On October 31, 2023, the UAE published the new Federal Law Decree No. 51 of 2023 on Financial Restructuring and Bankruptcy (“New Law”) in the Federal Gazette, effective from May 1, 2024. This law supersedes the 2016 Bankruptcy Law, but existing regulations will remain until new ones are introduced.
The New Law introduces significant changes, particularly the replacement of the Preventive Composition tool with a more flexible Preventive Settlement mechanism. This court-supervised process allows debtors to continue operations and negotiate settlements with creditors without appointing a trustee, alongside a 3 to 6-month moratorium.
Updated definitions in the New Law, such as debtor’s assets, now encompass all properties owned by the debtor, both locally and internationally. Additionally, the law allows for the appointment of experts and auditors by the judiciary to assist the Bankruptcy Court, with their fees covered by the judiciary’s budget.
Significant is the introduction of the Bankruptcy Unit, a specialised division within the Courts, to oversee bankruptcy and restructuring cases. This unit will process requests, notify parties of court decisions, and ensure compliance with legal requirements. The Financial Restructuring Committee’s (FRC) role is also expanded to oversee the Bankruptcy Register online platform and endorse trustees and experts.
The New Law also revises the debtor’s obligation to initiate bankruptcy proceedings, making it non-mandatory, and extends the moratorium on creditor actions during restructuring. It empowers secured creditors to enforce against assets during bankruptcy proceedings through the Court.
A notable addition is the concept of bankruptcy for de facto companies, treating partners similarly to those in partnership companies. The law also holds directors/managers, accountable for bankruptcy-related decisions, considering their level of fault and actions two years prior to proceedings.
Additionally, there are provisions for lifting security in restructuring plans and a new approach to assessing debtor transactions, focusing on a six-month window before cessation of payment and extending to two years for insider transactions.
Finally, the law revises restrictions on debtor actions post-initiation of bankruptcy proceedings, allowing for essential payments subject to court approval. The set-off provisions reference Federal Decree Law No. 10 of 2018 on Netting, and detailed post-bankruptcy settlement provisions are included.
In conclusion, these reforms aim to create a more balanced, business-friendly bankruptcy system in the UAE, enhancing economic stability and resilience.