The UAE updated the country’s bankruptcy law to help businesses deal with financial crises in "emergency situations".
On Wednesday, the Cabinet approved the changes to help businesses and individuals in the trade and investment sector, state news agency Wam reported.
The new amendments will help individuals and businesses if they cannot repay their debt or keep up with financial payments because of pandemics, natural disasters or wars.
The changes will help cash-strapped debtors avoid declaring bankruptcy and, instead, opt for reaching a settlement with their creditors and negotiate debt restructuring.
It will also make sure the creditors do not take a hit.
Earlier, businesses that were unable to pay their creditors had to file for bankruptcy proceedings immediately.
The new regulations give a lifeline of up to 12 months during which debtors can renegotiate their debt, consolidate their business, sell assets or secure additional funding to clear their loans and payments.
They have to simply file an application in court and reach a settlement with their creditors.
The court services will be free of charge to reduce the burden on the debtors.
Sheikh Mohammed bin Rashid, Vice President and Prime Minister of the UAE and Ruler of Dubai, chaired the Cabinet meeting.
Since the Covid-19 outbreak began, the UAE government has launched economic stimulus packages worth billions of dirhams to help businesses and citizens.
The laws governing insolvencies of UAE companies were overhauled in 2016 when the country introduced the Bankruptcy Law.
It covers all UAE companies, except those in the Dubai International Financial Centre or Abu Dhabi Global Market.
The law helped in the early restructuring of indebtedness for distressed companies. It offered support and, in certain cases, temporary financial relief to financially distressed businesses.
It will also help in removing the stigma surrounding business failure and encourage more investors to grow their businesses.