UAE Law and Practice Contributed by: Arsalan Tariq, Nil Acar and Ahmed Kamran, BSA LAW
Central Bank or Government-Led Resolutions (Sector-Specific) In regulated sectors such as banking and insurance, distressed financial institutions may be subject to regulatory resolution mechanisms under the author- ity of the UAE Central Bank or other sector-specific regulators. These may involve supervisory interven- tions, forced mergers or asset transfers, though such mechanisms are not transparent or commonly applied It is worth noting that DIFC and ADGM offer greater legal flexibility for consensual restructurings, includ- ing: • schemes of arrangement under English law-derived frameworks; outside systemic risk cases. DIFC and ADGM Practices • the use of administration-like processes; and • greater support for pre-pack arrangements and out-of-court agreements. Some UAE onshore companies with links to DIFC/ ADGM entities or governing law clauses may explore such frameworks as part of a group-level restructur- ing strategy. Common Practice and Limitations Out-of-court restructuring is widely used in the UAE, especially in: • family-owned conglomerates; • real estate and construction sectors; and • SMEs with concentrated bank debt. However, challenges include: • lack of creditor co-ordination in multi-lender situa- tions; • absence of binding mechanisms outside court processes; • risk of individual creditor enforcement disrupting informal negotiations; and • difficulty in reaching consensus with diverse stake- holders.
ers are made only after all higher-ranking claims are satisfied in full. 7.3 Length of Insolvency Process and Recoveries The duration and effectiveness of insolvency proceed- ings in the UAE vary considerably depending on the type of procedure (preventive composition, restructur- ing or liquidation), the complexity of the debtor’s oper- ations, and the level of co-operation from creditors and other stakeholders. The introduction of Federal Decree Law No 51 of 2023 on Financial Restructuring and Bankruptcy and the establishment of a dedicated Bankruptcy Court in 2025 are expected to improve procedural efficiency, though practical implementa- tion is still evolving. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency While the UAE’s formal insolvency framework is gov- erned by Federal Decree Law No 51 of 2023, there is no codified regime for out-of-court corporate res- cue or reorganisation. Nevertheless, informal work- outs and consensual restructurings are widely used in practice as a pre-insolvency solution, especially in large, multi-creditor or cross-border scenarios. Informal Workouts and Standstill Agreements Companies in financial distress often enter into vol- untary negotiations with creditors to restructure debt obligations without initiating formal court proceed- ings. Common techniques include: • standstill agreements to halt enforcement or litiga- tion; • rescheduling or refinancing of loan terms; • debt-for-equity swaps (typically among sharehold- er-affiliated creditors); • asset sales to raise liquidity; and • partial settlements or write-downs negotiated bilat- erally or with a steering committee of lenders. These arrangements are generally contractual and not regulated by statute. Their enforceability depends on mutual agreement and the good faith co-operation of creditors. There is no formal court oversight, although parties may use mediation or expert facilitation in some cases.
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