What is the Legislative Framework for Insolvency in the United Arab Emirates?
The legislative framework for insolvency and bankruptcy in the United Arab Emirates is codified under the two following laws.
- Federal Decree Law No. 9 of 2016 On Bankruptcy (Federal Law of 2016); and
- Federal Decree Law No. 19 of 2019 On Insolvency (Federal Law of 2019).
In addition to the above, Dubai International Financial Centre also has its own law on insolvency, called the Insolvency Law 2019, which applies solely in the jurisdiction of the Dubai International Financial Centre. We will focus our attention to the federal laws applicable in the onshore UAE.
Applicability of the Laws
It is crucial to understand the difference between the Federal Law of 2016 and Federal Law of 2019.
While the Federal Law of 2016 applies to companies and establishments, including those in the free zones which are not subject to any special provisions relating to bankruptcy, licensed civil companies of professional nature, persons having the capacity of a merchant, the Federal Law of 2019 applies to those debtors which are not the subject of the Federal Law of 2016, i.e., a physical person.
Accordingly, the Federal Law of 2019 applies to individuals whereas the Federal Law of 2016 applies to corporations and establishments, except natural individuals.
Reference to the Relevant Provisions of the Laws
Article 2 of the Federal Law of 2016, which prescribes the applicability of this law, states as follows.
“The provisions of this Decree-Law shall be applied on the following:
1-The companies subject to the provisions of the Commercial Companies Law.
2-The companies that are not established according to the Commercial Companies Law and owned in whole or in part by the Federal or local government, and of which the legislations of their establishment, their memoranda of association or articles of association stipulate that they shall be subject to the provisions of this Decree-Law.
3-The companies and establishments in the free zones that are not subject to special provisions governing the procedures of preventive composition, restructuring or bankruptcy, taking into account the provisions of Federal Law No. 8/2004 on the financial free zones.
4-Any person having the capacity of a merchant according to the provisions of the Law.
5-Licensed civil companies of professional nature.”
Further, Article 2 of the Federal Law of 2019 states as follows.
“The provisions of this Decree-Law shall apply to Debtors who are not subject to the provisions of Federal Decree-Law No. 9 /2016 above mentioned.”
Overview of the Federal Law of 2016
The Federal Law of 2016 provides a legal framework to help distressed companies in the UAE to deal with financial obligations through different mechanisms, including the following methods:
- consensual out-of-court financial restructuring
- preventive composition procedures
- financial restructuring of the debtor including restructuring of the business
- adjudication of the debtor’s bankruptcy and conducting a fair liquidation of his assets to meet his obligations.
The Federal Law of 2016 was amended by Federal Decree Law No. 23 of 2019, Federal Decree Law No. 21 of 2020 and further amended by Federal Decree Law No. 35 of 2021.
Overview of the Federal Law of 2019
This Federal Law of 2019 aims at enhancing the competitiveness of the UAE by ensuring the ease of doing business, creating favorable conditions for individuals facing financial difficulties and protecting those who are unable to pay their debts because of their bankruptcy.
The law aims to help individuals reschedule their debts and give them the opportunity to take new concessional loans, and protect them from legal prosecution, decriminalize the financial obligations of the insolvent person and give them an opportunity to work. Experts may be appointed by the court to settle the financial obligations of the debtor, through a 3-year plan.
