Federal Law Decree No. (51) of 2023 concerning Financial Restructuring and Bankruptcy
On October 31, 2023, the UAE Federal Gazette published Federal Law Decree No. (51) of 2023, which pertains to Financial Restructuring and Bankruptcy (referred to as the “New Law”). This legislation, known as the Financial Reorganization and Bankruptcy Law, replaces the former bankruptcy legislation, Federal Decree Law No. (9) of 2016, along with its subsequent amendments.
Significantly, the new law revises certain provisions from its predecessor while introducing novel elements absent in the earlier legislation. In the following discussion, we will explore and elucidate on some of these key provisions:
*Engaging Experts: Courts are now empowered to enlist experts and auditors within the Bankruptcy Court, funded by the judiciary’s budget, aiming to enhance court support.
*Preventive Restructuring Mechanism: The outdated Bankruptcy Preventive Composition tool is replaced with a more accessible mechanism called “Preventive Settlement,” operating under court supervision and enabling debtors to manage business operations and settle debts without trustee appointment.
*Court Ruling: Bankruptcy Court decisions are immediately enforceable, although execution may be suspended at the court’s discretion or upon request, with the Court of Appeal also holding the power to suspend enforcement.
*Court Ruling: Bankruptcy Court decisions are immediately enforceable, although execution may be suspended at the court’s discretion or upon request, with the Court of Appeal also holding the power to suspend enforcement.
*Financial Restructuring Committee: The new legislation introduces a specialized division, the Bankruptcy Unit, within the Courts, and extends the mandate of the Financial Restructuring Committee to provide support in bankruptcy and restructuring cases.
*Optional Initiation of Proceedings by Debtors: Debtors are no longer mandated to initiate bankruptcy proceedings under specific conditions.
*Suspension: Judicial and execution proceedings against the debtor’s assets and liabilities are suspended following restructuring proceedings initiation, with no restrictions on the moratorium period and exclusion of certain claims from the suspension.
*Submitting a Request to Initiate Proceedings by the Debtor: The new law grants the debtor the authority to initiate preventive settlement, restructuring, or bankruptcy procedures by submitting a request to the Bankruptcy Administration. This request must be made within a timeframe of (60) days from either the cessation of payment or the realization of the debtor’s inability to settle debts. Notably, creditors or supervisory authorities are also empowered to file similar requests during this period. The extension of this period to (60) days marks a significant alteration from the previous law, which required the debtor to act within (30) days of defaulting on debt payments.
*Submitting a Request to Open Procedures from Creditors: The new law introduces provisions in enabling ordinary creditors or groups of creditors to instigate restructuring or bankruptcy proceedings if the debtor defaults on one or more debts owed to them. However, this request is contingent upon the debt’s value meeting the criteria outlined in the executive regulations of the new law. Previously, the threshold for initiating such proceedings was set at a minimum of one hundred thousand dirhams. Additionally, the new law mandates that the debt in question must not be conditional or subject to dispute, a requirement not present in the previous legislation.
*Prohibition on New Claims and Post-Bankruptcy Actions: Filing new claims against the debtor post-bankruptcy initiation is prohibited, with exceptions outlined, although creditors retain the right to individual action after bankruptcy closure.
*Security Enforcement via the Bankruptcy Court: Secured creditors can enforce against secured assets through the Bankruptcy Court during proceedings.
*Companies: The new legislation introduces the concept of existing companies’ bankruptcy and expands the court’s authority to declare debtor transactions non-enforceable against creditors.
*Clarifying Restrictions on Debtor Actions Post-Bankruptcy: The legislation simplifies restrictions on debtor actions following bankruptcy initiation, allowing exceptions for essential payments, contingent upon court approval.
*Post-Bankruptcy Settlement: The new legislation also introduced comprehensive provisions regarding post-bankruptcy settlements that can be reached between the debtor and creditor(s) following the declaration of bankruptcy through a final decision.
In conclusion, the new law extends its coverage to various entities and debts, including companies owned by the government, entities in free zones, regulated financial institutions, and certain personal debts. It marks a significant step forward in streamlining bankruptcy procedures in the UAE, offering clarity and flexibility in dealing with financial distress.
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