UAE Law and Practice Contributed by: Abdelhak Attalah and Ghassan Hidar, Attalah Legal Consultancy
5.4 The Position of Shareholders and Creditors in Liquidation Rights of Set-Off
Trading DMCC v Puri [2020] EWHC 75; Invest Bank PSC v El-Husseini & Ors [2023] EWCA Civ 555; and Khaleefa Butti Omair Yousif Almuhairi, Re [2024] EWHC 535 (Ch), where recognition of Abu Dhabi- based bankruptcy proceedings was sought in Eng - land to obtain relief under the UK’s Cross-Border Insolvency Regulations (CBIR). However, since there is no long-running or established track record of successfully achieving recognition of foreign proceedings held in onshore UAE via the DIFC courts, this route should be approached with caution. 6.2 Jurisdiction Jurisdiction over insolvency cases hinges on the debt - or’s place of incorporation. Most insolvency filings in the UAE are handled by mainland courts, reflecting the fact that most businesses operating in the UAE are incorporated on the mainland. 6.3 Applicable Law Under the mainland regime, insolvency applies to individuals without merchant status and is governed by Federal Decree Law No 19 of 2019 on Insolvency. Bankruptcy, however, pertains to three specific groups outlined in Article 3 (1) of the New Bankruptcy Law: • companies regulated by Federal Decree-Law No 32/2021 on Commercial Companies and those established in free zone areas (excluding the ADGM and DIFC); • individuals engaged in commercial activities (mer - chant capacity); and • licensed civil companies of a professional nature. In the DIFC, offshore insolvency is regulated by Insol - vency Law DIFC Law No 1 of 2019, and it is governed by the Insolvency Regulations 2022 in the ADGM. 6.4 Recognition and Enforceability Unlike DIFC and ADGM laws, the New Bankruptcy Law does not follow the UNCITRAL Model Law on Cross-Border Insolvency (1997). Therefore, recogni - tion of UAE bankruptcy proceedings in other jurisdic - tions must be pursued separately.
Pursuant to Articles 224 and 225 of the New Bank - ruptcy Law, debts incurred after the decision to com - mence proceedings may not be set off unless it is based on the execution of the preventative settlement proposal, the restructuring plan or a decision by the Bankruptcy Court issued within ten days from the date of a request submitted by the trustee or creditor. Set-off agreements on a net basis are final and enforceable according to their terms and conditions, and cannot be suspended or stayed. The provisions of Federal Decree-Law No 10/2018, which applies to all Qualified Financial Contracts and Netting Agreements specified under the law, will govern set-offs on a net basis where there is no specific provision in the New Bankruptcy Law. Any remaining debt owed to the creditor after set-off will be included in the debtor’s debts and will have the same rank as the original debt. Any remaining amount owed to the debtor will be included in the debtor’s assets and will be managed by the person overseeing the debtor’s assets and business. 6. Cross-Border Issues in Insolvency 6.1 Sources of International Insolvency Law The principal legislation governing cross-border restructuring and insolvency cases involving the UAE is the UNCITRAL Model Law on Cross-Border Insol - vency (1997). However, unlike the DIFC and ADGM legislation, the New Bankruptcy Law does not adopt the UNCITRAL Model Law on Cross-Border Insol - vency. Recognition of foreign proceedings within the UAE may still be possible, albeit untested, under the “conduit” route. Using the DIFC as a conduit allows enforcing parties to bypass the stricter requirements of onshore courts, where demonstrating reciprocity of recognition with foreign courts typically requires proof in the form of an international treaty. The UAE courts’ stance on reciprocity has eased in recent years, particularly following the enforcement of UAE court judgments in England in Lenkor Energy
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