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Bankruptcy Law Update

Bankruptcy Law Update Additional Debtor Relief Options Announced

“On 21 October 2020, the Cabinet of the UAE approved amendments to the UAE Federal Law No. 9 of 2016, known as the Bankruptcy Law, which is intended to alleviate financial distress caused by the COVID-19 pandemic as well as other “emergency situations”.While the details of the new amendments are yet to be disclosed, such are understood to provide debtors with a greater range of options to mitigate loss and fulfill their obligations in a structured setting while providing the debtor the opportunity to continue its ongoing business affairs.

One such provision will revise the existing requirement that a debtor commences procedures to declare bankruptcy if in distress. Another provision will provide debtors with a 12 month grace period wherein, with leave of court, the debtor can delay the filing and reach a settlement with its creditors. The amendments also provide that a debtor may retain greater control of its funds which are necessary to continue its business operations during this grace period. Likewise, the amendments provide the debtor with further opportunities to obtain new financing as per certain terms and conditions.

It remains to be seen how “emergency” will be defined and what interpretation the Courts give to this definition, as many business struggles may be due to a combination of emergencies, such as COVID-19, as well as pre-existing issues relating to more generic economic problems. Whether the Courts apply a threshold test to determine at what point the “emergency” created the bankruptcy situation, will be a key factor in determining the universe of debtors that may benefit therefrom.

Likewise, greater clarity will be sought as to the specifics of the grace period, and if this will imply a generalized stay of proceedings against a debtor who has sought leave of Court, or a more structured Debtor in Possession regime. Despite these questions, we anticipate that the amendments will have a positive market effect and will benefit some debtors who are looking for options to return to solvency. We will provide further updates in due course.”
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