CORPORATE INSOLVENCY REGIME IN UAE

UAE has multiple options when it comes to Corporate Insolvency. This article is the first in a series, detailing Corporate Insolvency options in UAE. ADGM being one of the most advanced in the country, with certain provisions comparable to U.S. options, is being examined in the first one of the series.

The Abu Dhabi Global Market (“ADGM”) is a financial free zone in the UAE. It allows for 100% foreign ownership of businesses and is empowered to create its own legal and regulatory framework for all civil and commercial matters. ADGM is broadly based on English Common Law.

Table of Contents

Enforceability

One of the main advantages of Judgements issued by the ADGM Courts is enforceability. These judgements are enforceable outside of ADGM in mainland Abu Dhabi through Abu Dhabi Judicial Department and in the other Emirates of UAE by virtue of relevant MOUs signed between ADGM and respective judicial authorities. When it comes to Insolvency with cross border issues to be considered, the good news is that UNCITRAL Model Law on Cross Border Insolvency is applicable to ADGM.

Can Mainland Companies benefit from ADGM Regime

ADGM provides for maintaining branch licenses in the mainland. As such, mainland companies have the option to shift their domicile to ADGM and benefit from its regime, while continuing the mainland business through the concept of branches. Companies having a domicile in the ADGM are subject to the legal and regulatory framework of ADGM and are under the exclusive jurisdiction of ADGM Courts.

Funding Options

One of the unique and powerful features of ADGM is provision for priority funding. Similar to the debtor-in-possession (DIP) funding under the US Model, Chapter 9A of ADGM’s Insolvency Regulations provides for priority funding. This enables lenders to extend additional funds to struggling companies, with highly powerful protections for newly extended borrowing. From a company’s perspective, option for additional funding helps to revive the business, which other wise would have fallen into insolvency and loss of value to the creditors and to business owners. In distressed restructurings, best interests of the stakeholders will be served if the company continues to trade as a going concern, which requires new financing where liquidity is tight. Providing financing to a distressed company is difficult. Therefore, under Chapter 9A, an independent administrator may now apply to the ADGM Court to approve financing which ranks alongside or ahead of existing secured creditors and provide an additional route to rehabilitation.

Broad scope of ADGM Insolvency regulations

ADGM insolvency regulations broadly provide for the following options:

Administration – a process to save the business

In layman’s terms, Administration is a process whereby an Administrator is entrusted with the task of running the company. This happens when there is a potential to rescue the Company as a going concern, to achieve better results for Company’s creditors or to realise property of the Company to distribute among secured or preferential creditors. Administrator can be appointed by an order of the ADGM Court. Alternatively, the Company, its directors or the holder of a qualifying charge can appoint an Administrator under the relevant provisions. To manage its liabilities towards creditors, a Company under ADGM Administration could enter into Deed of Company Arrangement between Company and its creditors. A company in Administration can also enter into settlement arrangement with its creditors which is a binding arrangement under which creditors’ claims are compromised. Once a company is under administration, there is a moratorium on all other legal processes which is a powerful provision, preventing hostile creditors including banks, suppliers or even the landlord from taking actions against the Company. At the same time, it provides for additional protections to creditors and suppliers who continue to support the business under Administration.

Receivership

Receivership is a process whereby an office holder is appointed with a purpose to sell any part of the Company’s secured assets to clear its debts due to a secured creditor. ADGM regulations also provides for an administrative receiver, as compared to ordinary receiver. Administrative receiver has wider scope and can take over the management of the business.

Winding up / Liquidation

Winding up / Liquidation is a process whereby dissolution of a company is made effective and its assets are distributed through a Liquidator. Under the ADGM regulations, winding up can be voluntary or through Court order. Voluntary winding up can be either through members’ voluntary winding up or creditors’ voluntary winding up. Winding up may be approved by the Court if:

the company has passed a special resolution for winding up;
the company is unable to pay its debts;
the court is permitted to make the order pursuant to any provision of ADGM laws; or
the court is of the opinion that it is just and equitable to wind up

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Disclaimer

The opinions expressed in this blog are those of the respective authors. ATB Legal does not endorse these opinions. While we make every effort to ensure the factual accuracy of the information provided in our blogs, inaccuracies may occur due to changes in the legislative landscape or human errors. It is important to note that ATB Legal does not assume any responsibility for actions taken based on the information presented in these blogs. We strongly recommend verifying information from official sources and consulting with professional advisors to ensure its accuracy and relevance to your specific circumstances.

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