How to deal with Bankruptcy/ insolvency / liquidation in UAE?


Issuing strong bankruptcy laws is involvedly associated with the economy, commerce and it is enacted to prevent many frauds. These frauds are generated when parties do not make payments to creditors by initiating bankruptcy proceedings. The prime objective of the enactment of the bankruptcy laws is to safeguard the creditors’ interests. In Dubai, commercial lawyers deal with insolvency, bankruptcy or liquidation processes through their expertise and insights.

New Bankruptcy Laws in UAE

The Bankruptcy Law in UAE came into effect on 29th December 2016, wherein it replaced the insolvency regime which was previously contained in the Commercial Code (Federal Law No. 18 of 1993) of the UAE, aiming to streamline and modernize insolvency processes. The aim has been partly achieved.

The bankruptcy law modernizes UAE insolvency laws. There is an emphasis on the early restructuring of potentially insolvent companies. The insolvency law has facilitated the burdens of organizations about bankruptcy and liquidation. This law is considered an impetus for the companies and will help them to enhance their growth.

Aim and Object of law

The law is intending to help organizations feeling under pressure or undergoing financial distress, by concentrating on rebuilding an organization’s financial obligation by allowing them to easily manage the distress of a business. To gain profit from the new law, the organizations must adjust according to the authoritative changes for better administrations.

The bankruptcy laws in UAE accommodate the utilization of preventive compositions. It deals with the arrangement between the creditors or debtors for the settlement of payments. This plan permits the borrower to maintain a distance from the outcomes of settling its insolvency.

Preventive Composition is an account holder driven, court-managed system accessible to an insolvent person who is:


  1. In monetary troubles however not yet dissolved; or
  2. Has been bankrupt for a time of under 30 back to back business days.


The strategy expects to encourage the salvage of a business by helping an indebted person arrive at a repayment with its creditors.

The laws about bankruptcy explain the methods for a case that shall attain priority over other debts under the preventive composition schemes. Examples of privileged debts include fees or expenses paid to the judiciary, outstanding payments to the employees of the company or any amounts owed to government authorities.

Changes to the existing Bankruptcy Law

In summary, the new law amends the existing Bankruptcy Law as follows:

  • Articles 32 and 162 of the Bankruptcy Law in UAE, deal with a moratorium on legal proceedings. It provides that when a debtor enters into either protective composition or bankruptcy proceedings that have been amended to provide a long-stop date to the moratorium. The legal proceedings are suspended until the earlier of either:
  • Approval of the protective composition procedure or restructuring plan; or
  • Ten months (extendable by a further four months by the court) following commencement of the protective composition procedure or restructuring plan, as applicable, following court sanction.

The instant amendment to bankruptcy laws would not prejudice secured creditors who may still apply to the court to enforce their security.

  • Article 185 provides that if the court declares a debtor bankrupt and liquidates its assets, then in that case the secured creditors get a priority over preferential and ordinary creditors.

The recently amended bankruptcy laws are a welcome and productive move to the UAE laws. The recent amendment clarifies the instances when the members and directors can be held personally liable for the debts of a bankrupt company, providing many defences.

The creditor can initiate legal action to track their debts

However, the threat of initiating a bankruptcy proceeding is not available to the creditor during the span of the emergency financial crisis. But the creditors are at liberty to track and claim their debts through civil remedies in the UAE Courts, irrespective of the existence of an emergency financial crisis. It implies that the creditor remains entitled to apply for payment orders and precautionary attachments, and may initiate civil claims for debt recovery.


In UAE, the Bankruptcy Law is an impressive improvement for the legal system specifically regarding insolvency laws. The law in UAE is moving towards a more adaptable and universally adjusted methodology helping the organizations to work through budgetary troubles, and maintaining a strategic distance from liquidation. The legal experts in Dubai have assisted multiple drowning businesses requesting the court for financial restructuring ensuring the safety of interests of the creditors and shareholders’ rights of the organization and the company.