Insolvency law: debtors unable to resolve liabilities must liquidate assets

Property, cars or valuables such as paintings will be sold to ensure creditors are repaid, according to the Ministry of Finance

Younis Al Khoori, undersecretary at the Ministry of Finance. Reem Mohammed / The National

Debtors unable to resolve their debts via a court-approved payment plan must liquidate their assets such as property, cars, paintings or financial holdings to repay their creditors, the Ministry of Finance said on Tuesday.

The Federal Decree-Law on the Insolvency of Natural Persons, approved by the UAE Cabinet on Sunday, helps struggling debtors by decriminalising their liabilities and allowing them to either settle their financial obligations through a court-approved payment plan or insolvency and the liquidation of their assets.

"We had a revision of the UAE financial sectors and found many people are indebted. They have the intention to repay but [cannot] due to a cash flow issue," Younis Al Khoori, Undersecretary of the Ministry of Finance, told The National.

“They are under stress … and need a time extension to repay, so there is a resolution that saves debtors and borrowers and they must agree on certain terms. They have to go to the court and the court will assign an expert and after an agreement among the three — the plan will be raised.”

Individuals that have missed repayments or fear they will miss their next payment must approach their local court in the emirate they live within 40 days to start insolvency procedures, Mr Al Khoori added.

If a repayment plan is agreed by the debtors and creditors through a court-approved adviser, debtors have three years to repay their liabilities. However if they do not have the means to pay because of job loss or have missed payments of their debts for more than 50 consecutive working days, creditors can request the liquidation of the debtor’s assets, the ministry said.

A trustee is then appointed to control and facilitate the disbursement of funds raised through asset sales. Creditors can request a debtor be declared insolvent if they owe more than Dh200,000.

“His car is money, his property is money, so if the debtor cannot reconsolidate, he must sell his assets,” said Hussam Al Tahouni, the ministry's legal adviser.

“If there is a plan he does not have to sell his car or houses,” he added. “If you have a portrait worth Dh200,000 and people say you must sell it, but you are able to pay the creditors within a court-approved plan, then you cannot be forced to sell this portrait.”

Mr Tahouni confirmed that bounced cheques have not been decriminalised by the new law, but debtors with a court-approved payment plan can present this to a criminal court to have the case "frozen".

"Bounced cheques are still not decriminalised in general," he added, "but even if a criminal court has come to a final decision relating to imprisonment, during a bankruptcy procedure … that criminal case will be frozen.

The creditor and holder of the cheque will be part of that plan and we may pay them in the first week or month”, said Mr Tahouni.

Banks will be paid first, followed by other creditors, he added.

Mr Tahouni said absconders that have unresolved debts can also apply from overseas to have their liabilities resolved in the courts.

"If the matter is bounced cheques, they can ask a lawyer to file a request at the court under this law and if they started to draft a settlement with the creditors then the person can come into the country," he said. "They can get a letter from that court to present to the criminal court until the restructuring is done."

Debtors planning to request a settlement must provide documents including a list of creditors, a full description of their financial position and details of their sources of income both inside and outside the country, the ministry said. They must also outline how much they need for themselves and dependents to live off and a statement of any financial transfers outside the country.

James Berry, managing partner of James Berry & Associates Legal Consultants, said the law transforms the regulatory climate and enhances the UAE’s reputation again as a sensible climate to live in and be part of.

"It gives distressed individuals a real chance to achieve financial viability and lenders a new prospect of turning doubtful debts into performing assets rather than write offs," he added.