With UAE Cabinet’s approval this week of an insolvency law that regulates cases involving individuals facing financial difficulties, the legal framework is now set to better ensure the rights of both creditors and debtors, according to the Ministry of Finance.
“This law creates a safe environment for personal loans to the satisfaction of both the creditor and the debtor, as it provides the balance to ensure the rights of both creditor and debtor,” Younis Haji Al Khoori, Undersecretary of the Ministry of Finance, told reporters in Abu Dhabi.
“The law thereby encourages increased cash flows and attracts small and medium-sized investments to the state,” he added.
These are the key details of the law, based on additional information from the Ministry of Finance:
· The new legislation is expected to make it easier for individuals to obtain loans, as there are clear and easy-to-apply rules for the collection of bad debts and rehabilitation of debtors financially. This improves creditor banks’ confidence in retail lending and encourages individuals to engage in calculated borrowing.
· The law ensures the protection of the debtor’s dignity as a natural person (that is, an individual, rather than a company or organization) and helps create an opportunity for them to reduce their financial burden.
· The law provides two means to address the insolvency of individuals: first, by possibly settling financial obligations, and second, through insolvency and liquidation of funds.
· The debtor can file an application with the court for an opportunity to settle their financial obligations, and the court will appoint one or more experts to assist them during these proceedings.
· When preparations begin on a plan to reorganize and settle financial obligations, the settlement plan shall be voted on by the creditors.
· The debtor may choose the second option (of liquidating their funds to pay their debts) if they have stopped paying any of their debts on the due dates for more than 50 consecutive working days due to financial inability.
· In the event of liquidation of funds, a trustee shall be appointed to control and facilitate the liquidation of the debtor’s funds.
· Funds excluded from liquidation procedures are pension or social benefits provided to the debtor as well as funds required by the debtor to meet their basic needs and those of their dependents. The latter amount is specified by the court.
· The period for the execution of the financial liability settlement plan may not exceed three years from the date of the ratification of the plan by the court.
(Reporting by Nada Al Rifai; editing by Seban Scaria)
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