How to file for bankruptcy or liquidation in case of business failure in the UAE?

Question: I am a partner of a small civil company with a professional license issued by DED.

My company has lost court cases wherein we have to pay Dh1 million. These cases are in the execution stage.

My company also has debts of Dh364,000 on our books. The company is not in a position to pay the proven debts in execution court or the pending debts mentioned in our books. I want to close the civil company.

Is it better for me to file for bankruptcy or file for liquidation of the company? How do I do it?

Answer: Pursuant to your queries, as you are desirous to file bankruptcy of your civil company the provisions of Federal Law By Decree No. 9 of 2016 on Bankruptcy (the ‘UAE Bankruptcy Law 2016’), Federal Decree-Law No. 23 of 2019 amending Certain Provisions of the Federal Decree-Law No. 9 of 2016 on Bankruptcy (the ‘Amended UAE Bankruptcy Law of 2019) and the provisions of Federal Decree-Law No. 21 of 2020 (Amended UAE Bankruptcy Law of 2020) shall be applicable.

In the UAE, if an entity is unable to pay its debts to its creditors, it may opt to file for bankruptcy, this is in accordance with Article 67 of the UAE Bankruptcy Law 2016, which states, “The procedures in this Chapter shall regulate:

1. The restructuring of the Debtor, if possible, by assisting the Debtor to implement a plan to restructure the Debtor’s Business.

2. The declaration of the Debtor’s bankruptcy and carrying out a fair liquidation of the Debtor’s assets to cover the Debtor’s Liabilities.”

Further, you may approach the court in the UAE which has jurisdiction over the bankruptcy proceedings. This is in accordance with Article 68 of the UAE Bankruptcy Law 2016, which states, “The Debtor shall apply to the Court to commence the procedures pursuant to the provisions of this Chapter, if the Debtor has ceased to make payment of the Debtor’s Debts on their respective due dates for more than thirty (30) consecutive Business Days due to the Debtor’s distressed financial condition, or if the Debtor is in a state of Over-indebtedness.”

If the court approves the application for bankruptcy of your company, it may suspend all the execution proceedings against your company if the same has been filed by your company’s creditors who have judgments against your company.

Thereafter, the court may appoint a trustee as mentioned in Article 82(1) of the Amended UAE Bankruptcy Law of 2019 to foresee the bankruptcy procedures and the said trustee shall submit his/her report to the court in accordance with Article 96 of the UAE Bankruptcy Law 2016.

The report of the trustee may include restructuring of your debts. However, if you are not convenient with the restructuring procedures, the court may pass an order declaring your company as bankrupt.

This is in accordance with Article 124 (3) of the UAE Bankruptcy Law 2016, which states, “The Court shall issue a judgment declaring the Debtor bankrupt and ordering the liquidation of the Debtor’s Assets If the restructuring procedures are inconvenient for the Debtor, pursuant to the statements and documents submitted with the application or the report prepared by the expert pursuant to the provisions of Article (77) of this Law, or the trustee’s report prepared pursuant to Article (96), confirming the impossibility of restructuring.”

Further, you may also file for individual insolvency in accordance with Federal Decree-Law No. 19 of 2019 on Insolvency.

You may avail services of a legal counsel in the UAE for further advice.

Ashish Mehta is the founder and Managing Partner of Ashish Mehta & Associates. He is qualified to practise law in Dubai, the United Kingdom and India. Full details of his firm on: www.amalawyers.com. Readers may e-mail their questions to: news@khaleejtimes.com or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.

• UAE