The UAE has issued a new Bankruptcy Law, set to effect on May 1, 2024, focusing on preserving the national economy’s vitality, safeguarding creditors’ rights, and aiding debtors in settling debts to prevent bankruptcy when possible.
The law brings significant changes to the restructuring and insolvency legal framework, emphasizing the need to balance the interests of various stakeholders.
Key Highlights and Insights:
- Encouraging Amicable Settlements:
- The law encourages amicable settlements and broadens the scope for debtors seeking protective composition, fostering resolutions through negotiation.
- Dedicated Bankruptcy Courts:
- Specialized courts will handle bankruptcy cases, ensuring a more focused and efficient resolution process. A dedicated unit, the “Financial Reorganisation and Bankruptcy Unit,” will support these courts in their tasks related to preventive settlement, restructuring, or bankruptcy procedures.
- Creditor and Debtor Protections:
- The law protects and streamlines the process for creditors, avoiding separate enforcement proceedings. A court-imposed moratorium on creditors’ actions during the restructuring plan approval process enhances the efficiency and fairness of the proceedings.
- Moratorium Periods:
- The law introduces specific moratorium periods:
- With the court’s approval, preventive settlement procedures result in a claims moratorium for three months, extendable up to six months.
- Restructuring proceedings have an open-ended moratorium until the ratification of the restructuring plan, offering flexibility and protection for debtors.
- Exemptions from Moratorium:
- Employment claims and personal status matters (excluding inheritance) are exempted from the moratorium, safeguarding the rights of employees, spouses, and children.
- Holistic Approach to Restructuring:
- The law underscores the importance of avoiding potential damage to the bankruptcy estate during restructuring, fostering a holistic approach to protect the interests of all parties involved.
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