If an entity or business is unable to pay off its debt to its creditors, it can opt to file for bankruptcy, according to Article 67 of the UAE Bankruptcy Law. Our blog will provide you with the provisions necessary to open or file an application for bankruptcy in the UAE.
Provisions for Filing an Application for Bankruptcy in UAE
How Debtors and Creditors Can Apply?
The Bankruptcy law (Article 67) states the aspects that are regulated under this law. From the financial restructuring of businesses to help the debtor implement a well-thought-out restructuring plan or either receive a final legal ruling for bankruptcy so that the assets are liquidated and financial obligations fulfilled. 1
Opening an Application for Bankruptcy as a Debtor in UAE
The debtor can apply for the opening of an application for a bankruptcy procedure according to Article 68 of the Bankruptcy Law, under the condition that,
- The debtor has stopped paying his debts on their due dates for more than 30 consecutive days due to his financial situation or insolvency.
- If the debtor is dependent on competent supervisory authority, he must notify this authority explicitly through writing on his intention to submit the application to the court fifteen days before the submittal date. The concerned authority can then submit any documents or any pleas to the court concerning the application.2
Opening an Application for Bankruptcy in UAE as a Creditor
According to Article 69, now replaced by Article (1) of Federal Decree-Law No.23 (in force from 04/09/2019) states that,
- When a creditor or group of creditors have debt not less than AED 100,000 (one hundred thousand) and have already warned the debtor explicitly in writing to settle the debt and it has not been settled by the debtor within 30 consecutive working days from the date of notification, then the creditor or group of creditors can apply to the court to open the procedures under the provisions of the Bankruptcy law.
- If the creditor’s debt is secured by a mortgage, he/she shall submit an application, provided the amount claimed is part of the difference in the value of the secured debt due and the value of the guarantee given does not cover the complete value of the debt secured by the mortgage.
- Under the guidance of the Minister, the Council of Ministers can then issue a decision to change the amount of debt. 3
You may want to know: Bankruptcy and Liquidation of debtor assets under the UAE Bankruptcy Law
Withdrawal of Payment by Creditors
Article 70 of the bankruptcy law states that, if the case has been withdrawn by the creditors for payment of due instalment before the opening of the procedures, the debtor in this situation shall not be liable for the stopping of payment concerning the due instalment. 2
Proof of Insolvency
According to article 71, if the debtor is dependent on competent supervisory authority as seen above in Article 68, the application may be submitted to the court by the authority with proof that the debtor is insolvent. 2
Article 72 mentions that, for public interest reasons, the Public Prosecution may request the court to open the procedures, on the condition that it proves that the debtor is insolvent. 2
Documents to be Submitted for Declaring Bankruptcy in UAE as Debtor
In order for the debtor to be eligible to open an application for declaring bankruptcy in UAE, certain documents need to be submitted to the court. This is covered under Article 73 of the Bankruptcy Law as follows:
- The debtor or the competent supervisory authority need to submit the application stating the following reasons:
- Whether the application is for restructuring, or to get a legal ruling for bankruptcy and liquidation. He also needs to provide and mention justifications for this when applying.
- A memorandum containing a brief description of the financial and economic situation, asset information, and detailed data of employees.
- Certified copy of the debtor’s commercial, industrial or professional license and his commercial register that is issued by the competent authority at the Emirate.
Copy of financial statements or books mentioning business for the fiscal year before the submission of the application. 2
- Furthermore, a report needs to be submitted with,
- Debtor’s cash flow and profit and loss expectations for 12 months following the submission of the application.
- A statement detailing the names of the creditors, their addresses, amounts due and the guarantees offered to them in return (if any).
- A detailed statement of all movable and immovable property, approx. value of each of these properties on the date of submission of application, and statement of any guarantees or rights given to others.
- In case any of the documents cannot be submitted by the debtor or applicant, the reasons need to be stated in the application.
- If the court does not find the documents sufficient enough, it may grant the applicant an extended time to provide the additional data or documents needed to support his application. 2
Get to know the procedure for filing bankruptcy services in the UAE?
Documents to be Submitted for Declaring Bankruptcy in UAE as Creditor
Article 74 states the documents a creditor needs to submit with their application to the court:
- Debt related data that includes the amount of debt and any guarantees available.
- Designation of trustee nominated by the creditor to take actions according to the provisions stated in this law.
Furthermore, the creditor needs to provide specifications such as the purpose of the application, whether for restructuring purposes or obtaining a final ruling on bankruptcy and liquidation. Also, he needs to give justifications for his request. 2
- In the case of the debtor being a company, the application to declare bankruptcy can be submitted even if the company used to be in liquidation or was terminated by the court, provided its corporate personality still exists.
- It needs to be kept in mind though, that doing the above and submitting the application to open the procedures to bankruptcy in UAE can lead to the suspension of settlement of any application whose objective is to liquidate the company or place it to recover and resume business operations (receivership). 2
Deposit of Money or Bank Guarantee
Finally, Article 76, states that excluding the application submitted by the Public Prosecution, the applicant needs to deposit to the court an amount or bank guarantee that does not exceed AED 20,000, in the way and date decided on by the court to cover the expenses for the settlement of the application.
Although, the court may decide to postpone the deposit if the applicant lacks the liquidity needed for a deposit on the date of submission of the application. 2
You should know: How Does the UAE Court Appoint Trustee & Inspector for Bankruptcy Cases?
How HHS bankruptcy experts will help you?
As you’ve observed above, opening an application for declaring bankruptcy can be a long, time-consuming and overwhelming process due to all the provisions involved. Our bankruptcy lawyers at HHS can provide assistance or take full control of all legalities involved with bankruptcy in Dubai and all-around UAE as per your needs so that you can have a hassle-free experience.
Contact us today!
1 UAE law on bankruptcy. Retrieved from https://u.ae/en/information-and-services/business/business-regulations/uae-law-on-bankruptcy
2 elaws. Retrieved from https://elaws.moj.gov.ae/English.aspx?val=EL1
3 Mof Govt. Retrieved from https://www.mof.gov.ae/en/lawsAndPolitics/govLaws/Documents/Bankruptcy%20law%20in%20English%2004%20May%202017%20%28ready%20for%20publishing%29.pdf