Home » Bankruptcy Laws in the UAE – Why Shouldn’t You Consider It?

Bankruptcy Laws in the UAE – Why Shouldn’t You Consider It?

by Nathan Zachary
legal firms in Dubai

Any company, business, or individual can come under financial distress. And bankruptcy is the last resort for any company bearing the hassle and turmoil of financial instability and anguish. One can adopt several ways to prevent bankruptcy from occurring in the first place. There are always ways with which you should not be filing for bankruptcy. With this, you protect your business and ensure the interest of your company’s creditors.

The authorities in the UAE have presented a new bankruptcy law for companies struggling with financial problems. Through the law, they can have some means of saving their businesses and getting back on a stable financial track.

What to Know about UAE’s New Bankruptcy Law?

The new Bankruptcy Law presented with an improved strategic law, is a new version of the previous insolvency laws. Federal Law Number 9 of 2016 for Bankruptcy Laws mainly addresses the following;

  • The new bankruptcy law permits organizations in financial distress to solve their issues related to financial instability. It also provides them a way to rearrange the issues while reaching solutions.
  • Companies that are not financially viable to seek liquidation and arrange in perspective.
  • The Federal Law concerning bankruptcy offers alleviation from impact of criminal punishments that had been in power recently. Moreover, it will be against the managers and directors of the company.

The new law imposed restrictions on the files liquidation that have solid intentions to avoid debt. It is also for the ones who cannot utilize their liabilities. In this regard, the directors and managers of a company are all liable for criminal lawsuits.

Furthermore, it is essential to learn that the applicability in regard to the enforcement and implementation of the law is based on the following grounds;

  • For business ventures that government employees entirely or partially own.
  • It also applies to the companies registered under the Federal passed Commercial Laws for Companies.
  • Civil Companies do not have an exception from the bankruptcy laws.
  • Many companies operating in the free zones are also liable for it.
  • Several traders or merchants work in the defined commercial transactions law of the UAE.

5 Reasons You Mustn’t File Bankruptcy in the UAE

No matter who you consult, nearly all the legal firms in Dubai will tell you the same thing. The advice is not to entirely indulge yourself in the process of bankruptcy. This will eventually destroy your business and burn down everything into ashes.

There are several complications that a company has to face in terms of commercial and economic repercussions. From losing cash and assets to being more likely to go into debt. Moreover, a merchant who files for bankruptcy will not be able to manage a business nor be able to become a director or board member of any business. So, one thing is clear that filing for bankruptcy is harmful for your business and individual status. With this said, here are a few things to be careful about;

  1. No Way Out

You shouldn’t file a bankruptcy case in Dubai, UAE, because you don’t have a way back out of the process. For instance, if the court terminates or nullifies the protective composition for whatever reason they have for it. You will only be left with an alternative option, which is to continue with formal bankruptcy.

So, it is paramount to understand that there isn’t any going back once you have started the bankruptcy process. In the UAE, unless the debtor pays back all the debts to the creditors, the case will go on.

  • The Debtor Has No Control

When a debtor files for bankruptcy, they leave for a few to no options. Evidently that bankruptcy law will involve an appointed trustee, the court’s supervision, and the involvement of the creditor. The involvement is for final settlement and ensuring the proper restructuring. This is how a debtor and their managers and directors will lose control over the business’s operations, and lose contracts.

Hence, the debtor will not be able to run the business. Many employees will start making switches and leaving the company. And ultimately, your business will not get any financial extensions from the banks. This is another deadly result of filing a bankruptcy case in the UAE.

  • Increase in Time Constraints

The introduction of bankruptcy law after amendments in 2019, many ministers in the cabinet get extensions. The periods given in bankruptcy law are minimal. The debtor will find it extremely difficult to adjust things in this limited period.

The process accelerated with time, and decisions announced in a few days. And for several reasons, it is extremely difficult for the debtor to meet them and facilitate them without having to end up regretting.

  • Forced Bankruptcy  

In Bankruptcy Law, you must view all the downsides and what debtor will bear concerning restrictions. While the debtor is trying to reach an agreement with the creditor, the application entertaining will happen if the default time has not exceeded thirty days. Failing to meet this appropriately, the court will proceed to restructure bankruptcy. After this, nothing could be done to reverse the decision.

Moreover, it is nearly impossible to restructure the business even by utilizing the preventative composition while they are having trouble paying the creditor. And eventually, the debtor party will have no option but to face bankruptcy proceedings.

  • Elevated Risk for Business Owners

If you file a bankruptcy in UAE, one thing is inevitable: saving owners from elevated risks. The Bankruptcy Law of the UAE is applicable to all commercial businesses. This includes big companies and public companies belonging to professional service and civil sectors. Some businesses in this cadre don’t have the right records of their dealings. And not having the proper details and records of their business activities would further deteriorate the case.

The Final Words

Filing for bankruptcy in the UAE doesn’t let you get away from the debt that you have taken. Even if the debtor has declared all the assets and liquidation of the assets have taken place. The debtor will still have to pay all the outstanding balances of their respective debts, and there isn’t any simple getaway from this. Understandably, no one wants to get bankrupt and become a part of bankruptcy proceedings. So, if you have reached this stage in your business, try different measures but avoid filing for bankruptcy, as it will not help unless it is the last resort.

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