United Arab Emirates: The New UAE Bankruptcy Law

Last Updated: 26 July 2017
Article by Charles Laubach and Tara Jamieson


The new Bankruptcy Law of the UAE was enacted on September 20, 2016 as Decree-Law No. 9 of 2016. It was published in the Federal Official Gazette on September 29, 2016, giving it an effective date of December 31, 2016. The new Bankruptcy Law replaces and repeals the previous legislation on the subject, Book 5 of the Commercial Code, which was seldom used in light of its perceived shortcomings. Perhaps the most important new feature of the new Law is the introduction of a regime that allows for protection and reorganization of distressed businesses.

Certain key features

  • The current law relating to insolvency has been repealed.
  • Coverage is different; many entities covered by the previous law are not covered by the new Law, while the new Law covers many entities that were not covered before.
  • The Financial Restructuring Committee has been established.
  • A debtor can seek court protection and assistance while it agrees to a financial arrangement with its creditors without having to proceed to bankruptcy proceedings ("preventive composition").
  • A creditor (or group of creditors) must now have a debt owed of at least AED 100,000 before it can initiate bankruptcy proceedings.
  • The Penal Code provisions on non-fraudulent bankruptcy have been repealed.
  • Criminal proceedings relating to "bounced" cheques will be suspended for the duration of the preventive composition or restructuring procedures.
  • A debtor can raise new finance during the preventive composition or restructuring process, with court approval.

Who does the New Bankruptcy Law apply to?

Article 2 of the new Bankruptcy Law provides that it shall apply to:

  • Private sector companies:

    • All companies governed by Federal Law No. 2 of 2015 on Commercial Companies (the "Companies Law");
    • Businesses established in the Free Zones, except for the Financial Free Zones (the Dubai International Financial Centre and the Abu Dhabi Global Market), which have their own rules on bankruptcy; and
    • Licensed civil companies conducting professional activities.
  • Public sector companies:

    • Companies wholly or partially owned by the federal government or an Emirate government whose founding statutes or constitutive and governing documents provide that they shall be subject to this Law.
  • Individuals:

    • Traders.

These are significant changes. Civil companies were generally viewed as falling outside the previous law, since they engaged in "civil" as opposed to "commercial" activities. But in contrast, the public sector is now almost completely exempt from the new Bankruptcy Law, unless and until a public sector company undertakes the amendment of its founding statute or constitutive and governing documents so as to make it subject to the new Bankruptcy Law. Coverage did not change as regards sole to proprietorships; traders who were engaged in business as sole proprietorships were subject to the previous law (although this was not generally appreciated) and are subject to the new Bankruptcy Law.

Some Key Features of the New Bankruptcy Law

The Financial Restructuring Committee

Article 4 provides that the Financial Restructuring Committee will be responsible for:

  • the supervision of financial restructuring procedures of financial institutions so that the debtor's arrangements with its creditors can be appropriately agreed and managed;
  • the accreditation of experts involved in financial restructuring and bankruptcy dealings and establishment of fees and costs payable for their services;
  • the establishment and maintenance of a register for persons against whom judgments under this Law are made;
  • reporting to the Minister of Finance on the work carried out by the Committee, results achieved and any actions it proposes; and
  • any other tasks prescribed under this Law or by the UAE Cabinet.

Debtor-creditor agreement – preventive composition

Rather than having to proceed directly (or at all) to bankruptcy proceedings, preventive composition will afford the debtor the opportunity to reach an agreement with its creditors for the repayment of sums owed (Article 5), while under court protection from individual creditor claims. This option will be available to the debtor only if it has not been in default for more than 30 consecutive business days and is not insolvent (Article 6(2)). The debtor will not be able to dispose of any property, stocks or shares, make any borrowings, or (if a company) change ownership or corporate form (Article 31(1)) whilst it is undergoing this process.


The application must include, among other things, a description of the debtor's economic and financial position; details of its movable and immovable properties, employees and creditors; and cash flow and profit and loss projections for the 12 months following the date of application (Article 9).

Debtor obligations

The debtor must continue to perform its obligations under any contract, provided the Court has not issued a judgment of stay of execution due to the debtor's failure to perform its obligations (Article 34(1)). The trustee designated to facilitate the preventive composition process does have the right to request the Court to rescind any contract if that is in the best interests of the debtor and its creditors and provided that it does not substantially harm the other contracting party's interests (Article 34(2)).

Appointment and obligations of the trustee

The Court will appoint one to three trustees as designated by the debtor or appoint an expert or other person (if more appropriate) (Article 17(1) and (2)).

The trustee will be obliged to publish in two daily local newspapers (i) a summary of the decision approving the preventive composition, with a request that all creditors file appropriate claims (Article 35(1)), (ii) a list of the debts and statement of accounts accepted from each of those debts (Article 37(2)), (iii) the invitation to creditors to discuss and vote on the draft preventive composition arrangement ("Arrangement") (Article 42(3)) and (iv) once approved by the Court, the decision and summary of the Arrangement (Article 54). Ultimately, the Court will approve the final list of approved creditors, having reviewed any objections received following the publication of the debts (Article 38(1) and (8)).

The trustee will submit the draft Arrangement to the Court, who will then have five business days to make its decision to approve or reject it (taking account of any creditor objections) (Article 49(1) and (2)).

Thereafter, the trustee is responsible for supervision of the Arrangement throughout the implementation period (as described below), including submission of quarterly reports to the Court detailing progress and/or any failures by the debtor to implement the Arrangement (Article 55(1) and (2)). The trustee can apply to the Court for any amendments to be made to the Arrangement if it considers it necessary at any point during the implementation period (Article 55(3)).


The preventive composition arrangement must be implemented within three years of the date of Court approval (Article 41). This term can be extended for a further three year period if a two thirds majority of the unpaid creditors consent to the extension (Article 41).

Discharge of the Arrangement

Following a request by the trustee, and pending discharge of the debtor's obligations under the Arrangement, the Court will issue its decision confirming that the Arrangement has been entirely fulfilled. Such decision will be published in two daily newspapers, although the Law is silent as to which party is responsible for such publication (Article 56).

Conversion from preventive composition into bankruptcy procedures

At the request of an interested party, or in exercise of its own discretion, the Court may, under Article 65, initiate the termination of the Arrangement and convert it into a bankruptcy proceeding if:

  1. it is proved that the debtor was in payment default for more than 30 consecutive business days or was insolvent on the date of commencement of the preventive composition proceedings, or if this became clear to the Court during the course of the preventive composition proceedings; or
  2. it becomes impossible to apply the Arrangement, and ending the same would result in payment default for more than 30 consecutive business days or result in the debtor's insolvency. (There is no guidance as to what would constitute "impossible").

Creditor-initiated bankruptcy

Under the old regime, a creditor could initiate bankruptcy proceedings against a debtor for any amount owing (provided such creditor could provide evidence that the debtor had ceased to make payments when they fell due). Now, there is a minimum threshold of AED 100,000 before a creditor (or group of creditors) can initiate bankruptcy proceedings against the debtor, provided that such creditor has adequately notified the debtor of such debt and the debtor has still failed to repay it within 30 consecutive business days of notification (Article 69(1)). How disputed amounts will be treated by the court is not addressed.

This more debtor-friendly position can be contrasted with other jurisdictions. For example, the Insolvency Act 1986 (which applies in England, Wales and Scotland) provides for a minimum debt exceeding just £750 (approximately AED 3,400) before a creditor is able to raise insolvency proceedings against a company debtor and apply to the Court to have the company wound up.

Removal of criminal offence

Under previous law, the UAE Penal Code treated bankruptcy as a potentially criminal act, even if not accomplished by fraud. The new Law abolishes the criminal provisions relating to non-fraudulent bankruptcy, eliminating the perceived stigma under the prior law. Despite this, it is important to note that the new Law in many circumstances still provides for criminal liability of entities and persons involved in a case of bankruptcy, and the existence of these provisions may continue to give owners, directors and management significant cause for concern.

Suspension of criminal proceedings relating to "bounced" cheques

Provided the debtor has given a cheque as payment before an application for a preventive composition or restructuring arrangement has occurred, any resultant criminal proceedings will be suspended pending the outcome of those arrangements and the recipient of such a cheque will be considered to be a creditor under the relevant arrangement (Article 212(1) and (2)).

Ability to raise new finance

While undergoing the preventive composition or restructuring process, a debtor (or the trustee) has the option to apply to the Court for authority to obtain new funding (Article 181). Any "new" creditor will have precedence over any ordinary outstanding debt owed by the debtor (but providing protections for existing creditors) (Article 181(1)).


While the new Bankruptcy Law favours debtors by giving them greater flexibility and protections in the event of insolvency, it will be interesting to see how the Law is implemented in practice and whether debtors make use of its provisions. Nevertheless, the introduction of an insolvency regime which offers protection and encourages restructuring to enable troubled businesses to survive what would otherwise have been a bankruptcy situation is welcome, and is a milestone development in the UAE's business law landscape.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
BSA Ahmad Bin Hezeem & Associates LLP
BSA Ahmad Bin Hezeem & Associates LLP
Global Business Services DMCC
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
BSA Ahmad Bin Hezeem & Associates LLP
BSA Ahmad Bin Hezeem & Associates LLP
Global Business Services DMCC
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions