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 funs 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.

Insolvency Law

Measures to Prevent Declaration of Insolvency

Settlement of Financial Obligations

Non-Trader Debtor may furnish before the court an application, without litigating anyone therein, for settlement of his financial obligations. The court shall decide on the application without announcement or pleading no later than five (5) business days from application submission date.

The court’s decision to accept the Debtor’s application to settle their financial obligation entails stay of the Creditor’s right in execution application on the Debtor’s funds, or an application for opening procedures for his insolvency and winding up their funds thereof.

Such stay of execution shall continue until finalization of the settlement of the Debtor’s financial obligations, wherein the court shall appoint – in the decision for opening of settlement procedures of the financial obligations – one or more Experts to assist the Debtor in settling their financial obligations.

The Expert, following validation of the Debtor’s financial position and meeting with Creditors, shall develop a plan for settlement of the financial obligations, where such plan shall be approved by a majority vote of presented Creditors whose debts not less than two-third of the debts have been verified thereof.

The court issue a decision approving the plan, upon satisfaction of its conditions, which shall be binding on all Creditors.

Nonetheless, where the court resolved to reject the plant; thus, it shall immediately adjudge for initiation of Insolvency procedures and winding up of the Debtor’s property.

Opening of Insolvency Procedures and Liquidation of Holdings

The Debtor shall submit an application for the court to pen the procedures of their insolvency and liquidation of holdings, where the Debtor stays repayment of debt on maturity, for more than Sixty-Five consecutive business days, due to his failure to satisfy these debts.

Where the court decided to open the Debtor’s insolvency and liquidation of holdings procedures, it shall appoint a Trustee to perform such procedures. The Trustee shall require the Creditors to furnish their claims within twenty business days of summons thereof, after which the Trustee shall carry out final review of the Creditors’ claims, develop a report on the Debtor’s financial position and handover the same to the court.

If the court issues a decision for opening of insolvency and liquidation procedures, the Trustee shall carry on the liquidation of all Debtor’s property, save for those of which the Debtor may retain (i.e. retirement pension, social benefits provided to him, the Debtor’s necessary money to cover his own needs and dependents).

The Trustee’s assignment include insolvency procedures, liquidation of holdings, lodging or follow-up any cases, undertaking legal or judicial proceedings versus the Debtor, wherein the court’s decisions for opening of insolvency procedures and liquidation of holdings entail stay of all judicial execution procedures on the Debtor’s funds.

SUMMATION

Building on the foergoing,

It is crystal-clear that the UAE has developed and established elastic legislation that allow the Debtor encountering financial hardships in fulfilling their debts, which prevent declaration of their bankruptcy or insolvency, where the Experts take on the reconciliation procedures with Creditors or settlement of financial obligations thereof.

Nevertheless, where such reconciliation or settlement not attained, the Debtor shall have no option but to declare their bankruptcy or insolvency, along with provision of great guarantees that make the Debtor safe from legal prosecutions.

ALI KHALAF AL HOSANI

ADVOCATES & LEGAL CONSULTANTS