UAE Set to Introduce Dedicated Bankruptcy Courts for Adjudicating Cases

January 18, 2024by Reshma Rose Jacob0

UAE Bankruptcy Court according to the Federal Decree-Law No. 51/2023 comes into effect on May 1

Eliminates the need for distinct enforcement proceedings initiated by creditors

Preventive Settlement mechanism replaces the Bankruptcy Preventive Composition

In a significant stride towards enhancing the legal framework for financial restructuring and insolvency in the United Arab Emirates (UAE), the nation is poised to establish a groundbreaking Bankruptcy Court in accordance with the newly enacted Federal Decree-Law No. 51/2023, known as the Bankruptcy and Restructuring Law.

Establishment of the Bankruptcy Court

This transformative legislation, set to come into effect on May 1, 2024, represents a comprehensive overhaul of the existing legal landscape, superseding the provisions of Federal Decree-Law No. 9/2016. The upcoming Bankruptcy Court is poised to play a pivotal role in overseeing disputes related to bankruptcy and restructuring, with its judgments carrying the weight of precedents. Notably, the court is vested with the authority to stay creditor actions from the commencement of proceedings until the approval of the restructuring plan, introducing a significant shift in the legal dynamics surrounding insolvency proceedings in the UAE. This milestone development reflects the UAE’s commitment to fostering a more robust and equitable legal environment for businesses facing financial challenges, ultimately contributing to the nation’s economic resilience and growth.

The federal statute, scheduled to come to force one May 1, addressing bankruptcy and financial restructuring in the United Arab Emirates was officially announced in the UAE Gazette on October 31, 2023. Under the current legal framework, a specialized division within the Courts, led by a judge from the Court of Appeal, is assigned the responsibility of overseeing bankruptcy and restructuring cases. The recently enacted law serves to fortify and simplify this process, eliminating the need for distinct enforcement proceedings initiated by creditors.

This legal development aims to provide a protective framework for all parties involved, streamlining the procedures associated with bankruptcy and restructuring matters. With a dedicated judge at the helm, this specialized section of the Courts ensures a more efficient and cohesive approach, fostering a legal environment that is conducive to the fair and expedient resolution of cases related to financial distress and reorganization.

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Features of the Preventive Settlement Mechanism

The Bankruptcy Preventive Composition, which became obsolete due to its stringent conditions under the Old Law, has undergone a positive transformation with the introduction of the more accessible Preventive Settlement mechanism in the New Law. This welcome change is poised to receive applause from the legal community and local businesses alike.

The Preventive Settlement, now supervised by the court, revolves around procedures initiated by the debtor to sustain commercial activities and settle debts through an approved proposal with creditors. This new approach allows the debtor to maintain regular business operations and handle assets while negotiating settlement terms directly with creditors, eliminating the need for a trustee appointment.

Furthermore, debtors can now enjoy a moratorium period of 3 to 6 months from the date of accepting the petition, offering crucial breathing space to initiate proceedings. The New Law preserves the other restructuring and liquidation routes outlined in the Old Law.

Emphasis on Protecting the Bankruptcy Estate

A distinctive feature of the New Law in the UAE is its emphasis on preventing potential harm to the bankruptcy estate during the restructuring process. This signifies a proactive approach to safeguarding the interests and assets involved. By prioritizing measures to avoid damage to the bankruptcy estate, the New Law seeks to enhance the overall efficiency and fairness of the restructuring proceedings. This focus on protection aligns with the broader objective of creating a more robust and equitable legal framework that addresses the intricacies of bankruptcy cases while providing a secure foundation for the financial reorganization of entities in the UAE.

In conclusion, the establishment of a groundbreaking Bankruptcy Court in the United Arab Emirates, as facilitated by the newly enacted Federal Decree-Law No. 51/2023, marks a significant leap forward in the nation’s commitment to enhancing its legal framework for financial restructuring and insolvency. The upcoming Bankruptcy Court is poised to play a crucial role in overseeing disputes related to bankruptcy and restructuring, introducing notable shifts in legal dynamics, such as the authority to stay creditor actions and the introduction of the Preventive Settlement mechanism.

To know more visit the following web portals:

  1. https://www.lexismiddleeast.com/law/UnitedArabEmirates/DecreeLaw_51_2023/
  2. https://www.lexismiddleeast.com/news/2023-12-08_3/

About ATB Legal

ATB Legal is a full-service legal consultancy in the UAE providing services in dispute resolution (DIFC Courts, ADGM Courts, mainland litigation management and Arbitrations), corporate and commercial matters, IP, business set up and UAE taxation. We also have a personal law department providing advice on marriage, divorce and wills & estate planning for expats. Please feel free to reach out to us at office@atblegal.com for a non-obligatory initial consultation.

by Reshma Rose Jacob

Reshma is a legal consultant at ATB Legal. She is a law graduate from St. Joseph’s College of Law, Bangalore, and is enrolled with the Bar Council of Kerala.

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