The UAE’s new bankruptcy laws, Federal Decree-legislation No. 51/2023, took effect on May 1, 2024, drastically altering how financially distressed companies are treated. This redesign will give investors and entrepreneurs a more dynamic and secure environment.
Consider it a lifeline for firms fighting to remain afloat. The new law provides a more simplified restructuring procedure, giving businesses a fighting opportunity to get back on track. It is a considerable shift from prior standards, intending to foster a healthy corporate ecosystem where everyone benefits.
What can be expected? Let’s explore further.
A Streamlined Approach to Bankruptcy
Creating a dedicated bankruptcy court is one of the most critical aspects of the new law. This specialised court is intended to expedite bankruptcy procedures, guaranteeing that cases are managed effectively and knowledgeably. The court wants to speed up the settlement process by concentrating on complex bankruptcy cases, minimising the uncertainties and delays that have traditionally beset such processes.
Preventive Settlement Process: An Informed Approach
The new law also includes a critical clause introducing a Preventive Settlement Procedure. Reorganising debts before they reach a crucial point allows organisations to handle financial hardship proactively. The new law does away with the deadline that the previous statute imposed on debtors to petition for preventative composition within 30 days of stopping payments. Because of this flexibility, companies can start restructuring operations at a speed that works for their unique situation, which may help to save employment and protect creditor value.
Under this approach, the Bankruptcy Court oversees the proceedings while the debtor maintains operational control over the company. In addition to allowing debtors to manage their affairs more skillfully, this strategy guarantees that restructuring activities are carried out transparently and organised.
Corporate Governance and Accountability
Additionally, the new bankruptcy legislation imposes stricter management accountability guidelines. Individuals in charge of the company’s actual management or liquidation are now included in the scope of liability, in addition to board members and managers. For activities completed up to two years before the company’s payment suspension, these people may be held accountable and subject to fines commensurate with their mistakes.
The law discourages careless behaviour and encourages good company governance by making management more liable. As a result, the company ecosystem as a whole is strengthened, and transparency is improved, making it more resilient to financial difficulties.
Consistency with Former Laws
Even though the new law replaces the 2016 legislation, continuity is maintained by keeping all resolutions and regulations enacted under the old law in effect until they are replaced. This method allows businesses to traverse the changing legal landscape with a sense of security and certainty.
A Business Environment With Greater Resilience
Before the first bankruptcy law was passed in the United Arab Emirates in 2016, company failures frequently carried harsh penalties, such as imprisonment for managers and owners. Due to the adverse effects on debtors, creditors, and the overall economy, many left the nation to avoid legal ramifications.
To solve these problems, implementing the 2016 law represented a significant advancement by giving companies additional choices for restructuring and liquidation. However, the most recent law goes one step further, offering improved channels for dealing with financial hardship and reducing unfavourable consequences for all parties involved.
The UAE’s recent bankruptcy law reforms significantly enhance the country’s business climate. By improving accountability, streamlining processes, and offering proactive restructuring options, the law fosters a more favourable environment for investment and entrepreneurship.
Key Enhancements:
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Specialised Bankruptcy Courts: Demonstrates a strong commitment to strengthening the bankruptcy regime.
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Recognition of UAE Bankruptcy Procedures: Progress made towards international recognition.
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Focus on Restructuring: Emphasis on supporting businesses and facilitating successful restructuring.
While there may be a further improvement, the new law represents a significant step forward for the UAE’s business landscape.
References
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https://u.ae/en/information-and-services/business/regulations/bankruptcy-and-insolvency/uae-law-on-bankruptcy#:~:text=(51)%20of%202023%20Promulgating%20the,composition%20procedures
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https://www.horizlaw.ae/news/federal-decree-law-no-51-2023-financial-restructuring-and-bankruptcy
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https://www.mondaq.com/insolvencybankruptcy/1491754/an-overview-of-the-new-uae-bankruptcy-law-2024
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https://www2.deloitte.com/xe/en/pages/finance/articles/a-guide-to-the-uaes-new-bankruptcy-law.html
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https://alfaisal.law/knowledge-hub/law-updates/federal-decree-law-no-51-of-2023-promulgating-the-financial-and-bankruptcy-law/
