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The current law regarding insolvency in the UAE is not a comprehensive regime, and the present framework is found across three different laws (mainly in the Commercial Companies Law, as well as the Commercial Transactions Law and the Civil Code). Additionally, companies faced harsh penalties in a bankruptcy scenario, and individuals could also face criminal sanctions and penal sentences. In the wake of low oil prices since 2015, and more companies facing distress, a new bankruptcy law drawing from international best practice will come into force in the UAE, from the beginning of 2017.

With the implementation of Federal Law No. 9 of 2016 (the ‘Bankruptcy Law’), the UAE government seeks to create a robust legal insolvency framework within which all businesses can operate and parties can be sufficiently protected. The Bankruptcy Law was promulgated by decree by His Highness Sheikh Khalifa bin Zayed Al Nahyan on 20 September 2016 and published in the Official Gazette on 29 September 2016. The framework under the Bankruptcy Law is based on “Chapter 11” bankruptcy legislation in the United States, and the bankruptcy practices in other countries.

Please note that any references below to articles in the Bankruptcy Law are to the articles as set out in the English translation of the Bankruptcy Law.

Authors: Sabah Rahman


The Bankruptcy Law will apply to (i) companies established under the Commercial Companies Law (Federal Law No 2. of 2015), (ii) companies that are partly or fully owned by the federal or the local government, (iii) companies and institutions established in free zones that are not governed by existing bankruptcy laws, (iv) individuals who are classified as a “trader” under the Federal Law No. 18 of 1993 relating to commercial transactions and (v) civil companies. The Bankruptcy Law will not apply to companies in the UAE already governed by bankruptcy provisions, which include, for example, companies in the Dubai International Finance Centre and the Abu Dhabi Global Market. These are two free zones which have their own insolvency regimes.

It is believed that the Bankruptcy Law will particularly assist owners of small and medium sized companies in the UAE, who have recently faced challenging economic conditions. More generally, it is also expected to provide comfort to those doing business in the UAE, as well as prospective investors.

Overview of options and provisions

The Bankruptcy Law is comprised of the following sections: First Section – Definitions and scope of application; Second Section – Financial Reorganisation; Third Section – Composition of Bankruptcy; Fourth Section – Bankruptcy; Fifth Section – General Provisions; Sixth Section – Penalties and Discharge; and Seventh Section – Conclusion Provisions.

1. Financial Reorganisation (Second Section)

A new regulatory body, the Committee of Financial Restructuring, is established under the Bankruptcy Law. Among other matters, the Committee of Financial Reorganisation is intended to supervise restructuring proceedings, through mediation outside the court system. Also, the Committee of Financial Reorganisation will approve the list of experts in financial reorganisation and bankruptcy, to carry out the tasks assigned in the Bankruptcy Law. The Committee is also charged with establishing and organising a record for individuals against whom judicial rulings have been passed.

2. Composition (Third Section)

Under the Bankruptcy Law, composition procedures are available, with the aim of assisting the debtor to reach an agreement with creditors pursuant to a plan of composition with the supervision of the court (Article 5 of the Bankruptcy Law). 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 and an expert (from a list approved by the Committee of Financial Reorganisation) may be appointed by the court to determine whether the debtor’s money is sufficient for composition (Article 13(2)).

If the request for composition of bankruptcy is accepted, an official in charge (also referred to as an official or a justice of peace) will be appointed by the court who will, among other things, prepare a record containing all the debtor’s creditors to submit to the court. During a scheme of composition, the debtor or any of his or her employees shall manage the business of the debtor whilst being supervised 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 debts, and must be approved by the court.

3. Restructuring and bankruptcy (Fourth Section)

The Bankruptcy Law also deals with restructuring by assisting the debtor in applying restructuring plan for the business. The Bankruptcy Law also provides for the declaration of bankruptcy of the debtor and liquidation of assets to fulfil obligations.

Both the debtor and creditors may request the commencement of the bankruptcy provisions under the Bankruptcy Law. A debtor may make the request if the debtor has stopped paying debts for more than 30 consecutive days “due to instability of … financial position or debit financial disclosure” (Article 68(1)). A creditor (or creditors) may request the initiation of bankruptcy procedures if they have an ordinary debt of at least 100,000 AED, if the creditor(s) have 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 (Article 69(1)). Note that the council of ministers may issue a resolution amending the threshold amount in this regard (Article 69(2)).

If the request is accepted by the court, the court will appoint an official from the experts nominated, 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, may be subsequently ordered by the court.

If bankruptcy is declared by the court and liquidation commences, the rights of secured creditors shall rank in preference to those of ordinary creditors. Furthermore, a number of claims are listed as preferential including judicial fees or charges, end of service payments, unpaid wages and salaries (excluding bonuses or allowances) to a maximum period of 3 months and any amounts due to governmental bodies (Article 189). Notably, in a bankruptcy declaration involving a company, if the company’s money is not sufficient to fulfil at least 20% of its debts, the court may obligate members of the board or directors or managers (all or part), to pay the company’s debts in cases where their responsibility for the company’s loss is evident according to the provisions of business corporations law (Article 144).