UAE Introduces New Bankruptcy Law
10th January 2017
The UAE’s Bankruptcy Law, Law No. 9 2016 was decreed in late September 2016, coming into effect at the end of December 2016, three months after being published in the Official Legal Gazette.
The new law is applicable to onshore companies setup in the UAE in accordance with the Commercial Companies Law No. 2 2015 and most free zone companies (free zone companies in DIFC and ADGM are governed by those jurisdictions’ own regulations). It is intended to assist companies in financial distress to avoid collapse. It gives clarity to both distressed companies and creditors about how to proceed in the relevant circumstances and thus is intended to boost confidence, especially among SMEs looking to invest in the UAE.
A new regulatory body called the Committee of Financial Restructuring (CFR) will oversee the financial restructurings of companies.
Struggling companies will the options of financial restructuring, where debts are restructured in accordance with creditors holding a minimum of 2/3 of the outstanding debt (overseen by the courts); financial settlement whereby the distressed company agrees a settlement with the creditors (overseen by the courts); and, the raising of new funds (agreed with the courts).
Distressed companies, unable to pay their debts within 30 business days, are required to initiate insolvency procedures. Failure to do so may result in a disqualification order - but it is not a criminal offence.
Creditors will be able to initiate insolvency proceedings against companies where debts of Dh100,000 or more are unpaid for more than 30 days.
When a company is undergoing a mandated financial restructuring, creditors will not be able to apply criminal charges against the executives of the company for bounced cheques.
Penalties for non-compliance could result in directors facing imprisonment and fines. Directors of companies which are wound up by court order should note that it is an offence to give preference to certain creditors; sell company assets at less than market value; and provide non-core business activities for which the company is not licensed, particularly if they added to the company’s financial distress.
If you are unsure how the new Bankruptcy Law affects your existing Abu Dhabi or Dubai business and its key personnel, we strongly advise that you seek legal consultation.
The above information is purely intended as an overview and does not constitute legal advice. It is strongly recommended that professional advice and assistance is sought from tax specialists in relation to your specific business.
Written by Jenny Hunt, Founding Partner & CEO
Gateway Group Of Companies, Abu Dhabi & Dubai UAE
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