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January 08, 2020

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The new Bankruptcy Law (Federal Law Number 9 of 2016) is seen as a strategically improved law in comparison with previous insolvency laws. Having said that the Bankruptcy Law so far covers the following:

i. Permits organizations in money related issues and provides the chance to rearrange their issues so as to stay suitable;

ii. Companies failing to stay financially viable, offers them a chance to seek liquidation;

iii. Offers alleviation from the most cumbersome impact of criminal punishments that had recently been in power, that were being forced against the managers or directors of the company.

Nevertheless, the law imposes restrictions on those who files liquidation with an intention to avoid debt or in cases of those where the assets of the companies cannot suffice the liabilities. In such cases, the directors and managers of the companies are open for all criminal and civil suits.

The applicability of the Law has been widely discussed since its enforcement and implementation; hence, following are the entities on which the Bankruptcy Law will be applicable:

i. Companies fully or partially owned by government employees;

ii. Companies registered under Commercial Companies Law of UAE;

iii. Civil Companies;

iv. Several free zone companies;

v. Traders as defined under Commercial Transactions Law of UAE.

The new law takes a shot at recognizing various approaches to keep away from insolvency cases and liquidation of the debtors' assets such as an exhaustive financial restructuring outside the extent of the court, methods for compositions and possibilities of seeking loans under the said provisions.

The Law additionally accommodates both a formal revamping procedure and liquidation techniques where a plan of composition isn't suitable. According to Article 68 of the Law, an debtor will request if he has defaulted in making payments from more than 60 days from date of outstanding debt due to severe financial conditions. Importantly, the creditor has the authority to a seek liquidation of the debtor, if the outstanding debt is above AED 100,000.

In the event that the Court acknowledges the request it will select a trustee, who will set up a report on the indebted person's probability of restructuring his business or offering the business for acquisition or auction.

However, the order for restructuring will only be passed by the court, upon consent of two-third of the creditors. On the other hand, if the court confirms bankruptcy, the privileges of preference creditors shall be given priority which includes employees and governmental authorities.

Critically, it is pertinent to highlight that if the assets of debtor are inadequate to fulfill in any event 20% of the obligations, the Court may commit individuals from the managers or directors to pay these obligations, in situations where their duty regarding the organization's misfortune is obvious, as per the arrangements of law. Additionally, the chiefs or directors may confront criminal indictment if their organization is in debt, and they intentionally avoid filing for liquidation.

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