United Arab Emirates: An Introduction To Bankruptcy In The UAE

Last Updated: 22 May 2019
Article by Michael Kortbawi and Adam Tighe

The UAE Bankruptcy Law is viewed as an improvement over the prior insolvency laws (as outlined in the Commercial Transactions Law), insofar as the Bankruptcy Law:

  1. allows companies in financial difficulty the opportunity to reorganize their affairs in order to remain viable;
  2. or in the absence of the ability to remain viable, allows for an orderly liquidation process; and
  3. provides relief from the most onerous effect of criminal penalties that had previously been in force, that were being imposed against the directors and officers of companies in debt.

The Bankruptcy Law, however, is not without its perils, and includes restrictions upon bad faith filings as well as those where the available assets do not reach a statutory level, both of which may leave the debtor's directors and managers open to both criminal and civil liability.

The Bankruptcy Law applies to :

  1. UAE companies established under the Commercial Companies Law,
  2. companies partly or fully owned by the UAE or individual Emirates' government,
  3. free zone companies that are not governed by existing bankruptcy laws (i.e.: not including the DIFC and ADGM),
  4. individuals who are classified as a "trader" under Federal Law No. 18 of 1993 relating to commercial transactions, and
  5. civil companies.

Under Title 3 of the Bankruptcy Law, Court supervised composition procedures are available, with the aim of assisting the debtor to reach an agreement with creditors pursuant to a plan of composition. Broadly, these procedures allow for a voluntary agreement between the debtor and its creditors, under which the creditors may accept a settlement or part payment for the debts owed. A debtor can submit a request for composition of bankruptcy if it is facing financial difficulties which require assistance to reconcile with creditors. The debtor must not have ceased to pay debts for a period of more than 30 consecutive days in order for this to be accepted.

A composition of bankruptcy must be submitted to the Court, which may appoint an expert selected from a list approved by the Committee of Financial Reorganization, to determine whether the debtor's assets are sufficient for composition. If the request for composition of bankruptcy is accepted, the Court will then appoint a trustee to prepare a record containing all the debtor's creditors. During a scheme of composition, the debtor may continue to manage its business, subject to supervision by the appointed official. The Court may appoint one or more inspectors from among the creditors to supervise execution of the scheme of composition. Any scheme of composition must be approved by the majority of creditors representing two-thirds of the total debt, and must be approved by the Court. This process must be completed within 3 years, although an extension is available if the creditors consent.

Title 4 of the Bankruptcy Law also provides for both a more formal reorganization process and liquidation procedures where a scheme of composition is not viable, and may be sought by either a creditor or debtor. As per Article 68, a debtor "shall" make the request if the debtor has "ceased to make payment of the Debtor's Debts on their respective due dates for more than thirty (30) consecutive Business Days due to the Debtor's distressed financial condition, or if the Debtor is in a state of Over-indebtedness".

A creditor may seek initiation of bankruptcy procedures if they have an ordinary debt of at least 100,000 AED, if the creditor has already warned the debtor in writing to fulfil the debt and the debtor has not fulfilled this debt within 30 consecutive working days from the date of the warning. If the Court accepts the request it will appoint a trustee, who shall prepare a report on the debtor's business, regarding the possibility of restructuring or selling the business. Restructuring procedures, or bankruptcy declaration and liquidation if the company cannot be restructured, may be subsequently ordered by the court. A restructuring must be concluded within 5 years, and is subject to approval of creditors holding two-thirds of the total debt.

If the Court declares bankruptcy and liquidation commences, the rights of secured creditors shall rank in preference to those of ordinary creditors. Statutory preferential claims include judicial fees or charges, end of service payments, unpaid wages for a maximum period of 3 months, and any amounts due to governmental bodies.

The Bankruptcy Law also provides that criminal prosecution for company cheques dishonored prior to the initiation of the proceedings, may not proceed, while the proceeding is ongoing (assuming no fraud is involved). This is a significant change from prior law and provides individuals who executed corporate cheques protections that were heretofore not available.

Importantly, please note that if the debtor's assets are insufficient to satisfy at least 20% of the debts, the Court may obligate members of the board or managers to pay these debts, in cases where their responsibility for the company's loss is evident, pursuant to the provisions of law. Also, the directors or managers may face criminal prosecution in the event that their company is insolvent, and they deliberately avoid a bankruptcy filing (noting the "shall file" language of Article 68), or otherwise attempt to avoid payment of the company debts by filing a misleading Bankruptcy petition.

Finally, notwithstanding a successful Court discharge in bankruptcy, the directors and officers of any company that proceeds down this path may find difficulty conducting business in the UAE thereafter. This is because the stigma of a business failure leading to bankruptcy may dissuade any counterparty from commercially dealing with the principals of a failed debtor.

In summary, the positives of a Bankruptcy filing are as follows:

  1. At least temporary relief from creditors;
  2. Stay of criminal actions until process is complete;
  3. Opportunity to wipe away debts and potentially avoid personal liability;
  4. Avoidance of liability for failure to file for Bankruptcy; and
  5. Possibility to rehabilitate company if circumstances warrant.

The primary drawbacks are as follows:

  1. Possibility of rejection and criminal prosecution in the event of fraud or other bad faith (as the case may be);
  2. Subject to a 20% payment threshold – if this is not reached, the individual directors, shareholders, and managers may be personally liable; and
  3. Bankruptcy "stigma".

To download the publication, click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
BSA Ahmad Bin Hezeem & Associates LLP
Afridi & Angell Legal Consultants
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
BSA Ahmad Bin Hezeem & Associates LLP
Afridi & Angell Legal Consultants
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions