25 October 2016

By Shane McGinley

The president of the United Arab Emirates (UAE) Sheikh Khalifa Bin Zayed Al Nahyan has issued the long-awaited federal bankruptcy law, which is expected to be enacted in the first quarter of 2017.

“#UAE President issues a decree on federal law number 9 on 2016 on bankruptcy,” the Dubai Media Office said in a post on its official Twitter account on Monday.

Exact details of the decree will be published in the Official Gazette, according to the state news agency WAM, but some aspects of the new legislation have already been made public.

The new insolvency law was approved by the UAE president last month and is expected to be enacted in the first quarter of 2017, Dubai-based legal firm Al Tamimi & Company said in a statement earlier this month.

The UAE does not have modern bankruptcy regulations and under existing legislation, unpaid debt or the issue of a bounced cheque can lend businessmen in jail, according to a Reuters report.

Al Tamimi said that under the new law a restructuring and bankruptcy committee would oversee the process, which would apply to four categories of traders and companies facing financial difficulties: corporate entities, service companies, and individuals who conduct business for profit. The government would be excluded from the law.

Those undergoing the proceedings would have three options: restructuring, preventative composition and bankruptcy. Restructuring would initially see companies investigated outside of the court by the committee to see if they can be salvaged and could avoid bankruptcy proceedings, Al Tamimi & Company said.

Preventative composition involves action taken through the courts to protect the assets of the creditors, while the last and final option available is full bankruptcy proceedings through the courts.

“The strong emphasis on restructuring suggests that traders should be given the chance to restructure, pay their debts and avoid bankruptcy – this provides a better avenue for financially at-risk traders than bankruptcy itself, on which the previous law was based,” Essam Al Tamimi, senior partner and founder of Al Tamimi & Company, said in the statement.

The UAE English daily, The National, reported on Monday that the new law would not apply to companies registered in the Dubai International Financial Centre and the Abu Dhabi Global Market, or to private individuals.

Creditors can activate proceedings against a company undergoing financial strain if they have outstanding debts of 100,000 dirhams ($27,226) for more than 30 days, said The National, citing a copy of the new law.

The new legislation contains provisions blocking creditors from applying criminal charges against executives of insolvent companies for bounced cheques, when the company is undergoing a court-mandated restructuring process, the newspaper said.

© Zawya 2016