The UAE, by promulgation of Bankruptcy and Insolvency Laws, aimed to provide support and assistance to all of those who have transactions within the UAE, whether UAE National, Residents, Visitors, Commercial or Professional Corporates, who are experiencing current or potential embarrassment difficulties in satisfying their financial obligations.

The UAE has developed roadmap to overcome such embarrassment, so that they would enjoy safety, security and social justice without fair of falling into costly legal perils.

In order to distinguish between “Bankruptcy” and “Insolvency”, in this sense, the Bankruptcy Law concerned with Commercial and Civil Companies of professional nature, certain types of commercial companies, certain free zones’ companies and establishments, as well as individuals engaged in business, all of which gives the commercial character of the Bankruptcy Law.

On the other hand, the Insolvency Law is concerned with natural non-commercial persons. As such, the Insolvency Law is a civil system, and therefore, the commercial courts have jurisdiction to consider bankruptcy cases, wherein civil courts decide on insolvency cases.

By their nature, both Bankruptcy and Insolvency cases are not litigation cases (viz. the Plaintiff does not sue anyone). Rather, they are procedural cases aim at merely proving a specific financial condition, and that the judgment rendered for declaration of Bankruptcy or Insolvency does not mean – in the first place – determination in the case; yet, it is limited to substantiate a new legal case, upon satisfying its conditions.

The following touches on a simplified explanation of both Bankruptcy and Insolvency Laws and their application in the UAE:

Bankruptcy Law
Preventive Composition
Preventive Composition Procedures

Bankruptcy Law has developed an option to assist the Debtor Companies and Traders in arriving at settlement with their Creditors, through “Preventive Composition Scheme”, under the supervision of the court assisted by an Expert called “Composition Trustee”.

In order for the Preventive Composition Application to be accepted, the Debtor shall not be in default for more than (30) thirty consecutive business days due to his unstable financial position, or in the condition of account receivable thereof.

Nonetheless, where the Debtor stay payment of their debts for more than thirty consecutive business days, then, the Debtor should furnish their bankruptcy application accordingly.

Consequently, the court shall decide on Preventive Composition Application, without the need for the Litigants to attend, no later than five (5) business days from submission of complete application, or from the date on which the Expert lodged their report, as the case may be.

If the court accepts the application, it shall decide to initiate Preventive Composition Procedures in view of that.

The decision for opening of the procedures, until approval of the Preventive Composition Scheme, entails stay of the cases, judicial procedures and judicial execution procedures on the Debtor’s funds.

Opening of Bankruptcy Procedures

The Debtor shall furnish an application before the court for opening of the procedures, pursuant to the provisions of this Section, if he stays repayment of their debts on maturity, for more than (30) thirty consecutive business days due to his unstable financial position, or in the condition of account receivable thereof.

The court may seek assistance of an Expert to assist it in evaluating the Debtor’s position. The appointed Expert shall develop a report on the Debtor’s financial position, which includes statement on the probability of restructuring for Debtor, and whether his funds [are] sufficient or insufficient to cover the costs of such restructure.

Subsequently, the court decides on acceptance of the application without dispute, no later than five business days from submission of a complete application, or on the date on which the Expert lodged their report, as the case may be. If the court accepted the application, at that juncture, it shall decide to open the procedures.