individuals to obtain loans, due to the clear rules that are easily applicable to collect any bad debts and rehabilitate the debtor financially. The Law shall also enhance creditor banks' confidence in retail lending and encourage individuals to engage in calculated borrowing.


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