Unravelling The UAE's Bankruptcy Law

Cynthia Trench delves into the UAE’s bankruptcy law and what it means for the country’s businesses

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The absence of a legal framework for bankruptcy has long been a hindrance to UAE business.

In the past, financial problems spelled trouble for companies, as local courts could not be persuaded to offer a moratorium on debt, which would have given firms the chance to restructure their business and finance. In the absence of proper bankruptcy laws, even a bounced cheque could land an entrepreneur in jail.

It comes as no surprise, therefore, that the introduction of a new bankruptcy law in the UAE is being lauded as a huge step forward in improving the country’s economic and regulatory environment. But what does this law really mean?

What is the new bankruptcy law?

The Federal Bankruptcy Law (the ‘New Law’) was issued under the Federal Decree No 9 of 2016. It was first published in the Official Gazette on September 29, 2016 and came into force on December 29, 2016. Drafted by the Ministry of Finance, it marks a new step forward in providing a legal framework to help distressed companies in the UAE avoid bankruptcy and liquidation.

To whom does the law apply?

The New Law applies to companies and not individuals. It applies to companies that are partly or fully owned by the federal or the local government and companies and institutions established in Dubai mainland and free zones that are not governed by existing bankruptcy provisions.

It does not apply to companies established and operating within the Dubai International Financial Centre and Abu Dhabi Global Market as these financial free zones have internal legislation in place regarding bankruptcy and insolvency.

How will it help?