Since its introduction in 2016, the UAE’s bankruptcy law has seen multiple updates to make it more efficient. The latest revisions are focused on balancing the needs of both debtors and creditors more effectively.

A key development is the introduction of the Preventive Composition Plan. This new feature allows debtors to request court assistance without needing to appoint a trustee, provided they can continue running their business. The court is now required to establish a set date marking when the debtor's payments are halted. During the restructuring process, a moratorium is in place to suspend debt enforcement actions. While a restructuring plan needs approval from the majority of creditors, the court still has the authority to endorse it even if creditors vote against it.

The fact that debtors can now move forward with a court-approved restructuring plan, even without creditor consent, is a notable shift. This provision enables businesses to implement plans that are in their best interest, as long as they do not unfairly impact creditors in comparison to a potential liquidation scenario.

For creditors, this adjustment provides a strong incentive for fair negotiations. Since rejected plans can still receive court approval, creditors are encouraged to work toward mutual agreements in good faith, knowing they could lose control over the outcome if they don’t.

Another change is the expansion of powers granted to bankruptcy courts. Courts can now take preventive measures, such as suspending claims against debtors before a final ruling is made. These measures take effect immediately, barring any suspension by higher courts, ensuring urgent issues affecting a business’s operations are addressed promptly.

Ongoing cases that haven’t yet been resolved will now fall under the updated law. Companies involved in these cases should be prepared for how these changes may impact their restructuring strategies.

Moreover, managers and board members are now held personally responsible for any improper actions taken within two years prior to the debtor’s cessation of payments. This amendment highlights the importance of maintaining proper records and avoiding decisions that could jeopardize creditors' rights.

Both debtors and creditors, along with their legal counsel, must familiarize themselves with these legal changes and their implications. Seeking professional guidance is essential to navigate the new framework and ensure compliance.

Finally, businesses looking to restructure their debts should refrain from finalizing agreements outside formal bankruptcy proceedings unless all creditors are fully on board. Settlements should be overseen by a trustee and sanctioned by the court to avoid potential disputes.

In summary, the revised law aims to streamline the bankruptcy process and address real-world challenges. These changes are expected to enhance the business climate in the UAE by making bankruptcy proceedings more efficient.

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Source: 

UAE Legislation. (2023). Federal Decree-Law No. (51) of 2023 Promulgating the Financial and Bankruptcy Law. Retrieved from UAE Legislation.