On October 31, 2023, the UAE\'s new bankruptcy law was published in the Official Gazette. It replaced the previous law and made significant changes to the bankruptcy system in the UAE.
The Bankruptcy came into effect on May 1, 2024. This gives entities in the UAE several months to adjust to the new framework and ensure compliance.
The Bankruptcy Law replaces the Prior Law. All regulations and resolutions issued under the Prior Law remain in force until new ones are issued. The bankruptcy law has made important changes to the UAE\'s bankruptcy rules. It creates a new court for bankruptcy cases, introduces a new way to settle cases before they go to court, and makes managers more responsible. Here are the main points of the new Bankruptcy Law.
Here are some of the key features of the new bankruptcy Law In UAE
Scope of the Law and New Definitions:
The Bankruptcy Law is similar to the Prior Law. It covers companies, traders, and licensed professional companies. Some companies are not covered by the Bankruptcy Law, like those in free zones (like the Dubai International Financial Center) that have special rules for Bankruptcy.
The Bankruptcy Law is similar to the Prior Law. It covers companies, traders, and licensed professional companies. Some companies are not covered by the Bankruptcy Law, like those in free zones (like the Dubai International Financial Center) that have special rules for Bankruptcy.
New Bankruptcy Court and Enforceability of Decisions:
The Bankruptcy Law has created a new Bankruptcy Court to handle bankruptcy cases. All existing cases before UAE courts under the old law will be transferred to the new Bankruptcy Court on May 1, 2024. The Bankruptcy Law lets the Bankruptcy Court hire experts and auditors to help make decisions.
The Bankruptcy Law says that Bankruptcy Court decisions are immediately enforceable. If the Bankruptcy Court reverses or stays the decision, or if the decision is contested in the Court of Appeal, then the decision can be challenged or stayed.
Replacement of Preventive Composition with Preventive Settlement:
The old law set up a way to avoid Bankruptcy, but it was hard to use because it was very strict. The Bankruptcy Law replaces preventive compositions with a new "Preventive Settlement" mechanism. This is a court-supervised process to help businesses continue operating and pay off debts.
Liability of Directors and Senior Management:
The Bankruptcy Law makes anyone in charge of a company liable for its debts. If a company is declared bankrupt, the Bankruptcy Court may find the aforementioned persons liable for acts committed within two years before the company\'s cessation of payment. If they are found guilty, they may have to pay back the company\'s debts. If the company doesn\'t have enough money to pay 20% of its debts and the individual\'s actions caused the company to lose money, they may be held responsible.
Claw Back:
The old law said that certain transactions had to be undone if done within two years of filing for Bankruptcy. The new law says that this has to be done six months before the Bankruptcy starts. This can be extended to two years if the transaction was done with a related party.
The Bankruptcy Law allows certain transactions if there are "commercial reasons" for them. The bankruptcy court can order that any deal made by the debtor not be valid if it harms creditors.
New Bankruptcy Department:
The Bankruptcy Law has also come up with new Bankruptcy Department at the Bankruptcy Court\'s headquarters. It can receive and register applications, serve notices, and discuss matters with creditors before the Bankruptcy Court.
The Bankruptcy Law also says what the Financial Restructuring and Bankruptcy Unit in the UAE Ministry of Justice can do, including giving opinions on applications filed under the law and keeping a record of applications filed under the Bankruptcy Law.
Trustee and Controller Appointment:
The bankruptcy law in UAE outlines the process for appointing a trustee or controller. A trustee is a natural or legal person appointed to oversee bankruptcy proceedings under the supervision of the Bankruptcy Department. A controller is an individual responsible for supervising the preventive settlement process and bankruptcy declaration measures.
The Bankruptcy Law is important for those in the UAE because it sets criminal penalties for certain actions by debtors.
New regulations will be issued to supplement the Bankruptcy Law. Until then, the old regulations and resolutions will remain in effect.
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