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UAE Insolvency Law(s)

Published on : 31 Mar 2020

Insolvency Law in the UAE

N Anand

With UAE’s emergence as a global business hub, owing to its flexible economic structure and numerous free zones, financial bankruptcy and insolvency was an issue that plagued investors and individuals. To address this, the UAE introduced Federal Law Number 9 of 2016, otherwise known as the Bankruptcy Law. Under the Bankruptcy Law, the process of rehabilitation for debtors was expedited and further held directors of the company to be criminally liable. One of the primary advantages of the Bankruptcy Law was the decriminalization of dishonoured cheques, if a viable repayment plan was in place.

However, in November 2019, to further relax the insolvency and bankruptcy issues, the UAE introduced Decree-Law Number 19 of 2019, the Federal Decree-Law on Insolvency of Natural Persons (the Law on Insolvency).

An In-depth Analysis of the Provisions of the Law on Insolvency

The Law on Insolvency was established with the view to strengthen and stabilize the economic and financial state of the country. The Law on Insolvency defined debtor as a natural person who is not engaged in economic activity and is not a trader. Few salient features of the Law on Insolvency are: -

  1. Protection of debtors from legal prosecution, decriminalize the financial obligations of an insolvent person and provide them with an opportunity to be productive and provide for their families.
  2. Support individuals who face existing or anticipating financial difficulties which render them unable to clear their debts.
  3. Help individuals to reschedule their debt and take concessional loans, if required.
  4. Appointment of an expert by the courts to settle the financial obligations, who would coordinate between the debtor and the creditor and formulate a payment plan to pay the financial dues within 3 years.

The highlight of the Law on Insolvency was that debtors would be permitted to work after invoking the insolvency status, which would be granted from the court, upon furnishing the following documents:

  1. A memorandum having a brief description of financial position and any other data related to debtor’s sources of income within and outside the country.
  2. Statement of names and addresses of the creditors creditors who have been defaulted, the amount that has been defaulted, the dates of maturity and guarantees provided, if any.
  3. A detailed statement of debtor’s movable and immovable assets inside and outside the country and their approximate value.
  4. Statement by the debtor(s) that they are facing financial difficulties, and they are unable to pay their debts.
  5. A proposal by the debtor to settle their financial obligations.
  6. The nomination of an expert to undertake the procedure.
  7. Disclosure of financial transfers outside the country during the last 12 months.
  8. Any other documents, as requested by the court.

Once the court receives the documents, it must decide within five working days. Upon accepting the request, the court appoints an expert to prepare a payment plan which must be submitted within 22 days, with an extension possible only with the permission of the court. Once the program has been finalized and sent to the creditors, the first meeting must be held within ten days of the creditors receiving the plan. If that debtor fails to pay their debt for more than 40 consecutive days or if the debtor fails to follow the settlement plan, the financial settlement can be terminated.

Creditors have another option available to them, wherein if the debtor owes more than AED 200,000, and repayment is not possible through a payment plan. Creditors can apply for insolvency of the debtor, to liquidate the debtor’s assets. A court-appointed secretary will be in charge of the proceedings, wherein a report must be submitted within +ten working days to the court. The court, in return, must decide on the       liquidation within 15 days from the date of the report. Some of the asset’s the debtor will have to sell include property, cars, financial holdings and any other valuable possessions. Particular finances such as pensions, social benefits, and funds that meet day-to-day expenses are exempted from the liquidation procedure.

Following the approval of the court, the debtor will be allotted a time limit of 3 months to liquidate their assets. During the process of liquidation, the debtor will not be allowed to take further credit and will have their name listed on the Special Register. Once the three years are over and/or the debts are repaid, the debtors will have their names removed from the Special Register and can return to normal life and access credits again. In the unfortunate event that the debtor dies before clearing their debt, they will be cleared of their obligations.

The Law on Insolvency has established specific penalties which are punishable by fines, ranging from AED 10,000 to AED 100,000 and imprisonment as well, for the following acts:

  1. If a creditor makes a fake claim of debt against a debtor;
  2. If the creditor increases the indebtedness of the debtor illegally;
  3. If the creditors vote on matters relating to the settlement of financial obligations of the debtor, when they are legally prohibited from doing so;
  4. If the debtor knowingly concludes an agreement which gives them a unique advantage to the detriment of other creditors once the court has decided to commence insolvency proceedings and the liquidation of funds.

With regards to debtors, the following actions can result in imprisonment for up to 2 years and/or a fine of not less than AED 20,000 and not exceeding AED 60,000:

  1. Spending substantial funds in speculative business business that is not required by their usual business;
  2. Paying the debts of one of the creditors which in turn causes damage to other creditors, within six months before the submission of their request to settle their obligations or declare insolvency;
  3. Disposing of their funds in bad faith and at less than the market price;
  4. Any spending of money that violates the payment plan.

The Law on Insolvency is a landmark step forward towards ensuring that the economy remains stable and

secure in the event of large debts being unable to be cleared and provides residents and Emiratis with an option to start over without fearing criminal prosecution.


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