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Factors to Consider Before Filing for Corporate Bankruptcy in the UAE

Corporate bankruptcy is an unfortunate reality that many businesses face. It is a complex process that can significantly impact a company’s stakeholders, including employees, creditors, and shareholders. For businesses operating in the United Arab Emirates (UAE), understanding the implications of corporate bankruptcy is critical. The UAE’s legal framework surrounding bankruptcy constantly evolves, and businesses must stay informed to navigate the process effectively. In this article, we will explore the impact of corporate bankruptcy on UAE businesses and highlight key considerations that companies need to consider.

From understanding the different types of bankruptcy to managing the aftermath, we will provide you with the insights you need to make informed decisions and mitigate the risks associated with corporate bankruptcy. So, whether you are a business owner or a stakeholder, read on to learn more about the potential impact of corporate bankruptcy on UAE businesses.

Understanding Corporate Bankruptcy in the UAE

Corporate bankruptcy occurs when a company cannot pay its debts or meet its financial obligations. In the UAE, bankruptcy laws apply to all companies, including limited liability companies, public joint-stock companies, and private companies. Bankruptcy Law provides a framework for the orderly liquidation of a company’s assets and the repayment of its debts.

The Bankruptcy Law provides for two types of bankruptcy proceedings: preventive composition and bankruptcy. Preventive composition is a process that allows a debtor to propose a composition plan to its creditors to restructure its debt. Bankruptcy, on the other hand, is a process that involves the liquidation of a debtor’s assets to pay off its creditors. Before filing for bankruptcy, it is essential to understand the legal procedures and requirements. A company experiencing financial difficulties should seek legal advice to determine if bankruptcy is the best option.

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The Process of Filing for Corporate Bankruptcy in the UAE

Filing for corporate bankruptcy in the UAE involves several steps. The first step is to file a bankruptcy petition with the competent court. The court will then appoint an expert to evaluate the company’s financial situation and determine whether bankruptcy is the best option.

If the expert determines that bankruptcy is necessary, the court will decide to initiate bankruptcy proceedings. The court will then appoint a trustee to manage the bankruptcy proceedings and liquidate the company’s assets. The trustee will also be responsible for distributing the proceeds from the sale of the assets to the company’s creditors.

Creditors will have the opportunity to submit claims against the company during the bankruptcy proceedings. The trustee will evaluate the claims and distribute the proceeds from the sale of the assets to the creditors according to the priority of their claims.

Factors to Consider Before Filing for Corporate Bankruptcy in the UAE

Filing for bankruptcy is a serious decision that should not be taken lightly. There are several Factors to Consider before Filing for Corporate Bankruptcy in the UAE:

  1. The first factor to consider is the company’s financial situation. Bankruptcy should only be considered if the company cannot pay its debts and meet its financial obligations. The preventive composition may be a better option if the company has a viable business model and can restructure its debt.
  1. Another factor to consider is the impact of bankruptcy on the company’s reputation. Filing for bankruptcy can harm a company’s reputation, making attracting new customers and investors difficult.
  2. Companies should also consider the impact of bankruptcy on their employees. Bankruptcy can result in the termination of employment contracts, which can significantly affect employees and their families.
  3. Complete openness and lack of privacy is another factor which need to be considered. All procedures under the Bankruptcy Code demand full disclosure and complete transparency of every aspect of the Debtors’ lives and finances. According to Bankruptcy Law, the trustee must publish all relevant information regarding any proceedings, including the debt amount and the creditors’ names, in the local newspaper in both Arabic and English and invite more creditors to participate in the proceedings. The business’s affairs, difficulties, obstacles, the names and addresses of the creditors and the total amount of debts will all be publicly available due to this process, which is far from discreet. Reputational harm to the Debtors, as well as to its owners, managers, and directors, may result from this inadvertently. No firm will consent to this under any circumstances.
  4. Court involvement another factor to be looked at. All alternatives under the Bankruptcy Code entail the appointment of a trustee and, to varied degrees, the court’s supervision of the procedure and management of the firm, as well as the creditors’ participation in the final settlement or restructuring proposal. It implies that the Debtors’ owners, managers, and directors will have less influence over the company’s operations, including the ability to decide which contracts to maintain and which ones to revoke. The trustee and the court will make the final decisions about contract termination, and most contracts will likely be open to termination and payment acceleration.

Before filing for bankruptcy, companies should explore all options and seek legal advice to determine the best course of action.

You should read – Company Liquidation and Division of its Assets under New Bankruptcy Law

The Importance of Hiring a Bankruptcy Lawyer in the UAE

Filing for bankruptcy is a complex process that requires a thorough understanding of the law and legal procedures. Hiring a bankruptcy lawyer in the UAE, such as HHS Lawyers in Dubai, can help companies navigate the process and protect their rights. A bankruptcy lawyer can provide advice on the best course of action and help companies develop a plan to restructure their debt. They can also represent companies in court and negotiate with creditors. Bankruptcy lawyers can also help companies understand the legal implications of bankruptcy, including the impact on their reputation and employees. They can guide how to minimize the negative impact of bankruptcy and develop a plan to recover from financial difficulties.

In conclusion, filing for corporate bankruptcy in the UAE is a serious decision that should not be taken lightly. Before filing for bankruptcy, companies should consider their financial situation and the impact on their reputation and employees and seek legal advice. Hiring a bankruptcy lawyer in the UAE can help companies navigate the process and protect their rights.

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.