Is your business teetering on the edge of financial collapse? Before you lose hope, there’s a lifeline you might not know about—preventive settlement in UAE. Preventive Settlement is a legal tool designed to help struggling businesses avoid full bankruptcy. It allows a debtor to propose a plan to their creditors that could save their business and repay debts in a structured, manageable way
When Can a Debtor Apply for Preventive Settlement?
Not every business facing financial difficulties can apply for preventive settlement in UAE. There are specific situations where this option becomes available:
- Payment Troubles: If your business is struggling to pay its debts or fears that it won’t be able to in the near future, you can apply.
- Rejected Settlement Proposals: If your creditors have already turned down a previous settlement offer, or the court didn’t approve it. You must wait three months before applying again.
- Past Bankruptcy: If your business previously went through bankruptcy but has since achieved rehabilitation, you can still apply.
However, if the debt in question is already part of another ongoing legal proceeding, you cannot apply for Preventive Settlement.
What Does the Application Include?
When submitting an application for Preventive Settlement, the debtor must include several key documents and information:
- Evidence of Eligibility: You must show that your business qualifies for Preventive Settlement under the law.
- Settlement Proposal Summary: A brief outline of your proposed plan. Including how you intend to execute it and what guarantees you can offer.
- Contracts and Agreements: Any relevant contracts you intend to make with your creditors as part of the settlement.
- Creditor Details: A ranked list of your creditors, showing who gets paid first.
- Creditors’ Committee: If you’ve formed a committee representing different groups of creditors, include details about its members and their authority.
- Meeting Procedures: How you plan to call and conduct meetings with your creditors to discuss and vote on the settlement proposal.
What Happens After You Submit Your Application?
Once your application is submitted, the Bankruptcy Court steps in. Here’s what typically happens:
- Business as Usual: You continue to manage your business and assets as usual. But with one big caveat—your business must seek court approval for any actions outside normal operations.
- Claims Suspension: For three months (which can be extended up to six). All claims against your business are put on hold. This gives you breathing room to convince creditors to accept your proposal.
- End of Suspension: The suspension ends when either the court ratifies your proposal. The maximum suspension period expires, or the court decides to terminate the proceedings.
Important Points to Consider
- You may need to secure new loans to keep your business running during this period. The court can give priority to these new debts over existing ones if it’s necessary for your business survival.
- A Creditors’ Committee may be formed to represent different groups of creditors. This committee plays a key role in discussing and approving your proposal.
- Only creditors with approved debts can vote on your proposal. If a secured creditor wants to vote, they must waive their security right first.
Conclusion
Preventive settlement in UAE offers a powerful option for businesses on the brink of bankruptcy. Providing a structured way to manage debts and avoid more severe consequences. However, the process is complex and requires careful planning and legal expertise. If you find yourself facing financial difficulties. Don’t hesitate to reach out to experienced Dubai lawyers or reputable Dubai law firms. They can guide you through the process.
Stay tuned for Part 2