Insolvency Proceedings in UAE

Insolvency Proceedings in UAE

Insolvency Proceedings in UAE

Insolvency Proceedings in UAE

In the United Arab Emirates (UAE), Federal Law No. 9 of 2016 on Bankruptcy (the Bankruptcy Law”) governs insolvency procedures for companies domiciled in UAE. Historically, most corporate insolvencies have been resolved through consensual restructuring of a debtor company’s liabilities. However, the new laws on Bankruptcy streamline and modernizes UAE insolvency law and, place a new emphasis on the early restructuring of indebtedness for distressed companies.  There are two main types of insolvency procedures covered by law: (i) a court-based debtor-led composition process (which is to be used by a company that is in financial difficulties but is not yet technically insolvent); and (ii) formal bankruptcy, which itself comprises a rescue procedure within bankruptcy or liquidation.

Preventive Composition Procedure ("PCP")

The purpose of the Preventive Composition procedure, as per article 5 of the Federal law, is to assist a debtor to reach settlements with his creditors under a preventive composition scheme, under the supervision of the court and by the assistance of a composition trustee appointed according to the provisions of the section.

This PCP Model was drafted based on the French Sauvegarde model which states that only a debtor can apply to the Court for Preventive Composition. According to its Article 6, a debtor for the purpose of this procedure is a person:


  • who is having financial problems but is not yet bankrupt or
  • who has been in a state of over-indebtedness or payment cessation for fewer than 30 consecutive business days, proposes a compromise to its creditors.

This application for Prevention Composition is then submitted to the court under Article 9 and 11 of this Decree Law along with the list of documents and data as prescribed under the articles, stating the reasons for submitting the same. Furthermore, the application must also be accompanied by a shareholders' resolution approving the PCP application.

However, in case a debtor has already undergone a PCP procedure during the previous year or has already begun bankruptcy proceedings then PCP cannot be requested.

After a debtor has applied for PCP and submitted the required paperwork, the Court then under article 13, appoints an expert to prepare a report on the debtor's financial situation, assessing whether the requirements for PCP to start are met and whether the debtor has enough money to pay for the PCP process' costs. If the Court grants the application, a moratorium on creditor actions will take effect right away.

In furtherance to the report such generated, the Court, as per article 17, shall appoint a trustee from the natural or juristic persons designated according to paragraph (1f) of Article 9 or one of the experts enrolled in the table of experts, as according to Federal Law No. (7) of 2012. Afterwards, the Creditors are requested to file proofs of claim to vote on the compromise by a claims bar date after the entry into the PCP procedure has been made public.

The debtor keeps running its company throughout the PCP, but with the officeholder's oversight, as per Article 26 of this Decree Law; wherein the officeholder has extensive authority over the preservation of property and the continuing (or otherwise) of the debtor's business, which may be used as needed.

Furthermore, under the direction of the officeholder, the debtor is given some time to come up with a restructuring strategy. The restructuring plan must comply with the New Law's requirements as per Article 41, which include a time limit of three years (unless the required number of creditors approves an extension). After the Court has evaluated the plan and given permission to hold creditors' meetings, creditors will vote on the proposal. A majority representing at least two-thirds of the value of each class must vote in favour of the plan to pass. If the plan is approved by the required majority of creditors and the Court, the dissenting minority of creditors (whether they voted or not) will be bound by the PCP plan. An election cannot be "crammed down" by one voting class onto another.


The bankruptcy process is split into two elements: (i) a rescue process within formal bankruptcy proceedings ("rescue within bankruptcy"), which is procedurally similar to the PCP (including an automatic moratorium and ability to raise DIP funding); and (ii) a formal liquidation procedure.

When must a bankruptcy filing be made and who can file?

By cumulatively studying Articles 68 and 69 of this Decree law, it can be understood that a firm is required to file for bankruptcy:

  • If it has been in a state of "cessation of payments" on outstanding and payable debts or (ii) "over-indebtedness" for 30 consecutive business days. Together with the application, a shareholder resolution approving the filing must be submitted to the Court.
  • If a statutory demand in the minimum amount of AED 100,000 has been served and has gone unpaid for 30 consecutive business days, a creditor may file for bankruptcy on behalf of the corporation.
  • In certain predetermined situations, the Court or a regulator may also begin the bankruptcy process.

After applying for bankruptcy and submitting the relevant papers, a Court-appointed expert, under Article 77 will create a report on the debtor's financial status, evaluating if the prerequisites for bankruptcy procedures to begin are met; and whether the debtor has adequate funds to bear the costs of the process.

If the Court grants the application under Article 78, there will be an immediate moratorium on creditor actions (except secured claim enforcement, which may occur with the Court's permission) and the debtor will be under the supervision of one or more officeholders chosen from the FRC's list of experts and, if necessary, one or more supervisory judges, as stated under the article 83 of this Decree law.

The announcement of the bankruptcy filing and summary of the court decision is published by the appointed trustee in the widely spread daily newspapers; one in Arabic and the other in English including an invitation to the creditors to file proofs of claim and the supporting documents, under article 88. Herein, the respective article indicates that such claims shall be submitted within not more that twenty (20) business days from the day of publication.


After the bankruptcy filing, the officeholder assumes control of the debtor's business and is given extensive authority over the preservation of assets and the continuance (or not) of the enterprise. In order to examine any restructuring plan and to make communication with the larger group of creditors easier, creditor committees may also be constituted from different creditor classes (such as unsecured or secured).

The officeholder prepares a report on the debtor's business under article 96 to be submitted to the Court, in consultation with the debtor. The report is then given to creditors for comment after the Court is happy with it, followed by a hearing that is attended by the officeholder, any expert, the debtor, any creditors' committee, and the creditors. The court will order either the debtor to be liquidated or the creation of a restructuring plan for creditors to vote on at this hearing.

Moreover, if the Court mandates the creation of a restructuring plan under article 99, the procedural factors discussed above in connection to the PCP process (about voting/approval of the restructuring plan, the length of the "observation process," DIP finance, and ipso facto provisions) are also applicable to rescue inside the bankruptcy process.

Therefore, the insolvency procedure is a contemporary and comprehensive insolvency framework in the UAE, but its final success is determined by how it is implemented in practice.

Related Posts

Start typing to see posts you are looking for.


We, the LegalLands LLP , are a family of exceptional professionals with expertise in the fields of law, taxation, business administration, consultation services, etc. We understand your problems and work to the best of our abilities, tailoring our knowledge and expertise to your specific interests and needs, to arrive at the best suitable solutions to your problems. Our aims are to cater to your needs rather than viewing these needs as opportunities to enrich ourselves at your cost!
LegalLands LLP, and its team of professionals over a very short span of time, have amassed a huge plethora of achievements, knowledge base, expertise, and client base that stands second to none in the varied fields in which we offer our professional services. We thank all those who were part of our journey and progress through these years and we especially thank our client base for their continuous and unwavering faith in us.
We look forward to many more engagements with you which keep adding value to your lives.
Together and onwards we march on toward new milestones in our illustrious journey.


Managing Partner

Legallands LLP