In the event of business failure, a bankruptcy application can be made as per the following Federal Laws in the UAE –
- Federal Law by Decree No. 9 of 2016 on Bankruptcy (the ‘UAE Bankruptcy Law 2016’),
- Federal Decree-Law No. 23 of 2019 amending Certain Provisions of the Federal Decree-Law No. 9 of 2016 on Bankruptcy (the ‘Amended UAE Bankruptcy Law of 2019) and the provisions of Federal Decree-Law No. 21 of 2020 (Amended UAE Bankruptcy Law of 2020).
In the UAE, if a business entity is unable to pay its debts to its creditors, it may opt to file for bankruptcy, this is in accordance with Article 67 of the UAE Bankruptcy Law 2016, which states that the procedures will be regulated and offer the following solutions –
- The restructuring of the Debtor, if possible, by assisting the Debtor to implement a plan to restructure the Debtor’s Business.
- The declaration of the Debtor’s bankruptcy and carrying out a fair liquidation of the Debtor’s assets to cover the Debtor’s Liabilities.
Once the solution has been established the debtor will need to make a direct application to the court in the UAE, which has jurisdiction over the bankruptcy proceedings. This is by Article 68 of the UAE Bankruptcy Law 2016, which states, “The Debtor shall apply to the Court to commence the procedures under the provisions of this Chapter, if the Debtor has ceased to make payment of the Debtor’s Debts on their respective due dates for more than thirty (30) consecutive Business Days due to the Debtor’s distressed financial condition, or if the Debtor is in a state of Over-indebtedness.” If the application is accepted and the court approves the application for bankruptcy of the company, it may suspend all the execution proceedings against your company if the same has been filed by your company’s creditors who have judgments against your company.
Once the above procedure has been accepted and implemented by the court, the court may appoint a trustee as mentioned in Article 82(1) of the Amended UAE Bankruptcy Law of 2019 to foresee the bankruptcy procedures and the said trustee shall submit his/her report to the court by Article 96 of the UAE Bankruptcy Law 2016. The report of the trustee may include restructuring of your debts. However, if you are not able to implement the restructuring procedures, the court may pass an order declaring your company bankrupt.
This is by Article 124 (3) of the UAE Bankruptcy Law 2016, which states, “The Court shall issue a judgment declaring the Debtor bankrupt and ordering the liquidation of the Debtor’s Assets If the restructuring procedures are inconvenient for the Debtor, under the statements and documents submitted with the application or the report prepared by the expert under the provisions of Article (77) of this Law, or the trustee’s report prepared under Article (96), confirming the impossibility of restructuring.”
Further to the above applications, a debtor may also file for individual insolvency by Federal Decree-Law No. 19 of 2019 on Insolvency.