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Debt Collection, Lawsuits and Judgments – What to Expect

The Corona virus changed the landscape of business in the UAE overnight. Infect, the change was so great a new bankruptcy laws appeared as it was predicted that bankruptcies would rise rapidly due to the large number of companies losing business due to Covid-19. This would lead to many of them going out of business.

With the new Law in place, things have become more lenient towards debtors. However, this is not to say that action will not be taken should the debtor default. According to new law, debtors receive an additional 12 months to clear what they owe. The Creditor cannot interfere with the revenue of the debtor during this time.

Solving debt repayment cases in the UAE.

There are two ways through which creditors and debtors can settle payments in the United Arab Emirates.

The first one is through negotiation or extra judicial procedures. This involves the parties meeting and agreeing on a repayment structure for the debt without going to court.

Creditors need to try to and protect their money as they negotiate to solve their debt issue with the debtor. They can do this by conducting a private investigation on the debtor to see if their business is still operational. Furthermore, they can also assess if the Debtor can actually pay them back should they enter into an agreement for them to do so.

The second way of dealing with debt cases in the UAE is through court proceedings. Usually, creditors decide to go to court if the first option fails to get any results. When a case reaches the court, the law takes over and will give judgement in accordance to the reports and evidence presented to them.

In the event you opt for the court we recommend you involve a well-qualified lawyer to help you through proceedings. It is also helpful to know at this time that if you are the debtor you can also file for the Preventive Composition Procedures (PCP) which is a legal frame work that enables debtors to reach a court supervised settlement with the creditor. This option is available only for debtors who not failed to make repayments for not more than 30 days.

You should know: How to Clear Your Debts Under the UAE’s New Insolvency Law

What does the new debt collection law mean to UAE?

Although there is a strict law governing the debt collection process in the UAE, they have become more lenient, especially to the debtors. Subsequently more business investments have been protected from creditor harassment which in some cases would lead to the creditor liquidating assets and closing down a business for good.

The new debt law will see more businesses surviving through the pandemic period without the threat of closure and in turn help the UAE avoid a potential economic meltdown.

As a result, Investor confidence gradually increases due to reduced risk. Although business is currently low globally due to Covid-19, investors in the United Arab Emirates are still actively investing albeit in a reduced capacity.

Main causes of solvency in the UAE.

Now although the new laws will hopefully see less companies dissolving this does not guarantee that a business will make repayments on time as the business environment is still volatile.  On occasion you will find some debtors will not even attempt to initialize any kind of communication with the creditor. This is usually a bad sign in any business situation and can lead to serious legal action if not resolved. Infect, the lack of proper communication is topping the list as the main cause of solvency within the UAE.

Mismanagement of funds is also a top reason for businesses ending up facing bankruptcy. To prevent this companies try their best to make sure all is in order using essential services such as Auditing.

You may be interested in reading: Bank Debts and Settlement in the UAE

Are you in any of the situations above? If the answer is yes, we can help you.

There are various changes in the bankruptcy laws in the UAE that only qualified Law Practitioners have thorough knowledge of. Our experts here are more than capable of answering any questions on any Debt-related issues you may have.

Better yet, feel free to call to make a booking with HHS lawyers & Legal Consultants today for an initial consultation.

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.