UAE Law and Practice Contributed by: Abdelhak Attalah and Ghassan Hidar, Attalah Legal Consultancy
1. Overview of Legal and Regulatory System for Insolvency/Restructuring/ Liquidation 1.1 Legal Framework There are two court systems in the United Arab Emir - ates (UAE): • the mainland “onshore” courts, which operate under a civil law system and apply the mainland or “onshore” regime, comprised of federal laws; and • the “offshore” courts, comprising the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC), which both operate under a common law system and each apply their own “offshore” regime. It is important to note that both bankruptcy and insol - vency signify financial distress, but their definitions and applications differ in the mainland system com - pared to the “offshore” system and other jurisdictions. For the mainland regime, insolvency is a legal pro - cess for individuals who do not have the capacity of a merchant, and is governed by Federal Decree Law No 19 of 2019 on Insolvency. Conversely, bankruptcy applies to three specific categories outlined in Article 3 (1) of Federal Decree-Law No 51/2023 Promulgating the Financial Reorganisation and Bankruptcy Law (the “New Bankruptcy Law”): • companies subject to the provisions of Federal Decree-Law No 32/2021 on Commercial Com - panies and companies incorporated in free zone areas (excluding the ADGM and DIFC); • any individual with the capacity of a merchant – ie, anyone engaged in commercial activities; and • licensed civil companies of a professional nature. Offshore insolvency in the DIFC is regulated by Insol - vency Law DIFC Law No 1 of 2019, and by the Insol - vency Regulations 2022 in the ADGM. Regarding the recognition of UAE bankruptcy pro - ceedings in other jurisdictions, the New Bankruptcy Law, unlike the DIFC and ADGM legislation, does not adopt the UNCITRAL Model Law on Cross-Border Insolvency (1997), which provides a procedure-based framework designed to streamline cross-border insol -
vency proceedings. Consequently, separate recogni - tion of the UAE bankruptcy process will still need to be obtained in foreign jurisdictions. 1.2 Types of Insolvency The UAE has revamped its bankruptcy law to empha - sise restructuring and preserving businesses rather than proceeding directly to liquidation. This shift has resulted in the introduction of mechanisms aimed at facilitating the recovery process for both creditors and debtors. One significant aspect of the updated law is the preventative settlement, which replaced the preventative composition regime featured in the old bankruptcy law. The preventative settlement is a court-supervised mechanism that allows debtors to maintain their business operations while negotiating and settling debts through an approved proposal with creditors. To be eligible for the preventative settlement, debtors must not have ceased to pay their due debts for more than 60 consecutive calendar days, as set forth in Arti - cle 15 (1) of the New Bankruptcy Law. Under this new regime, the debtor retains control over business oper - ations and assets while negotiating settlement terms with creditors, without the need for a court-appoint - ed trustee. In addition, the debtor may benefit from a moratorium period of three to six months from the date of the court’s acceptance of the petition to initiate proceedings. While the debtor continues to manage the business, all legal actions against them are halted from the date the court accepts the application until either the restructuring plan is ratified or ten months from the court’s acceptance, whichever comes first. It is important to note that other restructuring and liquidation options from the old law remain available under the new law. Therefore, if the preventative set - tlement is unavailable, the debtor may be subjected to restructuring or bankruptcy. Applications for these procedures can be initiated by the debtor, creditors or the supervisory entity (if the debtor is subject to one). 1.3 Statutory Officers The types of statutory officers who may be appointed in proceedings include the following.
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