Bankruptcy is a legal process that helps individuals and businesses that cannot pay their debts. In the UAE, Federal Decree-Law No. 51 of 2023 provides the regulation for bankruptcy in view of attaining financial stability, protection of the rights of the creditors, and facilitating debt settlement.
The law facilitates restructuring whenever possible, instead of liquidation. It strives to achieve the main objectives of fairness, publicity, and procedural efficiency with maximal asset value. This article will outline the bankruptcy law in the UAE, who is entitled to declare bankruptcy, and how a request for bankruptcy should be filed before UAE Courts.
Who is Subject to the UAE Financial and Bankruptcy Law?
Federal Decree-Law 51 of 2023 Promulgating the Financial and Bankruptcy Law stipulates who falls under the coverage of the law and who is excluded.
Who is covered by the Bankruptcy Law?
The following bodies will fall under the UAE Financial and Bankruptcy Law.
- Companies falling within the Commercial Companies Law: All such companies, which are subject to the UAE Commercial Companies Law, will be required to adhere to the rules concerning bankruptcy.
- Any natural person– A natural person (for e.g. sole proprietor) who is allowed to carry on business in the UAE.
- Licensed Civil Companies (Professional Nature): This law will apply to licensed civil companies of professional nature, such as legal, engineering and consulting services.
Who is Exempt from the Bankruptcy Law?
The following entities and persons are excluded from the application of UAE bankruptcy law:
- Public Entities – Those companies wholly or partially owned by either the Federal or the local government of the UAE, and hence, have special laws governing the bankruptcy procedures relating to them are exempt.
- Free Zones Companies – Companies operating in free zones having their own jurisdiction on bankruptcy shall be exempt from this law.
- Banks, Financial Institutions & Insurance Companies: Any bank, financial institution, or insurance company licensed by the Central Bank of the UAE has its own set of financial laws and hence shall be excluded from this law.
- Personal & Family Debts – Debts pertaining to personal expenses, family needs, or consumer purchases, including buying property for personal or family residence, are not covered under this act.
Eligibility Criteria for Filing Bankruptcy in the UAE
| Applicant | Minimum Debt Requirement | Conditions & Eligibility |
| Debtor (Natural Person) | AED 300,000 | Can apply if unable to pay debts or has ceased payments. |
| Debtor (Legal Entity) | AED 500,000 | Must be unable to pay debts or have ceased payment. |
| Debtor (Regulated by a Regulatory Authority) | AED 5,000,000 | If under a regulatory authority, the threshold is higher. |
| Ordinary Creditor(s) | AED 1,000,000 | Individual or multiple creditors can apply for restructuring or bankruptcy declaration. |
| Creditor Holding Secured Debt (Lien or Mortgage) | AED 1,000,000 | Can apply if the value of secured guarantees is less than the debt owed. |
| Group of Creditors Holding Secured Debt (Lien or Mortgage) | AED 5,000,000 | If multiple secured creditors apply together, the total uncovered debt must meet the threshold. |
| Regulated Debtor (Creditor Application) | AED 10,000,000 | If the debtor is under a regulatory authority, the minimum unsecured debt must be met. |
| Regulatory Authority | AED 500,000 | Can initiate bankruptcy or restructuring for supervised debtors. |
Important Note
- Debtors & Creditors: Bankruptcy can be invoked only if the due debt by debtors is equal to or more than the legal threshold and by creditors.
- Lien & Mortgage Holders: If the value of the collateral is such that it cannot cover the debt, then a secured creditor may also file bankruptcy.
- Regulated Entities: In cases where the debtors come under the ambit of financial regulatory bodies, higher thresholds are applied.
- Multiple Creditors: If creditors apply jointly, their combined claims must reach the specified amount.
The following shall be the authorities that shall be considered as regulatory authorities:
- Central Bank of United Arab Emirates.
- Securities and Commodities Authority – SCA
You may want to know: What Happens When Someone Declares Bankruptcy in UAE
Filing an Application to Initiate Bankruptcy Proceedings in the UAE
Who can Apply for Bankruptcy?
Under Federal Decree-Law No. 51 of 2023, the debtor, creditor and regulatory authority can file for bankruptcy and submit an application for the initiation of proceedings.
An application can be made if:
- The debtor fails to honor the debts.
- The financial status of the debtor is poor.
- The Creditors refuse the restructuring Plan or the Bankruptcy Court does not approve the same. The new application can only be thus filed after three months.
- Bankruptcy proceedings before the Bankruptcy Court have been dismissed. Any new applications must wait for three months before filing.
- A final bankruptcy decision has been made, and the debtor has not been declared rehabilitated.
Additional Conditions
- In case of debts that have been filed in bankruptcy, the applicant will have to provide evidence of the solvency of the business by presenting supporting documents.
- However, there are circumstances under which if the creditors agree on a restructuring plan, an application can be made at any time.
The Bankruptcy Process in the UAE
- Eligibility Determination:
- Debtor: A debtor can apply for when they are unable to pay their debts as they become due. There is a 60-day period from the cessation of payment or knowledge of insolvency.
- Creditor: A creditor can file when the debt is due, certain, unsecured, paid or payable and the amount is more than the value stipulated in the law. The debtor must have been given 30 days’ notice to pay.
- Regulatory Authority: A supervisory body may also initiate the process if the supervised entities appear to be in financial difficulty.
- Document Gathering:
A set of documents are required for this purpose;
- For Debtor: Financial statements, listing of assets and liabilities, information on employees, details of ongoing legal proceedings, proposed trustee nomination etc.
- For Creditor: Proof of debt, when the notice was served on the debtor and any other proof of claim.
- Application Filing:
- The application together with all the necessary documents is further submitted to the Bankruptcy Department.
- An applicant other than a regulatory authority pays the prescribed fees or produces a bank guarantee.
- Notification and Consideration:
- The Bankruptcy Department notifies the debtor in case the application is made by a creditor, creditors, the Unit, and any other relevant regulatory authority.
- All these parties have a right to make representations within the time allowed.
- It examines the financial status of the debtor and submits a report to the Bankruptcy Department.
- Court Decision:
- The Bankruptcy Court receives the application, the answers and the Unit’s report.
- The court decides whether to start preventive settlement or bankruptcy proceedings or to dismiss the application.
- A date of a temporary cessation of payment is fixed. The temporary cessation of payment shall take effect on this date.
- Announcement:
- The court’s decision is announced and the necessary persons are informed.
- The decision may also be published in the newspapers or on the debtor’s website.
- Ongoing Proceedings:
If the court decides on the case, then a trustee has to be appointed to take over the matter.
- Creditors are to file their claims.
- A plan of restructuring or liquidation is developed and enforced.
Settlement Options Under UAE Bankruptcy Law
- Preventive Settlement: To try and talk to your creditors and get your debts sorted out before you become insolvent. The aim is to reach an agreement and not to become bankrupt.
- Financial Restructuring: A change in the structure of debts in order to continue with the operations. Consolidate debts or extend the payment period in order to improve the liquidity position.
- Debt Settlement: If Creditors agree to accept part payment then present a realistic payment plan.
- Bankruptcy Proceedings: If the above options fail, then start the formal bankruptcy processes. Wind up assets in order to settle the creditors’ claims. The court supervises the process and has to nominate a trustee.
These steps help the distressed companies to avoid bankruptcy and liquidation. It ensures the continuation of business operations and boosts market confidence in the UAE.
You may want to know more – How to open an application for Declaring Bankruptcy in UAE?
Bankruptcy in UAE? How can HHS Lawyers in Dubai help you?
At HHS Lawyers in UAE, we provide bankruptcy advice in the UAE. Our bankruptcy lawyers help you through the whole Bankruptcy process. We assist you in identifying the right choices and compiling the required documents with a view to forwarding them to the concerned authorities.
Why Choose ?
Unable to pay your debts? HHS Dubai Lawyers can help you go through all the steps involved in bankruptcy. Here’s how:
- Professional Consultancy: We explain the bankruptcy law in the UAE in an easy manner.
- Documentation: We draft and submit all the required documents.
- Asset Valuation: We value your assets in order for you to retain your rights.
- Creditor Negotiation: We talk to your creditors on your behalf should you let us.
- Financial Analysis: We look into your financial status to advise appropriately.
- Legal Representation: We stand for you in any resulting legal actions.
Get in touch with HHS Lawyers in Dubai now to seek professional and understanding assistance in the course of this difficult period. It is our goal to assist you in gaining your financial freedom.
