An insolvency law was recently approved in the UAE, which is designed to provide protection to the dignity of debtors. The new regulation provides debtors in UAE to have the opportunity in managing their finances, according to the UAE Ministry of Finance. The Ministry said that with the new law, debtors will be able to settle all of their dues.
The insolvency law addresses the inability of natural persons in settling their debts because of debt default and bankruptcy. A debtor is provided with a reasonable amount of time in fulfilling his or her financial obligations provided that the delay doesn’t cause serious harm to the creditor.
Take note: the new insolvency law is applicable to natural persons that don’t engage in any economic activity or are not traders. Apart from the insolvency law, the UAE also has bankruptcy laws that exist in order to provide protection to debtors and creditors’ common interests. Risks are divided between creditors and debtors so debtors are alleviated of the cycle of experiencing financial difficulties while being able to pay off all debt that accumulated.
Impact of the new legislation on the UAE economy
Specialized regulations that govern a natural person’s insolvency are expected to boost transparency when it comes to transactions of civil debt repayment. They are also seen to increase financial transactions’ general security, providing further financial stability to the country’s economy. This new legislation approved by the government is expected to accelerate growth, as well as make it absolutely easy for individuals in obtaining loans.
The new legislation consists of clear rules which are simple to apply for the collection of bad debts and the financial rehabilitation of a debtor. This enhances the confidence of banking institutions in retail lending. It also encourages individuals in engaging in calculated borrowing. Apart from the economic objectives, UAE’s insolvency law also brings forth another positive aspect: it ensures the debtor’s dignity is protected and there is an opportunity for the debtor to manage his or her finances and reduce existing financial burdens.
Role of the court with the insolvency law
The court will decide on an application without a plea or notice within a couple of days from when an application is submitted. The court’s decision will cease a debtor’s obligation in applying for insolvency and property liquidation. Suspension of execution will continue during the period of settlement for financial obligations but will resume if the debtor will breach its obligations.
In the court’s decision to open settlement for financial obligations of the debtor, the local court will appoint experts in assisting the debtor for the settlement of financial obligations. An expert won’t be a debtor’s creditor or associated with any party even in kinship up to the fourth degree.
What are the steps that court-appointed experts will take?
Experts appointed by the local court will prepare a plan that will be in cooperation with the debtor. The creditors will be provided with a copy and a copy will be deposited to the court within twenty-two working days starting from the decision of the court to instruct court-appointed experts to make a plan together with a debtor. Courts may also authorize an extension for the period of submission if there is a need for such.
The court-appointed experts will invite the creditors and debtor to meetings, specifying both the time and location of the meetings in order to vote on a plan. The first meeting has to be held in ten days from the date when creditors are presented with a copy of the plan in debt settlement. The creditor and debtor will be attending meetings in person.
Those who are not eligible in voting on plans for debt settlement under the new legislation include:
- The spouse of the debtor
- Any person who is supported by a debtor financially
- A relative of the debtor
The proposed period of plan execution shouldn’t exceed three years starting from the ratification date. Amendments can be made, as necessary. Court-appointed experts will request local courts in approving every amendment. Prior to giving a decision on an application, the court will notify the creditors that will be affected with an amendment to a debt settlement plan. The courts can approve or reject amendments.
An individual or company in UAE can experience the inability in meeting all its financial obligations. This may be due to issues with cash flow, having assets that aren't liquid, or an unforeseen circumstance. When this happens, it is best to consult with professionals. At Farahat & Co, our team of insolvency practitioners based in the UAE can provide advice on your financial situation. With over three decades of experience, we can provide competent assistance in helping you come back on your feet. Call us today to discuss your options with our experts!