Are you considering filing for bankruptcy in the United Arab Emirates (UAE)? Bankruptcy can be a complex legal process, but understanding the key aspects can help you navigate it more effectively. This FAQ is going to be your guide for filing for bankruptcy in the UAE.
1. Who Can Avail of Benefits from the UAE Bankruptcy Law?
The UAE’s bankruptcy law is designed to assist various entities, including:
– Companies wholly or partially owned by government entities.
– Free zone companies operating under Federal Law No 8 of 2004.
– Traders under the commercial transactions law.
– Civil companies engaged in professional activities.
2. What Is the Bankruptcy Filing Procedure?
The UAE’s bankruptcy procedure involves several steps:
a) Protective Composition Procedure:
– Only the debtor can apply for this, following a minimum of 30 days of non-payment due to financial hardships.
– A draft of the Protective Composition Plan, which outlines the revival of the business and liabilities, must be submitted within 45 business days.
– The plan needs approval from voters, and creditors can report grievances within three working days.
b) Appointment of a Panel of Experts:
– A panel assesses the debtor’s assets within five working days.
c) Appointment of a Trustee:
– The court appoints a trustee who evaluates the debtor’s assets, business continuation, and restructuring possibilities.
d) Appointment of Controllers:
– Creditors can appoint controllers to supervise the protective composition.
e) Application for Opening Bankruptcy Procedure:
– Creditors with debts of at least AED 100,000 can appeal to commence bankruptcy proceedings after a debtor fails to pay for 30 successive business days.
– Required documents include an economic and financial position memorandum, trade license, cash flow projections, creditor lists, and more.
f) Acceptance of Bankruptcy and Liquidation:
– If the debtor opts for liquidation, the court issues a judgment.
– The trustee manages asset liquidation and informs creditors.
– Debt and debts secured by lien are bound to lapse.
3. Can a Bankrupt Debtor Apply for New Finance?
With court approval, a debtor can secure new financing, with or without security. Debt repayment takes priority. Unencumbered assets can be used as mortgage security. The court may also allow protective composition or restructuring for new financing.
4. What are some of the key features of the new bankruptcy law in UAE
Key Features of the New Bankruptcy Law:
– The law establishes the Committee of Financial Restructuring (CFR) to oversee financial restructuring procedures.
– It offers four pathways to avoid bankruptcy: financial reorganization, pre-emptive settlement, financial restructuring, and raising new funds.
– It prioritizes secured creditor rights and allows companies to restructure without unanimous creditor approval.
5. Who Does the Law Apply To?
The law applies to companies under the commercial companies law, those partially or wholly owned by the federal or local government, and companies in free zones not governed by existing bankruptcy provisions. It does not cover companies in the DIFC and the Abu Dhabi Global Market or private individuals.
6. What Happens After Bankruptcy Filing?
Upon a bankruptcy filing, several outcomes are possible:
- Termination of Protective Composition: The court may order the termination of protective composition if the debtor wishes to proceed with liquidation.
- Trustee’s Role: The trustee assesses the possibility of restructuring the debtor’s business and determines whether liquidation is necessary.
- Asset Liquidation: If liquidation is required, the trustee sells the debtor’s assets through an auction, and any surplus is returned to the debtor.
7. Who oversees the bankruptcy process in the UAE?
A regulatory body, the Committee of Financial Restructuring (CFR), supervises financial restructuring outside of the courts. It appoints experts, maintains a database, and manages various aspects of the process.
8. What supporting documents are required for bankruptcy filing?
Several documents are essential, including:
- Trade license and constitutional documents.
- A memorandum explaining the financial situation and assets.
- Cash flow forecasts, creditors’ details, and property lists.
- Financial statements from the last fiscal year.
- A credit report from a competent authority.
- Nomination of a trustee to handle insolvency procedures.
Top legal consultants in Dubai can help you out in filing for the bankruptcy process and can guide you through the whole process. Reach out to them if you are thinking about filing for bankruptcy.
9. Can a bankrupt debtor secure new financing?
With court approval, a debtor can obtain new financing, prioritizing debt repayment. Unencumbered assets may serve as mortgage security.
10. What happens to debts once the bankruptcy is declared?
Upon declaring bankruptcy, debts secured by lien become null, and assets under trust, sale, or stock can be recovered. Commercial documents or Sukuk may also be recovered.
In summary, the law provides options for debtors and creditors alike, offering pathways to financial restructuring and protection under a comprehensive legal framework.
For more legal insights and assistance, don’t hesitate to reach out to a legal consultant in UAE bankruptcy law. law firms in Dubai can help you ease your filing process.