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Bankruptcy and Liquidation of debtor assets under the UAE Bankruptcy Law

Bankruptcy and Liquidation of debtor assets under the UAE Bankruptcy Law

Under the UAE Bankruptcy Law, the court shall decide to declare a debtor bankrupt and liquidate its assets in the following instances. 

  • If the court issues a decision terminating an application for protective composition procedure bought by the debtor.
  • If the court considers the debtor’s statements and documents inclusive of the experts or trustee reports submitted in a restructuring proceeding and finds that the procedure is inappropriate, restructuring the debtor is impossible.
  • If a debtor brings an application to the court in bad faith to avoid his financial debts
  • If the majority of the creditors in a restructuring procedure as provided under the Bankruptcy Law do not approve restructuring of the debtor
  • If the court rejects a restructuring plan
  • If the court nullifies the application for restructuring

The Effect of the Court’s Order of Adjudication of Bankruptcy and Liquidation of a Debtor’s Assets

Upon the issuance of the court’s order for adjudication of the debtor’s bankruptcy and assets liquidation, the time limit for payments of all debts by the debtor shall elapse

Appointment of Liquidation Trustee and the Function Under UAE Bankruptcy Law

Under the UAE Bankruptcy Law, a trustee appointed under a protective composition procedure or restructuring may continue as the liquidator trustee if the court rules that the trustee should continue his work.

If the court rules otherwise, the court shall appoint a trustee upon the decision to commence the adjudication of bankruptcy and liquidation of a debtor’s assets.

The trustee appointed by the court is required to publish the decision of the court ordering the adjudication of the debtor’s bankruptcy and assets liquidation within three (3) days of the issuance of the order in two (2) widely circulated local newspapers, one to be in the English Language and the other in the Arabic Language.

Under the UAE Bankruptcy Law, the trustee is required to notify the debtor’s creditors to submit any claims they did not submit earlier if there are any within ten (10) working days from the date of the publication by the trustee. Any claim not submitted by the creditor within the time specified would not later be accepted except with reasons that are acceptable by the court. If the court rejects any claim by the creditors, such claims would not be considered in the procedure.

The trustee is required to conduct the last and final audit on all the creditors’ claims, except if the trustee discovers that the proceeds of the debtor’s assets will entirely be used to settle any legal fees or debts secured by a mortgage.

Get to know: The procedure for filing bankruptcy services in the UAE

Liquidation of the Debtor’s Assets Under the UAE Bankruptcy Law

Under the UAE Bankruptcy Law, all the debtors are to be liquidated by the trustee except for such assets the debtor may keep according to the provisions of the Bankruptcy Law. Under the Bankruptcy Law, the debtor must disclose to the trustee any assets he acquires or inherited during the liquidation procedure, and such assets are to be liquidated.

The trustee is required under the UAE Bankruptcy Law to sell the debtor’s assets by public auction under the supervision and approval of the court. The court may order the sale of a part or all the debtor’s assets by public auction.

The debtor may be authorized by the court at the request of the trustee to carry out all or some of the business activities to enable the sale of the business at the best possible price. The period of such authorization is not required to be more than six (6) months. The period may be further extended for an additional two (2) months if such an extension would be in the interest of the debtor.

Suppose there are proofs that the debtor’s acts or negligence led to the debtor’s bankruptcy. In that case, the court shall issue a decision preventing the debtor from taking part in the company’s management or exercising any commercial activity for a period, not more than the date that the debtor shall undergo rehabilitation.

Under the UAE Bankruptcy Law, any information concerning the debtor’s business during the procedure must indicate that the debtor is undergoing bankruptcy procedure in the UAE and its assets are being liquidated.

You may want to know: What Happens When Someone Declares Bankruptcy in UAE

Progress Report of Liquidation of Assets Under the UAE Bankruptcy Law  

Under the UAE Bankruptcy Law, the trustee is required to do the following:

  • Notify the court and the debtor every month of the progress of the bankruptcy and liquidation procedure
  • Notify the court, debtor, and the inspectors of the details of any offer to the sale of any or part of the debtor’s business.

Under the law, the court is required to decide any objection to the sales condition submitted to the court by any interested party in the procedure, and the decision of the court on such an objection is final.

Who is eligible to purchase the debtor’s liquidated assets

Under the UAE Bankruptcy Law, all persons, either natural or legal, are eligible to make an offer to purchase all or parts of the debtor’s assets offered for sale by public auction, except the following persons:

  • The debtor
  • The debtor spouse, relatives, or in-law up to fourth degree
  • Anyone who within two (2) years before the commencement of the adjudication of the bankruptcy was the debtor’s partner, employee, agent, or accountant.
  • Anyone who performs the duty of an inspector upon the opening of the bankruptcy procedure.

Under the Bankruptcy Law, these listed persons are prohibited from offering directly or through an agent to purchase the debtor’s assets. If the court finds that the interest of the creditors would be served, the court may give its consent to any of the above prohibited listed persons to make an offer to purchase the debtor’s assets.

Read more about – Debts that Won’t Be Discharged with Bankruptcy Filing in UAE

Application of the Proceed of Sale of the Debtor’s Assets Under the UAE Bankruptcy Law.

Under UAE Bankruptcy Law, any proceeds of sale from the debtor assets are to be used to settle all the creditor’s claims. The debtor is entitled to receive any surplus after the settlement of all claims by the trustee.

The Distribution of Liquidation Proceeds

Under the law, the liquidator is required to take into account all the claims before the court while distributing the proceeds of the debtor’s liquidated assets.  The trustee is required to distribute the liquidation proceeds in the other of priority among the creditors upon obtaining the approval of the court. The trustee may decide at his discretion to distribute the liquidation proceeds as follows;

  • Distribution after each sale
  • Distribution after the collection of proceeds from all sales

Under the UAE Bankruptcy Law, suppose the trustee chooses to distribute the proceeds after each sale; in that case, the trustee is required to submit the distribution list to the court for ratification.

The close of Adjudication of Bankruptcy and Asset Liquidation Procedure

Under the UAE Bankruptcy Law, upon the completion of the final distribution of the proceeds of the debtor’s assets to the creditors, the court shall issue a decision to close the procedure.

The trustee must publish the court’s decision closing the procedure into two (2) widely circulated newspapers, one to be published in the English Language and the other in the Arabic Language.

The trustee is required to hand over to the debtor all the debtor’s documents in possession after completing his duties and at the close of the procedure.

Do you require additional information about the UAE Bankruptcy Law? Contact our Best Bankruptcy Lawyers in Dubai NOW!

Hazim Darwish

Hazim Darwish, is a Senior Partner of HHS Lawyers in UAE. Practicing law for almost a decade, he has in-depth knowledge on UAE legislation with particular expertise on legal drafting, contract drafting, labor disputes, family law, and regulatory compliance for business organizations. Hazim Darwish also provides counsel on legal rights and obligations in the UAE to clients, including individuals and businesses subject to investigation or prosecution under Criminal Law by major regulators.