UAE to set up bankruptcy courts to rule on disputes

New law will come into effect from May 1, 2024 and streamlines the process and avoids separate enforcement proceedings for creditors

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Waheed Abbas

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Image used for illustrative purpose
Image used for illustrative purpose

Published: Thu 7 Dec 2023, 4:13 PM

Last updated: Thu 7 Dec 2023, 11:09 PM

The UAE will set up specialised courts to handle bankruptcy cases as the government seeks to overhaul the restructuring and insolvency legal framework, streamlining the process to enhance investor trust further.

A federal law on financial restructuring and bankruptcy was published in the UAE Gazette on October 31 and will come into effect from May 1, 2024, according to legal experts.

Currently, a dedicated section of the Courts is led by a Court of Appeal judge responsible for overseeing bankruptcy and restructuring matters. The new law protects and streamlines the process and avoids separate enforcement proceedings for creditors.

“The court can impose a moratorium on creditor actions from the commencement of judicial and execution measures against debtors until the restructuring plan is ratified, without a specified time limitation. Exceptions are made for employment and family law matters to protect the rights of employees and spouses,” said Areen Jayousi, partner at Horizons & Co.

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He pointed out that the emphasis on avoiding potential damage to the bankruptcy estate during restructuring is a notable feature of the New Law in the UAE.

“The law recognises the need to balance the interests of various stakeholders, including creditors, employees, and spouses. This protection is crucial to facilitate a smooth and effective restructuring,” he said in a statement to Khaleej Times.

The new law also sets forth specific conditions for filing objections and grievances on decisions of the Court or the Trustee. “This is an important aspect of any legal framework, providing a structured process for addressing concerns and ensuring a fair and transparent resolution,” he said.

“The law encourages amicable settlements and expands the scope for debtors seeking Protective Composition, reflecting a focus on resolving financial difficulties through negotiation,” said Jayousi.

Navandeep Matta, senior associate, Kochhar & Co in Dubai, said the new law helps the debtor settle its debts with its creditors, avoids liquidation of its business and the adjudication of its bankruptcy as much as possible, ensures fair distribution to creditors, preserving and protecting bankruptcy funds, and maximising the value of bankruptcy funds to the highest extent possible.

“The New Bankruptcy law is a game changer for both debtors and creditors as it is equally balancing the interest of the creditors for the debt that is owed to them AND debtor having substantial control over the running of the business with the approval of the Bankruptcy Court,” said Matta.

More details of the law and regulations will be released in due course.

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