Debt can be a great threat to any business with many companies in the UAE finding themselves either liquidating their assets or undertaking rehabilitation. It is important to know that both kinds of bankruptcies have different implications to a business.
Businesses in UAE are trying not to file for bankruptcy as the business climate in Covid-19 times is very unpredictable. Nevertheless, there is always a way out. Filing for bankruptcy in certain situations can rescue you from bad debts and allow you to save your ailing business.
What is liquidation?
This is when a company decides to liquidate its assets because they are unable to pay their creditors. Through Liquidation they have to sell their assets in order to recoup whatever money possible for the Creditor. This is a common type of bankruptcy in the UAE often needing a lawyer to get you through safely. Businesses see liquidation as the last resort as it means dissolving the business and surrendering the assets to your creditor.
You should know: Liquidation Process for A Company with No Assets
What is rehabilitation?
Rehabilitation means pushing forward your payment dates effectively giving the Debtor more time to repay the money owed. It is important to note that rehabilitation is only possible if the business still owns its assets and is operational. Usually, companies that undertake rehabilitation have products in stock and only need time to convert them into cash.
Although more favorable than Liquidation, Rehabilitation is not without its consequences. For example, the creditor may include a penalty fee in the payback amount for allowing an extension period. Even with the penalty rehabilitation is a far more lenient way for a business to take care of its creditors.
You may want to know: What Happens When You Claim Insolvency in UAE
Bankruptcy laws of UAE
The new bankruptcy law that was enacted in 2016 was aimed at alleviating debt pressures for companies within the UAE. According to this law drafted by the Ministry of Finance, there was to be a legal formula that would help companies avoid going bankrupt by providing a simplified rehabilitation process. This Law is strictly for companies except for the ones that operate in the DIFC and ADGM. This is because the above mentioned places have their own internal bankruptcy laws different from the rest of the UAE.
Find more detail: How Bankruptcy Works in UAE
Unfortunately, most businesses in financial difficulties will not have the capability to choose between Rehabilitation and Liquidation as it depends on the status of the business at that time. Factors such as ‘does it have enough assets to apply for Rehabilitation’ will then come into play.
Leading company liquidators in Dubai – Here is where we can help.
As one of the leading liquidators in Dubai with decades of experience in the field should you choose this option we are more than capable of assisting you in this regard, guiding you step-by-step through the company liquidation process.
Having said that should you qualify and opt for Rehabilitation our team of experts are proficient also capable to provide a stellar service.
So if you have any questions or would like to pursue things further feel free to call to make a booking with us today for an initial consultation.