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The New UAE Debt Law

The New UAE Debt Law: All You Need to Know

Since January 2020, the new insolvency Law in the United Arab Emirates has been fully implemented. Due to local legislation, debtors in Dubai and the other emirates are shielded from legal action.

Debtors’ financial responsibilities are no longer criminalized under the new federal bankruptcy law, including a three-year repayment schedule. You can learn more about the new Dubai debt legislation and how it will benefit UAE citizens struggling with debt in this guide.

Q1. When does this law come into effect?

UAE debt collection rules are already in force and came into force in January 2020.

Q2. Is insolvency law similar to the bankruptcy law in the UAE?

The UAE’s new bankruptcy legislation was enacted to address and safeguard persons experiencing financial troubles. Bankruptcy law is limited to corporate liquidation and insolvency proceedings.

Q3. What does the new legislation do to assist persons who are in debt?

The regulation is intended to safeguard Emiratis and residents who are either experiencing or foresee experiencing financial problems and cannot repay their obligations. It will then restructure their debt with the possibility of receiving “new concessional loans.” Under the new law, Court-approved repayment options with more lenient conditions, maybe via reduced interest rates, will be offered. Previously Debt defaulters have been compelled to resort to extreme methods due to a lack of insolvency standards.

Q4. How does the court deal with debts?

Following the UAE’s financial bankruptcy rules, the court will designate an expert to handle debt processing. In collaboration with the debtor and their creditors, the expert will design a three-year debt settlement plan. Once the plan is completed, all financial responsibilities will be met under the agreed-upon terms.

Essentially, this new UAE federal debt legislation will provide two channels for resolving individual financial bankruptcy. It will be accomplished by providing a plan for the settlement of financial obligations and the bankruptcy and liquidation of funds.

Q5. Is it still possible for those who cannot pay their debts to go to jail?

Not at all. The new legislation “would safeguard the debtors from legal prosecution, decriminalize the financial responsibilities of bankrupt individuals, and allow them a chance to work, be productive, and provide for their family”. For the first time, debtors will be granted up to three years to repay their debts.

As a result, they will be able to continue earning money, which will allow them to maintain their family and their creditors.

You May Also Like: How to Clear Your Debts Under the UAE’s New Insolvency Law

Q6. What are the different ways to resolve Financial Insolvency under New UAE Debt Law? 

Essentially, the new UAE federal debt legislation will provide two procedures for resolving individual financial bankruptcy. It will be accomplished by presenting a strategy for resolving financial commitments and bankruptcy and fund liquidation.

This new UAE federal debt legislation will provide people with two options for resolving their financial bankruptcy: a plan for paying financial commitments or insolvency and liquidation of money.

  • Financial obligations settlement: 

The court will appoint one or more specialists to help the debtors throughout these processes and design a settlement plan for the financial obligations based on their circumstances. Once a strategy has been established, the creditors will vote on and implement it.

The court has the authority to refuse or terminate the procedure of obligation settlement if:

  • The debtor abstains from or intentionally damages or conceals some or all of their possessions.
  • The debtor makes false assertions concerning their obligations, finances, or rights.
  •  Due to financial difficulty, debts are not paid for more than 40 consecutive working days after maturity. In this instance, the debtor may file for bankruptcy.
  • Insolvency and Financial Liquidation:

The second method of resolving bankruptcy in the UAE is to liquidate assets and money to repay debt. This approach is used when a debtor cannot repay their obligations for a period of more than 50 consecutive working days beyond the due date due to financial difficulties.

When a debtor elects liquidation, the court appoints a trustee to assist and supervise the liquidation of the debtor’s finances and assets. According to Article (8) of the new debt legislation, this appointment is made. Creditors may also seek the liquidation of a debtor’s money in specific situations, provided that the liquidation sum does not exceed AED 200k. Essentially, this new UAE federal debt legislation will provide two channels for resolving individual financial bankruptcy. It will be accomplished by providing a plan for the settlement of financial obligations and the bankruptcy and liquidation of funds.

Q7. Are debtors eligible to seek additional loans during the settlement period?

No, the debtor is not permitted to get further loans unless the court orders in response to a request by the debtor, creditor(s), or authorized expert.

This article aims to provide a general overview of the subject. The information included herein may not be appropriate in all circumstances and should not be relied upon without seeking specialized legal counsel based on specific cases.

For more information on Bankruptcy and Insolvency Law, please don’t hesitate to contact us today.

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.