7 key provisions of the UAE’s new bankruptcy law

Bankruptcy rules in the UAE are set for a major shakeup amid the country introducing new legislation as well as a specialist court that will oversee disputes.

Referred to as “Federal Law Decree No 51 of 2023”, the new legislation was published on 31 October 2023 and it is set to come into full effect on 1 May 2024.

The law is set to widen the scope for debtors to achieve agreement with creditors, while also strengthening the ability of creditors to preserve their rights. Overall, the legislation is looking to bring the UAE more in line with other nations when it comes to its insolvency rules.

Dubai law firm BSA has also outlined these 7 key provisions regarding the new law:

• Unlike the previous law, upon the issuance of a final judgment pertaining to opening a preventive composition plan, restructuring plan, or bankruptcy; the court should determine in the judgment a date of debtors ceasing payments, which will have important consequences on certain acts executed by the debtors in the past.
• All of the bankruptcy courts’ decisions and judgments will be considered as a writ of execution and enforceable under the new law.
• Furthermore, bankruptcy courts will have the power to issue precautionary decisions and issue decisions to suspend ongoing claims against the debtors prior to the issuance of a final judgment opening a preventive composition plan or restructuring plan. This was not the case under the previous law.
• The moratorium following the issuance of the decision to open restructuring proceedings will not be limited, as it was under the previous law, and it will remain open until the ratification of the restructuring plan. However, employment claims and personal status matters (except inheritance matters) are exempt from the moratorium, which will contribute to preserving employees, spouses and children’s rights.
• Pursuant to the creditors refusal to proceed with the proposed restructuring plan, the debtors will have the right to petition the bankruptcy court, requesting the ratification of a restructuring plan. The bankruptcy court may ratify the plan after examination of the trustee’s opinion and the creditors objections may ratify the restructuring plan under the condition that the creditors’ rights under the plan will not be less than their rights in the event of bankruptcy. Under the previous law if the creditors rejected the restructuring plan, it would lead automatically to declaring the debtor’s bankruptcy.
• All decisions and judgments issued from the bankruptcy court will be subject to appeal within 30 days from the date of issuance of the relevant decision or judgment, which was not the case under the previous law. Previously, only judgments pertaining to accepting and rejecting the claim was subject to appeal. This is in addition to other judgments pertaining to accepting or rejecting a certain debt.
• As for the managers (including persons who are actually involved in the management), board members, and liquidators, they will be considered personally liable if they commit particular actions such as using commercial methods of ill-considered risks, fulfilling any of the creditors’ debts with the intent to cause damage to other creditors, etc. This liability is similar to the provisions of the previous law, however, it is clearly mentioned under the new law that it applies to actions committed two years prior to the date of cessation of payment. Furthermore, the claim against managers, board members, and liquidators should be filed within two years from the issuance of a judgment declaring the bankruptcy of the company. Needless to mention, these said persons will be criminally liable as well if they committed crimes which are specified under the new law.