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Quick Guide on Bankruptcy Law and Restructuring Debts

The new Bankruptcy Law streamlines and modernizes UAE insolvency law. It places a new emphasis on the restructuring of debts for distressed companies. This feature will destigmatize business failure and will serve as a catalyst for cultural change in the region that will lead ultimately to the promotion of a more robust legal framework for entrepreneurs and an improved climate for investors.

Scope of Application:

  • This process is applicable to all private sector companies in the UAE,
  • companies partly or fully owned by the UAE or individual Emirates’ government,
  • free zone companies not including the DIFC and ADGM
  • individuals who are classified as a trader
  • civil companies.

Overview of the Restructuring of Debts

Debt restructuring can be carried out by individuals who are heading towards bankruptcy. The debt restructuring process is used by companies to avoid the risk of default on existing debt.

This process can be carried out by reducing the interest rates on loans or by extending the due dates for paying the liabilities.

A debt restructures process also includes when creditors agree to cancel a portion or all of the outstanding debt in exchange for equity in the company.

Procedure to Start Restructuring

Below mentioned are the basic steps to start the restructuring process.

Step 1:  File an Application for Bankruptcy

The debtor is required to file for bankruptcy if it has ceased payment of due debts due to its financial difficulties or where the debtor’s assets are insufficient to cover due liabilities

Step 2: Appointment of Court Expert

Once the bankruptcy application is submitted, a court-appointed expert will then prepare a report on the financial position of the determinism mussy to include their opinion on the possibilities of restructuring.

Step 3: Approval of Application

The court will then approve the application and at the bankruptcy proceedings if all necessary conditions are met

Step 4: Transfer of Powers

If the court decides to initiate the proceedings the debtor will be placed under the supervision of a court-appointed expert who will take control of management and is granted a wide range of powers in relation to the preservation of assets, dealing with the claims.

All the bankruptcy proceedings and claims and enforcement actions relating to the debtor automatically stay. Creditors have to make specific approval from the court in order to make or continue to make any claims against the debtor.

Step 5: Debtors Approval for Restructuring

The will only initiate the process if he debtor express a willingness to continue business and the court believes a possibility for debtors’ business to be profitable again in future

Step 6:  Finalizing the Restructuring

If the restructuring process is finalized a report must be prepared and voted by credits. For the restructuring process to be approved the majority of creditors must vote in favor of the arrangement.

Other Key Changes

  • company’s insolvency can be determined by the ‘balance sheet’ test, which provides a clear view of the assets and liabilities of the business. This will be favorable in encouraging debtors to reach out for help to restructure at an early stage.
  • A new regulatory bodysuit has introduced a new regulatory body that will maintain an approved list of experts in the field of restructuring. It will also administrate a register of insolvencies.
  • Directors found guilty of bankruptcy connected offenses may be disqualified from conducting any role connected with the administration of a company may also be subject to fines.

HHS lawyers and legal consultants are one of the leading bankruptcy lawyer that can assist you in bankruptcy procedures. We can also assist in assist in restructuring procedures. If you have any inquiries regarding the restructuring of debts contact us.

Hassan Humaid Al Suwaidi., LL.B. is a Senior Partner in HHS Lawyers. He has 20 years of experience dealing with high-value and complex cases. Frequently featured in local and international legal directories and commended for his ability to attain favorable outcomes for clients, Hassan has been involved in some of the largest legal settlements. A major part of his work is providing expert legal advice on UAE legislation and acting for individuals and businesses during disputes and litigation.