A restructure of business is the strategic and fundamental decision the debtor takes to have more opportunities to pay back its creditors and increase its legal protection from going bankrupt or liquidation. The UAE Federal Law Decree No 9 of 2016, section seven provides the legal framework for businesses giving them a second chance to revive their business through a restructuring plan approved by the court.
The restructuring process begins when the court approves the Trustees statement disclosing the vital financial projections, and simultaneous consideration is given to the willingness of the business owner to run the business to a level of profitability again. Suppose the debtor has applied for bankruptcy and the trustee committee submits a statement report to the court the reasonable amount of time the business will take to recover from its indebtedness. The court may approve the plan to restructure the business in that case. The goal for restructuring approved by the court is published in two local newspapers, both in Arabic and English, within five business days of the approval.
How can restructuring help businesses?
The main focus of restructuring the business is to manage its debt. Once the court provides the decision of restructuring, the company and the Trustee have a maximum of three months to submit a draft of a restructuring plan. The plan intends to achieve financial solvency in a given period and repay its creditors during the process. The business may have to dissolve contracts departments, terminate employees that no longer serve the purpose to decrease the business's debts, and are an additional cost to the company.
Submission of a draft restructuring plan
A meeting of creditors is held to approve the draft of the restructuring plan. Such a meeting is held once the court accepts the copy of the draft restructuring plan. The following information is included in the draft restructuring plan.
- The accurate projections of the debtors business that show profitability after a certain period
- The debtor is willing to suspend, terminate, and centralize activities. It also includes the possibility of the sale and replacement of assets.
- The list of creditors and the terms of settlements of their liabilities, respectively
- A timeline of the execution of the plan along with the security of performance bond
- Any offer for the purchase of a part or entire Debtors Business
- Grace periods and discounts in creditors' payments and other liabilities and the possibility to convert debt into shares in the company's capital.
The restructuring plan is allowed for a maximum of five years, and upon case basis scenario, the court can extend it further by three years. Once the court has accepted the restructuring plan, the Trustee has five working days to arrange a meeting with the creditors and get approval. A creditors committee is put in place, having a representative from one of the creditors to manage the commitments stated by the debtor.
For the protection of the creditors, the court ensures the following is adhered to by the debtors upon submission of the restructuring plan:
- There is a window of three working days for a creditor who has an objection to the plan or did not get a chance to vote on the project during the creditor's meeting.
- An opportunity to recover debts, the court allows creditors to reduce the time cycle of repayment of the debt if they agree to reduce their amount of obligation towards the debtor. It is a joint decision for all creditors and is shared during committee meetings.
- The court ensures that the creditors repay the debts in value if the debtor's assets get liquidated.
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Procedure after the approval of the restructuring plan by the court
The restructuring plan is executed under the supervision of the Trustee. The Trustee, in this case, has to report the progress on the plan to the court within every 21 days or a maximum period of every three months, as approved by the court. If the plan requires any amendments as and when the restructuring is ongoing, the Trustee will submit the amendments for approval to the court, and the court shall approve or decline the same within five business days.
The court will request the debtor, Trustee, and any other interested party to submit the decision unanimously about implementing and fulfilling the restructuring plan.
However, the restructuring plan can get nullified or terminated if the debtor commits any crime such as fraud, theft, manipulation of data, and sharing misinformation.
A restructuring plan must demonstrate the business's capability to meet the obligations against its creditors and employees. Therefore debt management is an integral and critical part of the financial management of any business. Contact Farahat and Co today and speak to one of our expert commercial bankruptcy financial advisors; If you think your business can get an added advantage from a debt management solution. We have years of experience in the UAE helping companies overcome the challenges of bankruptcy and restructuring plan. Learn more about how your business can make turnaround debt management decisions from our financial advisory services and contact us for bankruptcy services by clicking here.