UAE Law and Practice Contributed by: Abdelhak Attalah and Ghassan Hidar, Attalah Legal Consultancy
Pre-Judgment Attachments According to Articles 133 and 135, upon issuance of the decision to initiate bankruptcy proceedings, the debtor is prohibited from disposing of its assets or managing its business. The trustee assumes control over the debtor’s assets and business immediately. Any actions taken by the debtor on the day of the deci - sion are deemed to occur after its issuance; actions contrary to this decision are considered null and void. The trustee has the authority to file lawsuits with the Bankruptcy Court to invalidate debtor actions, and can request precautionary measures to safeguard creditors’ rights. However, the debtor’s restriction does not prevent it from taking actions to protect its rights, provided they do not harm creditors’ interests. Assets exempt from the restriction include: • those legally protected from seizure; • those owned by others; • rights related to personal status; and • compensation from valid insurance contracts initi - ated before the decision to commence bankruptcy proceedings. The trustee must be reimbursed all insurance premi - ums paid by the debtor from the date determined by the Bankruptcy Court as the cessation of payments. 3. Out-of-Court Restructuring 3.1 Out-of-Court Restructuring Process Preventative settlement is a mechanism that allows debtors to maintain their business operations while negotiating and settling debts through an approved proposal with creditors. Despite this, creditors (espe - cially banks) often prefer these proceedings over stat - utory ones because they provide a transparent and low-cost process that offers the same level of legal certainty as a judicial proceeding. As a result, consensual and out-of-court restruc - turings are common, and mergers and acquisitions of financially troubled companies are frequently observed. These typically follow a thorough valuation and assessment of the company’s position and offer several advantages for both parties, such as:
• allowing debtors to retain control over the com - pany’s operations; • maximising credit recovery potential and minimis - ing recovery costs; and • preserving confidentiality about the debtor’s finan - cial distress, thereby preventing negative publicity that could damage the debtor’s reputation and allowing the business to continue operating as usual. Out-of-court proceedings typically do not include a cram-down system. However, a debtor’s preventative settlement proposal can serve as a preliminary step to prepare for a court-supervised preventative settle - ment plan. This plan can then be implemented by the Bankruptcy Court where the cram-down mechanism is available. This approach necessitates substantial support for the plan. It is important to note that precedents of consen - sual restructurings in the UAE are limited, especially considering that the New Bankruptcy Law has only recently come into force. 3.2 Legal Status Consensual restructurings are regulated under the chapter on preventative settlement in the New Bank - ruptcy Law. As a result, any such restructuring is sub - ject to the contractual terms agreed upon between the debtor and their creditors, as set forth in Article 56 of the New Bankruptcy Law. However, if the creditors reject the debtor’s proposal for a preventative settle - ment or a restructuring plan, the debtor may apply to the Bankruptcy Court to open preventative settlement procedures, provided the business is viable. Pursuant to Article 4 of the New Bankruptcy Law, bankruptcy proceedings for regulated entities may only be initiated with the consent of the government supervisory entity concerned. Article 18 stipulates that a supervisory entity may apply to open restructuring or bankruptcy procedures for any debtor under its supervision.
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