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UAE Bankruptcy Law for Restructuring Debts

The new Bankruptcy Law streamlines and modernizes UAE insolvency law. It places a new emphasis on the restructuring of debts for distressed companies. This feature will destigmatize business failure and will serve as a catalyst for cultural change in the region that will lead ultimately to the promotion of a more robust legal framework for entrepreneurs and an improved climate for investors.

Scope of application:

  • This process is applicable to all private sector companies in the UAE,
  • companies partly or fully owned by the UAE or individual Emirates’ government,
  • free zone companies not including the DIFC and ADGM
  • individuals who are classified as a “trader” under UAE law
  • civil companies.

Overview of the Restructuring of Debts

Debt restructuring can be carried out by individuals who are heading towards bankruptcy. Debt restructuring is a process used by companies to avoid the risk of default on existing debt.

This process can be carried out by reducing the interest rates on loans or by extending the due dates for paying the liabilities.

A debt restructures process also includes when creditors agree to cancel a portion or all of the outstanding debt in exchange for equity in the company.

Procedure to Start Restructuring

Below mentioned are the basic steps to start the restructuring process.

Step 1: File an application for bankruptcy: the debtor is required to file for bankruptcy if it has ceased payment of due debts due to its financial difficulties or where the debtor’s assets are insufficient to cover due liabilities.

Step 2: Appointment of a court expert: once the bankruptcy application is submitted, a court-appointed expert will then prepare a report on the financial position of the determinism mussy to include their opinion on the possibilities of restructuring.

Step 3: Approval of application: The court will then approve the application and attar bankruptcy proceedings if all necessary conditions are met.

Step 4: transfer of powers: If the court decides to initiate the proceedings the debtor will be placed under the supervision of a court-appointed expert who will take control of management and is granted a wide range of powers in relation to the preservation of assets, dealing with the claims.

All the bankruptcy proceedings and claims and enforcement actions relating to the debtor automatically stay. Creditors have to make specific approval from the court in order to make or continue to make any claims against the debtor.

Step 5: Debtors approval for restructuring: The will only initiate the process if he debtor express a willingness to continue business and the court believes a possibility for debtors’ business to be profitable again in future.

Step 6: Finalizing the restructuring: If the restructuring process is finalized a report must be prepared and voted by credits. For the restructuring process to be approved the majority of creditors must vote in favor of the arrangement.

Other key changes

  • company’s insolvency can be determined by the ‘balance sheet’ test, which provides a clear view of the assets and liabilities of the business. This will be favorable in encouraging debtors to reach out for help to restructure at an early stage.
  • A new regulatory bodysuit has introduced a new regulatory body that will maintain an approved list of experts in the field of restructuring. It will also administrate a register of insolvencies.
  • Directors found guilty of bankruptcy connected offenses may be disqualified from conducting any role connected with the administration of a company may also be subject to fines.

HHS lawyers and legal consultants are one of the leading Bankruptcy lawyers in Dubai that can assist you in bankruptcies procedures. We can also assist in assist in restructuring procedures. If you have any enquires regarding in the restructuring of debts contact us.

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.