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The New UAE Bankruptcy Law: A Better Regime In The Making

A new Federal Decree-Law No. 51/2023 on issuing Financial Reorganization and Bankruptcy Law has been published in the official Gazette on 31st of October 2023 abrogating Federal Decree-Law No. 9/2016. The above-mentioned new Federal Decree-Law will enter into force on 1st of May 2024, while the Cabinet is expected to issue its implementing regulations, several principles were adopted by said Federal Decree-Law to achieve its purposes which includes maintaining the vitality of the national economy, preserving creditors rights, and assisting debtors in settling its debts to prevent declaring bankruptcy if possible. 

Below are a few significant provisions introduced under the new Federal Decree-Law:

     • Unlike the previous law, upon the issuance of a final judgment pertaining to opening preventive composition plan, restructuring plan, or bankruptcy, the court should determine in the judgment a date of debtor(s) ceasing payments, which will have important consequences on certain acts executed by debtor(s) in the past. 

     • All bankruptcy court’s decisions and judgments will be considered as writ of execution and enforceable under the new law. 

     • Further, Bankruptcy courts will have the power to issue precautionary decisions and issue decisions to suspend ongoing claims against the debtor(s) prior to the issuance of a final judgment opening preventive composition plan, restructuring plan, which was not the case under the previous law. 

     • The moratorium following the issuance of the decision to open restructuring proceedings will not be limited, as it was under the previous law, and will remain open until the ratification of the restructuring plan. However, employment claims and personal status matters (except inheritance matters) are exempted from the moratorium, which will contribute to preserving employees, spouses and children’s rights.

     • Pursuant to the creditor(s) refusal to proceed with the proposed restructuring plan, the debtor(s) will have the right to petition the bankruptcy court requesting the ratification of said restructuring plan. The bankruptcy court may ratify the plan after examination of the trustee’s opinion and the creditor(s) objections may ratify the restructuring plan under the condition that the creditor(s) rights under the plan will not be less than their rights in the event of bankruptcy. Under the previous law if the creditor(s) rejected the restructuring plan it will lead automatically to declaring debtor’s bankruptcy.

     • All decisions and judgments issued from the bankruptcy court will be subject to appeal within 30 days from the date of issuance of the relevant decision or judgment, which was not the case under the previous law as only judgments pertaining accepting and rejecting the claim was subject to appeal in addition to other judgments pertaining to accepting or rejecting a certain debt. 

     • As for the managers (including persons who are actually involved in the management), board members, and liquidator, they will be considered personally liable if they commit particular actions such as using commercial methods of ill-considered risks, fulfilling any of the creditors' debts with the intent to cause damage to other creditors, etc., we note that said liability is similar to the provisions of the previous law, however, it is clearly mentioned under the new law that it applies to actions committed two years prior to the date of cessation of payment. Further the claim against managers, board members, and liquidators should be filed within 2 years from the issuance of a judgment declaring the bankruptcy of the company. Needless to mention, that said persons will be criminally liable as well if they committed crimes which are specified under the new law.

It is worth mentioning that above is an overview of a few aspects of the new Federal Decree-Law No.51/2023 on issuing Financial Reorganization and Bankruptcy Law, as bankruptcy and restructuring matters are considered extremely complex. Further the implementation of the new provisions by the bankruptcy courts will become clearer with time.

BSA will be hosting a breakfast seminar in mid-December to discuss the new Bankruptcy Law and the effects of the amendments. To register your interest please send an email to bsa.comms@bsabh.com.

This article was written by bankruptcy specialists Michael Kortbawi and Bassel Boutros and focuses on the new UAE Bankruptcy Law. 

BSA is a regional Law Firm in the Middle East with offices in the UAE, Oman and Saudi Arabia. As a full-service law firm our practice areas include litigation, arbitration and corporate services, including M&A, banking & finance, Intellectual Property, TMT, Fintech, employment and insurance.

Published on 30 November, 2023.

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