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Amendments to Federal Law No. 9 of 2016, UAE’s Bankruptcy Law

Amendments to Federal Law No. 9 of 2016, UAE’s Bankruptcy Law

The UAE Cabinet approved amendments to the UAE Federal Law No. 9 of 2016 on 21 October 2020, also known as the Bankruptcy Law. These changes are aimed at alleviating the financial hardship caused by the COVID-19 pandemic and other emergencies. Although the particulars of the new amendments are yet to be disclosed, they have been understood to provide debtors with a wider range of options in a structured environment to reduce losses and satisfy their obligations along with offering the debtors the ability to continue their ongoing business.

One of the amendments seeks to revise the current requirement that a debtor must initiate proceedings to declare bankruptcy in the event of a default. There is a further provision which provides debtors with a grace period of twelve (12) months in which the debtor, with the permission of the court, can postpone the filing of bankruptcy and negotiate a settlement with its creditors. The amendments also provide that, during such grace period, a debtor can maintain greater control over its funds which are necessary to continue its business operations.

Similarly, the amendments provide the debtor with more opportunities under certain terms and conditions to receive new funding. It will be interesting to see how the court identifies ‘emergency’ situations and the definition that they will provide to this term. Currently, the economy and businesses are struggling due to a mixture of emergencies, such as COVID-19 and other pre-existing issues relating to more generic economic problems. A crucial factor in deciding the domain of debtors that can benefit from it would be whether the courts apply a “threshold test” to decide at what level of "emergency" has led to the creation of the bankruptcy situation.

Similarly, greater clarification would be sought as to the specifics of the grace period, and whether this amounts to a widespread suspension of proceedings against a debtor requesting a leave of court or a more organized debtor in the scheme of ownership. Notwithstanding these concerns, it is expected that these reforms will have a favourable impact on the market and will aid certain debtors who are in pursuit of finding ways to return to solvency.