Published: Oct 28, 2020

Changes to the UAE Bankruptcy Law

As announced this week, the UAE Cabinet has approved a further amendment (Amendment Law) to Federal Law No 9 of 2016 (the Corporate Bankruptcy Law). The Amendment Law follows the previous amendment of the Corporate Bankruptcy Law in 2019 (pursuant to Federal Law No 23 of 2019).

The Amendment Law is yet to published in the official gazette, and therefore its effective date is yet to be confirmed. However, in this alert we look at the anticipated content of the Amendment Law.


Primary Change – Emergency Financial Crisis

In an unprecedented move by the UAE legislators, the Amendment Law seeks to address periods during which an ‘Emergency Financial Crisis’ exists.

To deal with such situations, the Amendment Law adds a new chapter (Chapter 15) to Section Four of the Corporate Bankruptcy Law titled “Bankruptcy Proceedings during the Emergency Financial Crisis”.

An Emergency Financial Crisis is defined as “A general situation that affects trade or investment in the country, such as a pandemic, natural or environmental disaster, war, etc.” Although a definition is included within the Amendment Law, the law goes on to provide that the UAE Cabinet shall determine when such a situation exists, and also the period of the same. This would appear to indicate that a decision of the UAE Cabinet would be required prior to parties being entitled to rely on the provisions in Chapter 15.

The newly introduced provisions under Chapter 15 provide for certain protections to debtors during an Emergency Financial Crisis, which can be summarised as follows:


Filing for Bankruptcy

Where a debtor has ceased to pay its debts for more than thirty business days as a result of the Emergency Financial Crisis, such debtor is not required to file for bankruptcy. This is contrary to the normal situation under the Corporate Bankruptcy Law which requires a debtor who ceased to pay its debts for more than thirty business days to file for bankruptcy.

However, if the debtor opts to file an application for bankruptcy (which may result in restructuring or liquidation of the debtor) during an Emergency Financial Crisis, the Court may accept such application. In doing so the Court may elect not to appoint a trustee in the bankruptcy proceedings, provided that the debtor proves to the Court that their financial disruption was a result of the Emergency Financial Crisis. The Amendment Law also provides that if a debtor files for bankruptcy during an Emergency Financial Crisis, the Court shall not take any precautionary measures against the debtor’s assets which are necessary for operation of the debtor’s business during the Emergency Financial Crisis period.

Interestingly the Court shall not accept any bankruptcy application from any creditor or group of creditors against a debtor during the Emergency Financial Crisis. Such restriction relates to all debtors, and is not limited to debtors who have ceased payment of their debts as a result of the Emergency Financial Crisis. While such restriction limits the rights available to creditors, practically in the UAE this was an avenue rarely used by creditors.


Settlement with Creditors

If the Court accepts the debtor’s bankruptcy application, the debtor may request from the Court a period of not more than forty business days to negotiate a settlement with its creditors. Once the Court accepts the request, such approval of the Court shall be published in two newspapers (in English and Arabic) and include an invitation to the creditors to negotiate a settlement with the debtor within twenty business days from the date of publication of the invitation. The settlement period offered by the debtor to its creditors should not exceed twelve months, which in many cases, may be a difficult requirement for debtors to satisfy.

Once a settlement is reached with creditors holding at least two thirds of the total debt, such settlement shall be binding on all creditors, even those who did not participate in the negotiations. The settlement negotiations must be recorded in writing between the debtor and creditors (including by electronic means).

The settlement agreement must be approved by the Court, which will consider any objections from creditors who did not approve the settlement. Following approval by the Court, the settlement agreement shall be considered final and binding on all creditors.


Existing Bankruptcy Proceedings

The Amendment Law states that bankruptcy proceedings filed and accepted by the Court prior to the declaration of an Emergency Financial Crisis will continue and the Court is entitled to extend the time periods set out under the Corporate Bankruptcy Law (doubling the prescribed time periods). The Court may also vary or amend some of the contractual obligations of the debtor set out under Articles 165 to 167 of the Corporate Bankruptcy Law (which deal with the impact of bankruptcy proceedings on contractual agreements the debtor is party to).


Directors Liability

Under the Amendment Law, during an Emergency Financial Crisis the directors and managers of a corporate debtor may pay unpaid wages and salaries of the company’s employees (excluding allowances, pay raise and other contingent payments). The need for such provisions arise due to the position under the Corporate Bankruptcy Law, where the directors could be held liable if they dispose of the company’s assets or make payments while insolvent. The Amendment Law seeks to confirm that the directors/managers can pay salaries and wages during an Emergency Financial Crisis, provided they act prudently and in good faith to serve the best interest of the debtor.


New Money

While the Corporate Bankruptcy Law already contains certain new money provisions, the Amendment Law confirms that the debtor may request from the Court to obtain new financing (secured or unsecured) during an Emergency Financial Crisis.  New financing approved by the Court will have priority over ordinary debts existing at the time of commencing the bankruptcy proceedings.

The new financing can be secured by security over the debtor’s assets. If the assets are already subject to security, the new financing can benefit from a second ranking security.

The Amendment Law states that if there is existing security over the debtor’s assets, the lender of new money may not obtain security over the same asset unless the asset’s value exceeds the secured amount of the existing security holder. If the lender of new money is a licenced financial institution, it may obtain a security over a secured asset even if the value of the asset does not exceed the secured amount of the existing security holder, up to thirty percent of the value of that asset (but subject to the priority of the existing security holder).


Other Amendments

The Amendment Law has amended three other provisions of the Corporate Bankruptcy Law:


Suspension of legal proceedings

Articles 32 and 162 deal with the suspension of legal proceedings against the debtor following the adjudication of bankruptcy or the commencement of preventive composition. In each of those cases, the Corporate Bankruptcy Law provides that all legal proceedings against the debtor should be suspended.

The Amendment Law addresses a gap that existed under the Corporate Bankruptcy Law in that it did not provide an end date for the suspension. Under the Amendment Law it is clarified that the legal proceedings shall be suspended only until (i) the ratification of the restructuring plan (in bankruptcy proceedings) or ratification of the composition plan (in preventive composition) or (ii) the lapse of ten months from the date of commencement of the bankruptcy or the preventive composition proceedings. The Court may extend this period by an additional four months.

Secured creditors may apply to the Court to grant them an exception to the suspension of proceedings so that they can enforce their rights. This is similar to the position prior to the amendment.



The amendment of Article 185 provides that, upon declaring bankruptcy and liquidation of a debtor, secured creditors shall have priority over all other creditors, followed by preferred creditors (which hold debts preferred by law).


How We Can Help

Al Tamimi’s Turnaround, Restructuring and Insolvency team has unrivalled experience in the Middle East and North Africa (MENA) region on formal and informal workouts, representing the full spectrum of stakeholders from corporate debtors to lender groups; creditor committees; board of directors and insolvency officers; bondholders; shareholders and private equity sponsors; and accountants and financial advisers.

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Key Contacts:

Jody Waugh
Deputy Managing Partner, Head of Banking & Finance

Abdullah Mutawi
Partner, Head of Corporate Commercial

Sarah El Serafy
Senior Associate, Banking & Finance