As the summer months draw to a close and stakeholders prepare for the final quarter of 2025, lawyers, lenders and sponsors alike are confronting an evolving financing environment in the UAE. Several structural and regulatory developments suggest that distressed lending and restructuring activity will rise in the near term. This note highlights the growing role of non-bank capital providers, key legal updates and practical considerations for those navigating the market.
A shifting financing landscape
Three forces are reshaping how financial distress is managed in the UAE. First, the introduction of a new onshore bankruptcy law - with a dedicated bankruptcy court and refined procedures - provides greater predictability and timeliness. Second, the DIFC and ADGM continue to provide trusted restructuring venues, offering international creditors workable tools for debtor rehabilitation and rescue. However, perhaps most significantly, the financing market itself is changing in that non-bank lenders and private credit funds are emerging as key players in distressed situations.
The rise of non-bank lending
Private credit funds, special situations investors and other non-bank lenders are increasingly stepping in to fill the financing void left by traditional banking institutions. In distressed scenarios, these alternative capital providers typically offer solutions such as:
- Rescue financing / super-senior loans: Providing short-term liquidity to stabilise a financially distressed borrower, often with enhanced pricing and priority security.
- Amend-and-extend solutions: Extending debt maturities through covenant modifications and incremental liquidity injections, enabling businesses to maintain operations in the expectation that market conditions will improve.
- Liability management transactions: Facilitating balance sheet restructuring via exchange offers, debt-for-equity swaps, or back-stopped rights issues that allow distressed corporates to reshape their balance sheets with sponsor and lender support.
- Opportunistic capital deployment: Acquiring discounted debt positions and participating in restructuring initiatives, often adopting a more hands-on, activist approach than traditional banks.
Non-bank lenders often impose tighter covenants, customised intercreditor structures and detailed security requirements. Although they can often be more agile than banks in decision making, they generally require higher pricing and enhanced control rights in return for deploying capital in distressed situations.
Key legal and regulatory developments
Onshore UAE - New Bankruptcy Law.
The New Bankruptcy Law (Federal Decree-Law No. 51 of 2023), effective since May 2024, streamlines preventive and rehabilitation procedures and establishes a dedicated bankruptcy court. The emphasis on speed and predictability should make it more attractive for debtors seeking pre-packaged restructurings and for alternative lenders providing super-senior rescue financing.
DIFC and ADGM regimes.
Both the DIFC and ADGM offer established insolvency frameworks that are well understood by international market participants. Their procedures - including rehabilitation options, moratoria and administration-style processes - provide borrowers with breathing space to restructure and give creditors a court-supervised platform that is increasingly relied upon in cross-border situations.
Security over moveables.
The Movables Security Law (Federal Law No. 4 of 2020) and its electronic registry have become increasingly important in distressed scenarios. For private funds offering rescue lines, precision in collateral descriptions and timely filings is critical, especially in anticipation of enforcement, since registry extracts can dictate recovery outcomes.
Cheque enforcement.
With the decriminalisation of most bounced cheque cases, recovery strategies are now typically civil in nature. Accordingly, lenders entering distressed situations should recalibrate expectations on timing and recovery factor and rely more heavily on collateral enforcement rather than criminal leverage.
Tax considerations.
With the UAE’s corporate tax regime now in effect, reorganisations, mergers, and debt-for-equity swaps may give rise to tax liabilities. As a result, tax considerations must be built into restructuring plans from the outset to ensure transactions are structured efficiently.
Emerging assets.
The DIFC’s Digital Assets Law 2024 clarifies treatment of digital and tokenised assets. While still a niche issue, this could matter where non-bank lenders finance fintechs or insist on including digital assets in collateral packages.
Market trends shaping workouts
The “higher-for-longer” interest rate environment is creating refinancing pressure. Borrowers with near-term maturities are increasingly turning to private credit providers for bridge financings and covenant resets.
Financial stress is often most acute in sectors such as certain segments of real estate, highly leveraged corporates and SME portfolios. In these areas, private credit funds are stepping in not only to provide liquidity but also to play an active role in restructurings - shaping pre-packaged solutions and guiding enforcement strategies.
Practical implications for sponsors and lenders
- Pricing and control. Funding from private credit providers is typically extended at a premium and is often accompanied by enhanced governance and creditor rights. Borrowers and sponsors must carefully balance the need for immediate liquidity against the potential dilution of influence or control.
- Security packages. The Movables Security Law and its electronic registry remain central to enforcement strategies. Diligent audits of filings and precise collateral descriptions are essential to preserve enforceability in a distressed scenario.
- Tax and structuring. With corporate tax now in effect, non-bank lenders will expect tax analysis to be integrated from the outset.
- Process selection. The insolvency regimes in DIFC and ADGM continue to provide credible, court-supervised restructuring tools. These are increasingly reflected in finance documentation, particularly where private credit providers form part of the lender group.
What’s next?
Looking ahead, we expect restructuring activity in the UAE to feature:
- Greater reliance on non-bank capital to bridge liquidity gaps and drive restructurings;
- Continued use of super-senior rescue lines and amend-and-extend solutions;
- Court-assisted restructurings anchored in DIFC and ADGM, alongside onshore enforcement; and
- More tax-sensitive reorganisations driven by liability management strategies.
The UAE’s restructuring landscape is evolving into a new phase. For borrowers, sponsors and advisors, success will depend on understanding the shifting legal frameworks and working effectively with private credit providers, who are increasingly at the forefront of distressed financing solutions.
For any Banking or Finance queries, please contact Catriona McDevitt.
This article is for general information only and does not constitute legal advice.