On 31.10.2023. the UAE Federal Gazette published Federal Law Decree No. (51) of 2023, ushering in a new era of Financial Restructuring and Bankruptcy laws. This landmark legislation is set to become effective from 01.05.2024. promising significant improvements and changes to the existing legal framework. Within this article, we take a closer look at the key aspects of the new regulations and upcoming changes.
Updated Definitions
The new law introduces expanded and clarified definitions, such as “related parties,” “debtor’s assets,” and “bankruptcy register.” The definition of “debtor’s assets” now encompasses all movable and immovable properties owned by the debtor, both domestically and internationally.
Preventive Settlement Mechanism
A more user-friendly “Preventive Settlement” mechanism has replaced the Bankruptcy Preventive Composition. This court-supervised process allows debtors to continue business operations and negotiate settlements with creditors without needing a trustee, providing a more flexible approach to financial restructuring.
Liability of Board of Directors
The new law extends liability provisions to de facto managers and individuals responsible for the actual management of the company. It introduces a more streamlined approach to holding company leadership accountable in bankruptcy cases, considering the degree of fault and the impact of management decisions.
Bankruptcy Unit and Financial Restructuring Committee
The introduction of a specialized Bankruptcy Unit within the Courts, overseen by a senior Court of Appeal judge, aims to enhance the resolution of bankruptcy and restructuring cases. The Financial Restructuring Committee’s role has also been expanded, focusing on various aspects of the bankruptcy process, including endorsing trustees and experts, overseeing the online platform for the Bankruptcy Register, and assisting the Bankruptcy Court.
Debtor’s Obligation
Unlike the previous law, debtors are no longer obligated to initiate bankruptcy proceedings if the conditions under the law are met, providing more flexibility in the decision-making process.
Moratorium
The new law introduces a more flexible moratorium period, staying judicial and execution proceedings against the debtor during restructuring proceedings. Labor and personal status claims are excluded from the moratorium, ensuring a balance between protecting the bankruptcy estate and allowing certain claims to proceed.
Security Enforcement
Secured creditors now have the right to enforce against secured assets through the Bankruptcy Court and appointed trustees during bankruptcy proceedings, streamlining the process and avoiding separate enforcement proceedings.
Claw Back Provisions
The new law widens the timeframe for examining debtor transactions in the context of bankruptcy, focusing on a six-month window preceding the cessation of payment and up to two years for transactions involving insiders or related parties.
Post-Bankruptcy Settlement
Detailed provisions on post-bankruptcy settlements between debtors and creditors are now included in the law, providing a structured framework for negotiations after the declaration of bankruptcy via a final judgment.
How TME Services can support your business through the UAE Employment Law
The changes to the UAE’s bankruptcy laws mark a positive step toward enhancing bankruptcy proceedings in the country. The amendments introduce more flexibility, enhanced judicial discretion, and a balanced approach to debtor actions post-initiation of bankruptcy. The reforms refine the bankruptcy process and support economic stability and resilience in challenging financial situations.
As the UAE continues to grow as a global business hub, these changes are timely, ensuring that the nation’s employment laws evolve with its dynamic economic landscape. For businesses operating in the UAE, staying abreast of these changes is crucial for compliance and maintaining healthy employment relations.
TME Services is a team of 45 professionals in legal-, tax-, accounting and compliance with over 18 years of experience. We advised a significant number of SMEs in the context of the implementation of the tax framework in the UAE and KSA over the last decade to make sure that our clients are well-oriented in the new and fast-evolving tax landscape and to reduce the legal liability of managers which may arise in connection with non-compliance.
