Updates on management liability on bankruptcy law in the UAE

The new federal decree-law no. 35 of 2021 amending the provisions of federal decree-law no. 9 of 2016 regarding bankruptcy and its amendments has been introduced in the United Arab Emirates (hereinafter referred to as the 'new Decree') to be in effect from 1st November 2021. The new decree brings in a fundamental and crucial change in the position of law that now accords individual liability on the shareholders of the company (subject to further conditions), in the instance the company funds are insufficient to cover even twenty per cent of the company's liabilities.

Liability of the company Management:

Pursuant to article 144 of the new decree on bankruptcy:

• If the court has decided to declare the company bankrupt, and the company' funds are not sufficient to pay at least twenty percent (20%) of its debts, it may oblige the members of the board of directors or the managers or any of them to pay the remainder of the company's debt or part thereof , each within the limits of the responsibility for those debts, if it is proven that any of them committed the acts mentioned in clauses (a), (b) and (c) of article 147 of this decree law, without prejudice to clause no. 2 and 3 of that article.
• Any of the members of the board of directors or the managers against whom a judgment was rendered in accordance with the text of clause no. (i) of this article may appeal this judgment in accordance with the provisions stipulated in the civil procedures law. However, appealing the rendered judgment against the members of the board of directors or the managers shall not result in suspending the executions of the judgment declaring the company's bankruptcy or prejudice to its evidence. Thus, obligating the judgment debtor with immediate payment, as judgment execution steps will not be halted even during the pendency of an appeal process.

The new decree thus imposes individual liability on the shareholders in the event they commit any of the following acts (Ref: Article 147):

• Adopts commercial methods without considering its risks, such as disposing commodities at prices less than its market value to receive monies to avoid or delay initiating the bankruptcy procedures.
• Engages in transactions with the third party to dispose of properties without consideration or against the insufficient amount and without certain benefit or not proportionate to the properties of the debtor.
• Discharges the debts of any creditor to harm other creditors during the period of being in default of payment or in the condition of account receivable.

The new amendments to the bankruptcy law follow the recent landmark judgment issue in the UAE in the Marka Holdings PJSC case. The said company was declared bankrupt by Dubai Court's judgment, and liquidation of assets was ordered. In addition, the board members of the company were ordered to pay Aed 448 Million to their creditors and also held the company's directors personally liable for the debt.

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