Bankruptcy Image Credit: Melinda Gimpel on Unsplash.com

Abu Dhabi: A UAE company has, for the first time, successfully restructured its debts under the country’s bankruptcy law.

The Abu Dhabi Judicial Department — through the Bankruptcy Department of the Abu Dhabi Court of First Instance — has allowed the company to restructure its debts and resume business under Chapter 4 of Federal Law No. 9 of 2016.

The company, which was not named, is a limited liability company (LLC) founded in 2008 “to carry out contracting work," according to a statement from WAM.

Restructuring process

Under the law, the court appointed a secretary and relevant experts to oversee the company during the bankruptcy.

According to the statement: “The secretary conducted his duties until the restructuring process was successfully completed, by paying off the company’s debts, renewing its commercial licence, and achieving liquidity at a level of five times the company’s capital, enabling it to resume its business.”

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Debt 18x capital

The company has debt in excess of 18 times its available capital and had requested the proceedings.

The UAE law “identifies different ways to avoid bankruptcy cases and the liquidation of debtors’ assets, including consensual out-of-court financial restructuring, composition procedures, financial restructuring and the potential to secure new loans under terms set by the law” and aims to assist troubled companies and protect the funds of creditors, to maintain the country’s economic and investment environment.

Chapter 4: Regulating debtor's restructuring

The court stressed that Chapter 4 regulates a debtor’s restructuring, if possible, by assisting them in implementing a restructuring plan, publicising the debtor’s bankruptcy, and fairly liquidating their assets to help them meet their obligations.

Lawyers said that the impact of Federal Law 9 of 2016 on the economy as a whole is expected to be favourable to most businesses operating in the UAE — as well as banks and other financial institutions that lend to those businesses.

What the law says: Federal Law 9 of 2016

The Federal Law 9 of 2016 applies to all private sector companies in the UAE, including those incorporated in freezones, except those companies incorporated in the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), which have their own insolvency regimes.