Bankruptcy Lawyers in Dubai
Whilst operating and owning a business in the United Arab Emirates, there are often instances when a company is declared bankrupt.
Business bankruptcy in the UAE is governed by Federal Law by Decree No. 9 of 2016, which came into force in December of 2016.
While previous legislation applied only to “trading”, the Bankruptcy Law is broader in its potential application and covers all companies formed under the Commercial Companies Law, and the majority of the companies that are in the free zone. However, the Bankruptcy Law does not apply to companies that are wholly or partly owned by the state, unless they have chosen to adopt the Bankruptcy Law, providing for its application in their company charters. This ambiguity also applies to companies registered by decree, since these companies are usually owned by the government either directly or indirectly through public investment companies, and therefore, it is generally exempt from the provisions of Bankruptcy Law unless chosen otherwise.
Pursuant to Article 67 of the Bankruptcy Law, if a company is unable to pay off their debts owed to their creditors, it can choose to file for bankruptcy and financial restructuring; whereby, if permitted by the court, assets of the company shall be liquidated, and financial obligations shall be fulfilled. An application for bankruptcy can be filed by the debtor if the following conditions, set out in Article 68, are met;
- Due to the debtor’s financial situation or insolvency, the debtor has failed to pay his debts on their due dates for more than 30 days in a row.
- If the debtor is reliant on a competent regulatory authority, he must explicitly notify this authority, in writing, his intention to file the application in court within fifteen (15) days before the date of the application submission. The relevant authority can then submit any further documents or pleas to the court in relation to the application.
Accordingly, by virtue of Article 69, a creditor can also open an application for bankruptcy in the court in situations whereby;
- If a creditor or group of creditors have a debt of at least AED 100,000 (one hundred thousand dirhams) and have explicitly warned the debtor, in writing, to settle the debt and it has not been settled by the debtor within 30 consecutive working days from the date of notification, the creditor or group of creditors may apply to the court to open the bankruptcy law procedures.
- If the creditor’s debt is secured by a mortgage, he or she must file an application if the amount claimed is part of the difference between the value of the secured debt due and the value of the guarantee given and does not cover the entire value of the mortgage-secured debt.
In accordance with Article 71, the authority may submit the application to the court along with evidence of the debtor’s insolvency if the debtor is reliant on a competent supervisory authority as described above in Article 68.
Certain documents must be submitted in court for the debtor to be eligible to start an application for declaring bankruptcy in the United Arab Emirates. The following are covered by Article 73 of the Bankruptcy Law;
The application must be submitted by the debtor or the appropriate supervisory authority and include the justifications listed below:
- Whether the request is for financial restructuring or to get a court decision regarding bankruptcy and liquidation; while applying, he must also offer and include justifications for this.
- a memorandum that includes a concise description of the financial and economic position, asset data, and specifics about the personnel.
- Certified copies of the debtor’s business, professional, or industrial licenses, as well as his commercial registration, both issued by the appropriate Emirate government.
- a copy of the business’s financial statements or books for the fiscal year before the application’s submission.
Furthermore, a report containing the following must also be presented in court;
- Expectations of the debtor’s cash flow, profits, and losses for the twelve months following the application’s submission.
- a declaration listing the creditors’ names, locations, amounts owed, and the guarantees promised in exchange (if any).
- a complete list of all real estate, both movable and immovable, the approximate worth of each on the date the application was submitted, and a list of any guarantees or rights granted to third parties.
If the debtor or the applicant is unable to submit any of the documents listed above, the reasons must be stated in the application. If the court believes the documents are insufficient, it may grant the applicant an extension of time to provide the additional data or documents required to support his application.
If the debtor is a corporation, the application to declare bankruptcy can still be filed even if the corporation was in liquidation or was terminated by the court, as long as its corporate personality exists. It should be noted, however, that doing the above and submitting the application to open the bankruptcy procedures in UAE may result in the suspension of settlement of any application whose goal is to liquidate the company or place it to recover and resume business operations.
Except for applications submitted by the Public Prosecution, the applicant must submit to the court, in the manner and on the date specified by the court, a sum of money or a bank guarantee of not more than twenty thousand (20,000) dirhams to cover the costs and expenses of the preliminary steps in deciding on the application. If the debtor does not have the required liquidity to deposit on the date the application is submitted, the Court may, however, postpone the deposit of the referred-to amount or guarantee.
As Experienced lawyers in Dubai especially with bankruptcy procedures, we can provide the best legal advice, so do not hesitate to contact us for further details!
