UAE Law and Practice Contributed by: Abdelhak Attalah and Ghassan Hidar, Attalah Legal Consultancy
Effect of judicial sale After the judicial sale of the vessel, mortgages are extinguished. The sale proceeds are dis - tributed based on the court’s priority ranking of claims, which may include the assistance of an appointed expert to allocate the funds accord - ingly. Mortgages are not carried forward with the vessel once she is sold, and their claims are sat - isfied based on the order of registration. 4.11 Insolvency Laws Applied by Maritime Courts Insolvency and Bankruptcy Framework in the UAE The UAE operates two distinct court systems, each having its own regime for handling insol - These courts follow a civil law system and apply federal laws. Insolvency applies to individuals without merchant status and is governed by Federal Decree Law No 19 of 2019 on Insolven - cy. Bankruptcy applies to certain entities, includ - ing companies under Federal Decree-Law No 51 of 2023 (the “Financial Restructuring and Bank - ruptcy Law”), which governs bankruptcy for: • companies subject to Federal Decree-Law No 32 of 2021 on Commercial Companies and those incorporated in free zones, except Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC); • individuals with commercial activities (mer - chants); and • licensed civil companies of a professional nature. Offshore Courts (ADGM and DIFC) These courts operate under a common law sys - tem and their own respective legal frameworks. vency and bankruptcy cases. Mainland “Onshore” Courts
In the DIFC, insolvency is governed by DIFC Law No 1 of 2019 (the “Insolvency Law”). In the ADGM, insolvency is regulated by the Insolvency Regulations 2022. While the UAE’s insolvency and bankruptcy laws aim to provide a legal framework for restructur - ing and reorganisation, they do not have a direct equivalent to Chapter 11 of the United States Bankruptcy Code, which allows for debtor-in- possession reorganisation. Arrest and Judicial Sale of a Vessel During Bankruptcy Regarding the arrest and judicial sale of a ves - sel owned by entities undergoing bankruptcy proceedings, once bankruptcy proceedings are initiated in the UAE under Federal Decree Law No 51 of 2023, the competent bankruptcy court takes over the process. As part of this process, individual creditor claims and lawsuits (including those seeking ship arrests) are typically stayed. This means that creditors cannot usually initiate actions such as vessel arrests or judicial sales once bankruptcy proceedings have been initiat - ed. However, the bankruptcy court may provide specific relief in certain cases, but in general, such actions are prohibited while the bankruptcy process is underway. The UAE does not have specialised admiralty courts. Instead, maritime claims are treated as commercial disputes and are handled by the general judiciary. Thus, in case of bankruptcy, they are handled by the competent bankruptcy court and once bankruptcy proceedings are underway, the bankruptcy court takes over, and maritime arrests or judicial sales of vessels are generally prohibited unless specific relief is granted.
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