• The New Federal Law was published in the UAE Gazette on October 31.
• The new law also sets forth specific conditions for filing objections.
• It aims to prevent the liquidation of the business and the formal declaration of bankruptcy.

The UAE is Creating Dedicated Courts for Bankruptcy Cases to Improve the Restructuring and Insolvency Legal System. The New Federal Law, Published in the UAE Gazette on October 31, is expected to be Enforced from May 1, 2024, as per Legal Experts.

At present, a specialized section within the Courts, headed by a Court of Appeal judge, manages bankruptcy and restructuring cases. The recently enacted law aims to safeguard and simplify this process, eliminating the need for distinct enforcement proceedings for creditors.

“The court can impose a moratorium on creditor actions from the commencement of judicial and execution measures against debtors until the restructuring plan is ratified, without a specified time limitation. Exceptions are made for employment and family law matters to protect the rights of employees and spouses,” said Areen Jayousi, partner at Horizons & Co.

He highlighted that a key aspect of the new law in the UAE is its focus on preventing potential harm to the bankruptcy estate during the restructuring process.

“The law recognizes the need to balance the interests of various stakeholders, including creditors, employees, and spouses. This protection is crucial to facilitate a smooth and effective restructuring,” he said in a statement.

The new law also sets forth specific conditions for filing objections and grievances on decisions of the Court or the Trustee. “This is an important aspect of any legal framework, providing a structured process for addressing concerns and ensuring a fair and transparent resolution,” he said.

“The law encourages amicable settlements and expands the scope for debtors seeking Protective Composition, reflecting a focus on resolving financial difficulties through negotiation,” said Jayousi.

Navandeep Matta, a senior associate at Kochhar & Co in Dubai, explained that the new law assists the debtor in resolving its debts with creditors. It aims to prevent the liquidation of the business and the formal declaration of bankruptcy whenever possible. The law also ensures a fair distribution to creditors, safeguards and preserves bankruptcy funds, and strives to maximize the value of these funds to the greatest extent possible.

“The New Bankruptcy law is a game changer for both debtors and creditors as it is equally balancing the interest of the creditors for the debt that is owed to them AND debtor having substantial control over the running of the business with the approval of the Bankruptcy Court,” said Matta.

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