January 13, 2021



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It is quite obvious that coronavirus has somewhat brought the economy to a halt for a certain time and the government across countries are trying every bit possible to revive it. COVID-19 has affected all organizations and economies as apparent from the steep decrease in demand and supply of products, social distancing and termination of commercial contracts due to failure in performing contractual obligations.

However, the aftermath of this situation has led to many business failure and has caused bankruptcy even in multinationals companies. Accordingly, the government of UAE has taken preventive composition measures to deal with ever-increasing cases of bankruptcy which shall be discussed by Corporate Lawyers of Dubai in the following paragraphs.

In such a professional environment, restructuring of companies can now be viewed as a new lifestyle. Nonetheless, restructuring doesn't need to be a mind-boggling activity; and, indeed, it tends to be very compensating for its partners particularly if done in a systematic manner. Without a doubt, if a monetarily effected organization could be effectively restored, all partners (counting investors, loan bosses, colleagues, and workers) may consider benefitting from financial restructuring rather than seeking financial protection.

In such regards, UAE issued Federal Law number 9 of 2016, wherein any company can file for bankruptcy or for restructuring the company. It is vital for all companies currently suffering the aftermath of coronavirus in the economy and are not completely bankrupt but still facing major financial issues. In such event, these companies may benefit from the provisions of Bankruptcy Law as a tool to rebuild their financial status.

The Bankruptcy Law applies to all business organizations, government-claimed organizations that have selected in under the Bankruptcy Law, free zone organizations (with the exception of those organizations consolidated in free zones that have their own insolvency enactment, for example, the Dubai International Financial Center and Abu Dhabi Global Market). Under the Bankruptcy Law, just the account holder organization may apply to the court to initiate the preventive measure.

Furthermore, when making the application, the organization cannot be declared insolvent on the basis of the following tests:

Auditing the balance sheet: where the advantages of the indebted person, at some random time, don't cover the liabilities or

Test of Company’s income:: where a borrower is esteemed to be endless supply of installment of legal obligations as they fall due for in excess of 30 business days.

Further, preventive arrangement methodology isn't accessible where either an organization has just been dependent upon such a strategy or has just entered insolvency procedures. In this manner, timing is very basic and administrators should act before the organization winds up meeting any of the indebtedness tests sketched out above.

In addition, there are several key benefits to the preventive composition measures to be discussed as follows:

  • If a court acknowledges an application for restructuring the company or any preventive composition method, all insolvency litigation procedures will be naturally cease except if the court favors a particular case to continue, in this manner giving the organization a sigh of relief.
  • Organizations that are working a business can proceed with tasks during the execution stage, which implies that a business' name, generosity, and client base are preserved. However, if there is a bankruptcy registered, the companies are not allowed to deal with any further business and all operations of the company are on halt.
  • While the process is up and running in the court, the company may (upon receiving the approval from the court) raise subsidizing or priority fund to ensure the flow of company.
  • Post completion of the procedures, creditors will not be set-off directly, unless they are the part of restructuring implementation plan.

It is imperative to take note of that creditors are secured and are organized under the Bankruptcy Law (except if they have selected to be a part of the organization plan); nonetheless, they would be required to get court endorsement to guarantee (following the endorsement of the arrangement) against the trustee with respect to their ensure about the resources of the company.

The Bankruptcy Law permits the secured creditors to register their claim within twenty days following the court's distribution of the choice endorsing the plan.

The procedure for mentioning preventive measure incorporates making an application with the court and submitting documentation in regards to the monetary situation of the organization and its creditors, resources, borrowers and representatives; its established archives, permit and goals; duplicates of the organization's bookkeeping books; the proposition for preventive creation; and a designated trustee for the plan.

In the event that the application is acknowledged, the selected trustee will at that point take stock of the organization's benefits, order a rundown of creditors and comparing commitments and draft a preventive structure plan along with the organization, which ought to be submitted to the court inside forty-five days from the date of acknowledgment of the application.

The draft plan requires endorsement by a dominant part of the organization's banks qualified for vote, given that the greater part holds at any rate 66% of the all-out obligation by esteem. In the event that the proposed arrangement is endorsed by most of loan bosses, it is then submitted to the court for confirmation; and whenever sanctioned, the arrangement will be official upon every single unbound leaser.

In any case, should the court dismiss the arrangement, it might either demand that the trustee present a corrected arrangement or in any case straightforwardly initiate insolvency procedures under the Bankruptcy Law. During the usage time of an arrangement, the account holder organization keeps on maintaining the business, yet the court-delegated trustee has certain privileges to safeguard the advantages for the organization.

Any movement influencing the made sure about banks must be affirmed by the court. The arrangement would end once the organization has fulfilled every one of its commitments according to the arrangement. In the occasion the organization neglects to conform to the details of the arrangement, the court may invalidate the arrangement and convert the procedure to sell the benefits of the organization.

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