Sheikh Khalifa, the President, on Monday issued the long-awaited new federal bankruptcy law by decree, according to the state news agency Wam.
The law, which contains elements of bankruptcy protection laws from jurisdictions including France, Germany and the Netherlands, provides, for the first time, a comprehensive legal framework to help distressed companies avoid bankruptcy and liquidation.
Under the terms of the federal constitution, the new law will come into effect three months from its publication in the country’s official legal gazette.
A senior official at the Ministry of Finance, who asked to remain anonymous, said that the new law had already been published in the gazette, and would come into effect in late December or early January.
A copy of the new law seen by The National dates the law's approval by the president from September 20.
The new law contains provisions to safeguard the rights of both creditors and debtors in insolvency situations, including measures that prioritise secured creditor rights and enable companies to restructure without unanimous creditor approval.
The law applies to companies established under the commercial companies law, companies that are partly or fully owned by the federal or the local government, and companies and institutions established in free zones that are not governed by existing bankruptcy provisions. It does not apply to companies registered in the DIFC and the Abu Dhabi Global Market, or to private individuals.
The law will establish the Committee of Financial Restructuring (CFR), a new regulatory body which will oversee the procedures of financial restructuring outside the scope of the courts, have responsibility for the appointment of experts in the field of financial restructuring, and establish and maintain a national electronic database of individuals who have had bankruptcy rulings against them.
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Creditors will be able to initiate insolvency proceedings against companies or traders in cases where debts of Dh100,000 or more are unpaid for more than 30 days.
Insolvent companies will be able to avoid liquidation via four pathways set out in the new law, namely financial reorganisation, a pre-emptive settlement, financial restructuring and the raising of new funds.
The law also contains provisions blocking creditors from applying criminal charges against executive of insolvent companies for bounced cheques, when the company is undergoing a court-mandated restructuring process.
The approval of the new law drew praise from the country’s legal community.
“The law is a very important step for the creation of a healthy, transparent commercial environment in the UAE,” said Essam Al Tamimi, senior partner at Al Tamimi and Company.
“In a nutshell it says that companies and traders have to pay what they owe or face consequences, while also giving them options for rescue and restructure where there is a realistic and constructive plan in place.”
Mark Beer, chief executive of the DIFC Dispute Resolution Authority, said the approval of the new law was evidence of the efforts and commitment of the leadership of the UAE in ensuring that the country’s laws reflected the needs of a dynamic business environment.
“Working with the DIFC Courts and the Dubai World Tribunal, which also have the benefit of excellent restructuring regimes, I have seen first hand the benefits of a trusted and effective restructuring law in ensuring creditors are paid, jobs are protected and a business has the protection it needs to thrive,” Mr Beer told The National.
“May I applaud all those who have worked so hard to bring the new federal law to this stage.”
jeverington@thenational.ae
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