UAE Law and Practice Contributed by: Arsalan Tariq, Nil Acar and Ahmed Kamran, BSA LAW
was established in July 2025 under Federal Decision No 39 of 2025, providing a dedicated judicial forum for insolvency matters. The Bankruptcy Law applies to commercial compa- nies, civil companies with professional licences, and individual traders, but excludes entities regulated by the UAE Central Bank, as well as DIFC and ADGM entities, which are subject to their own legal regimes. Main Procedures Under the New Bankruptcy Law Preventive settlement Replacing the former “preventive composition”, this process allows debtors who are facing financial dif- ficulties but are not yet insolvent to restructure debts via a court-supervised process. Debtor in possession control is retained, and creditor enforcement actions are typically stayed during this process, subject to limited exceptions with court approval. Restructuring proceedings Available where the debtor is insolvent but restructur- ing remains viable, a court-appointed trustee over- sees the process, including preparation of a restruc- turing plan, negotiation with creditors, and potential asset sales. A moratorium applies, and enforcement by secured creditors may be restricted, depending on the asset’s role in the reorganisation. Liquidation If restructuring is not feasible, the court may order liquidation. A trustee is appointed to dispose of the debtor’s assets and distribute proceeds to creditors in accordance with statutory priorities. While secured creditors have priority over the proceeds of their col- lateral, enforcement generally occurs through the liq- In respect of temporary moratoria, preventive settle- ments and restructuring proceedings trigger automat- ic stays on creditor enforcement, including secured claims, unless otherwise authorised by the court. Secured creditors’ rights uidation estate rather than direct action. Additional considerations for lenders While secured lenders retain priority over collateral proceeds, enforcement may be delayed and subject
to judicial supervision, particularly where the asset is essential to the debtor’s operations. Clawback and avoidance The law includes provisions for the invalidation of pref- erential, undervalued or fraudulent transactions made prior to the onset of insolvency. These may include guarantees or security granted shortly before pro- ceedings. Director and officer liability Managers may face civil or criminal liability for wrong- ful trading, mismanagement or failure to initiate pro- The newly established court is expected to streamline insolvency procedures, ensure consistency in rulings, and provide a dedicated forum for complex creditor- debtor disputes. This is anticipated to improve trans- parency and predictability for both domestic and for- eign lenders. 7.2 Waterfall of Payments Under Federal Decree Law No 51 of 2023 on Financial Restructuring and Bankruptcy, the statutory order of priority in liquidation proceedings is as follows. • Secured creditors – paid from the proceeds of the secured asset, up to the value of their security. Any unsecured shortfall ranks alongside general unsecured claims. • Preferential creditors, which include: (a) judicial fees, trustee expenses and costs necessary to preserve or realise the bankruptcy estate; (b) government dues and taxes; (c) employee wages and end-of-service benefits (typically limited to entitlements for up to three months); and (d) experts’ fees incurred during restructuring or liquidation, where authorised. ceedings in a timely manner. Specialised bankruptcy court • Unsecured creditors – these rank below secured and preferential creditors and share pro rata in any remaining assets. • Subordinated creditors and shareholders – any distributions to subordinated lenders or sharehold -
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