The much-awaited new bankruptcy law in the United Arab Emirates is a complete legal framework designed to help financially troubled companies to avoid collapse. The new law took effect on December 29 2016 after being decreed by President Sheikh Khalifa. It is part of the global wave of insolvency reform referred to as the 'rescue culture' and has been warmly received by local and international stakeholders. Although it has yet to be tested in practice by the courts, it is a move in the right direction.

The old law offered few options other than liquidation to companies that faced insolvency and was increasingly regarded as outdated. The new law expressly repeals the United Arab Emirates' extant insolvency regime, which was set out in Chapter V of the Commercial Transactions Law, and introduces several progressive provisions.

The ambit of the new law is wide – covering companies registered under the Commercial Companies Law, free zone companies, sole establishments and professional civil businesses – and is not limited solely to 'commercial traders'. While government-owned companies may opt-in, some carve-outs remain for self-legislating free zone companies such as Dubai International Financial Centre and Abu Dhabi Global Market. Further, unlike the 2011 draft, no provision addresses individuals acting in a private capacity. The United Arab Emirates may introduce bankruptcy regimes for individuals and banks and financial institutions, but a formal proposal for the same has yet to be announced.

Under the new law in Dubai, the Committee of Financial Restructuring is established, which will maintain an approved list of insolvency experts and a register of insolvencies, and oversee restructurings that occur outside the court system. Further, a court will appoint a trustee to manage the processes of restructuring and insolvency if required.

The new law introduces three main procedures for businesses in financial difficulties:

  • Protective composition – for rescuing businesses that are not yet insolvent. This is a court-led procedure which involves a debtor submitting a request for composition of bankruptcy to the court. It assists business that are facing financial difficulties. Under this procedure, the court will assist the debtor to reach an agreement with its creditors under a composition plan with supervision from the court. A settlement agreement with a payment plan should be reached between the parties. However, this will not be approved by the court if the debtor has ceased to pay its debts for more than 30 days. The debtor then has three years from the date of the courts' approval to implement the agreement.
  • Insolvency with restructuring – for insolvent debtors that are capable of rescue by restructuring. The debtor or a creditor must submit a request for a declaration of insolvency. The debtor may apply under this procedure if it has failed to pay its debts for more than 30 days. A creditor may not start insolvency proceedings against a debtor unless it is owed Dh100,000 or more. The debtor must agree to implement the restructuring proposed. Any agreement reached under this procedure must be implemented within five years of the date of its approval by the court.
  • Insolvency and liquidation – this applies where the first two options do not work or where the debtor acts in bad faith. It involves an order of the court to wind up the business if it is found that it has acted in bad faith. If a liquidation is ordered, preferential creditors such as employees who have not been paid their wages and governmental bodies will rank higher than other creditors.

The new law in Dubai also replaces several bankruptcy-related crimes listed in the Penal Code. Under the old regime, a defaulting debtor was required to apply to be declared bankrupt within 30 days. Failure to do so incurred fines and potential imprisonment. This encouraged many business owners to expedite bankruptcy or even abscond rather than try to restructure their businesses. A significant change is the de-criminalisation of non-declaration. Now, a failure to declare bankruptcy can disqualify the debtor, but it is not a criminal offence. In addition, the new law prevents creditors from bringing criminal charges against executives of insolvent companies for bounced cheques while a court-mandated restructuring is underway.

The support systems developed to assist the courts in implementing the new insolvency law will largely determine its success or failure. If all goes well, the new law should boost confidence in the ease of doing business in the United Arab Emirates. Looking ahead, the United Arab Emirates may see its World Bank rankings rise as a result.

For further information on this topic please contact Franco Grilli at Fichte & Co by telephone (+971 4 43 57 577) or email ( The Fichte & Co website can be accessed at

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