UAE Bankruptcy Amendments: Blame it on covid

Eudore R. Chand

DUBAI 9 November 2020: The recent radical amendments to the UAE Bankruptcy Law, offer distressed debtors with some level of leniency during these times of economic uncertainty and market disruption caused by circumstances outside of their control.

These are in addition to the comprehensive economic support and stimulus program launched by the UAE Central Bank to curb the financial impact of the Covid-19 pandemic, point out experts at the law firm of Baker McKenzie Habib Al Mulla.

Key changes include:

  • Adding new provisions to the law related to ’emergencies’ such as pandemics and natural and environmental disasters;
  • New debtor’s rights to delay filing for bankruptcy and to resort to out-of-court settlement agreement with creditors; and
  • Mechanisms to obtain new financing under certain rules and conditions.

So what’s new?

Under the current UAE Bankruptcy Law, courts were required to apply a much more objective test to declaring a debtor’s bankruptcy. With the new amendments, there now appears to be a subjective element to the court’s evaluation of the debtor’s position, as the court can now consider the conditions surrounding the debtor’s default(s) and opt to grant them a generous grace period of 12 months to amicably negotiate mutual terms with their creditors, say the law experts..

This certainly shows some level of leniency when compared to the usual and mandatory procedure of directly applying to the courts to declare the debtor’s bankruptcy and thereafter appointing a trustee to take hold of the business, they pointed out.

With many businesses facing financial difficulties and having fallen (or are on the verge of falling) into default on their debts due to the direct or indirect impact of Covid-19, the new amendments to the UAE Bankruptcy Law may have provided an alternative route to what previously would have been perceived as imminent bankruptcy.

The amendments also introduce mechanisms allowing debtors to obtain new financing under certain rules, which is necessary to pay their debts and continue their operations, the experts said.

They said the official text of the new provisions to the law is eagerly awaited as this is certainly a proactive step in the UAE’s efforts to constantly update the legislative and regulatory frameworks and contribute to enhancing investor confidence and resilience and sustainability of businesses in the UAE.

“It is therefore recommended that businesses facing credit difficulties thoroughly consider the new relief granted by these recent amendments to the UAE,” said Baker McKenzie Habib Al Mulla law firm experts.



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