Federal Decree Law No. 51 of 2023 Promulgating the Financial Reorganisation and Bankruptcy Law (the Bankruptcy Law) came into effect on 1 May 2024.
The long awaited executive regulations of the law have now been issued by the UAE Cabinet (UAE Cabinet Resolution No. 94 of 2024) and published on 16 September 2024 (the Executive Regulation).
A number of key items have now been clarified and expanded; namely:
- Supervisory Entities responsible for application of Bankruptcy Law;
- Creation of and access to Bankruptcy Register;
- Minimum debt thresholds have been established that are required to commence insolvency procedures;
- Initial payment required to commence insolvency procedures; and
- Procedures for small debtors.
Supervisory Entities
A significant change is the explicit designation of the UAE Central Bank and the Securities and Commodities Authority (SCA) as “Supervisory Entities”. Although they previously had oversight responsibilities, the Executive Regulation formalises their role in supervising the application of the Bankruptcy Law.
This change is notable as it should lead to greater stability in the financial, securities and insurance markets as the UAE’s Central Bank and SCA will now be involved in the insolvency procedures of entities which they regulate- which in turn should enhance transparency and ensure that financial institutions will have well designed and structured oversight during bankruptcy or restructuring processes.
Bankruptcy register
The Bankruptcy Law mandates the Financial Reorganisation and Bankruptcy Unit with establishing and organising a bankruptcy register to record the applications submitted and actions taken under the Bankruptcy Law. The Executive Regulation now sets out the details to be included in the bankruptcy register and the conditions for interested parties to examine the register.
Any parties with a legitimate interest may request access to the register, provided they submit a formal application specifying the information they wish to review, and the purpose of the request. Approval from the Minister of Justice or his/her representative is required before access is granted.
The bankruptcy register will improve accessibility under certain conditions and ensure a more transparent bankruptcy process compared to the previous regime, as creditors and other stakeholders may access necessary information about insolvency cases if certain conditions are fulfilled.
Debt thresholds to commence procedures
The Executive Regulation has now set out the minimum debt thresholds that are required to commence insolvency procedures.
These revised thresholds are higher than the previous thresholds set under the old bankruptcy law and essentially aim to shield businesses from the complications of bankruptcy proceedings over minor debts that could otherwise be settled through regular business operations.
These thresholds are as follows:
Debtor application:
- AED 300,000 for a natural person
- AED 500,000 for a corporate person
- AED 5,000,000 for a debtor subject to a regulatory authority
Creditor(s) application:
- AED 1,000,000 for debtors that are not subject to a regulatory authority
- AED 10,000,000 for debtors that are subject to a regulatory authority
Regulatory process:
Supervisory Entities may request the commencement of restructuring or bankruptcy proceedings if the debtor’s debt is greater than AED 500,000.
As noted above, the previous bankruptcy law had lower thresholds, making it easier for smaller claims to lead to insolvency proceedings. The increased value thresholds under the Executive Regulation reflect a slight shift in how the law addresses the balance of stakeholder interests towards protecting businesses from facing the challenge of bankruptcy proceedings for relatively low-value debts which are more likely to resolve out in the ordinary course of business, and instead focusing judicial resources on larger, more complex insolvency matters.
Initial payment to commence procedures
The Executive Regulation now requires debtors or creditors, when applying for insolvency procedures, to deposit funds or a bank guarantee with the Bankruptcy Court equal to 5% of the value of the debtor’s debt or assets. These funds are used to cover the court’s expenses that are related to the initial stages of the bankruptcy request.
However, the Executive Regulation allows for flexibility whereby the President of the Bankruptcy Administration can reduce or postpone this deposit if the debtor demonstrates financial hardship or if the initial procedures do not require any financial expenses.
We will need to see how this plays out in practice as there is no specified maximum cap for the deposit- so may impact filings in relation to large debts.
Procedures for small debtors
The Bankruptcy Law introduced a new procedure for small debtors and authorises the Bankruptcy Court to implement less onerous and more streamlined procedures for small debtors. The Executive Regulation now classifies small debtors as debtors with assets that are less than AED 1,000,000 in the case of individuals and AED 2,000,000 in the case of legal entities.
In insolvency cases involving small debtors, the Bankruptcy Court may, at its own accord or based on a request by the debtor, creditor(s), trustee, order the commencement of the preventative settlement, restructuring, or bankruptcy procedures in accordance with the streamlined procedure under the Bankruptcy Law.
Conclusion
The newly issued Executive Regulation provides much-needed details and structure with respect to the application of the Bankruptcy Law. By filling the gaps left by the Bankruptcy Law, the Executive Regulation is the final shift from the previous regime.
Key changes, such as the increased debt thresholds, the enhancement of supervisory oversight, and the transparency of the proceedings will ensure that the bankruptcy process is now more streamlined and targeted towards larger, more complex cases. At the same time, small debtors benefit from less onerous procedures, reflecting a balanced approach to financial distress. While the law is progressive and in line with international best practices, its success will depend on how it is implemented and tested in practice. The real impact will become clear as businesses and courts begin to apply these procedures and address practical challenges.
All in all, we see a definitive shift towards the creation of a more stable and transparent bankruptcy regime and landscape in the UAE and the law’s emphasis on restructuring, rehabilitation, and protection for both creditors and debtors is seen as a major step forward in improving the UAE’s insolvency landscape.