In the past few years UAE has run along a continuous economic slackening and with the pandemic situation coming into view, the UAE, especially Dubai’s economy has turned out to be much depressed due to the constraint on the global oil prices as it is a major source of revenue for UAE. Despite all these adverse positions, a deviation can be seen from the agreement by the creditors, i.e. especially banks, to restructuring of debts in favor of a legal action irrespective of the uncertainty attached with the bankruptcy law, that is Federal Law No. 9 of 2016. A cogent development can be experienced as an act of the creditors probing to take up bankruptcy proceedings against either borrowers or commercial debtors belonging to the UAE. A trend can be foreseen where a lot of proceedings will be carried out under the bankruptcy law, due to a breakdown of the economy, owing to this pandemic.
On the time of enforcement of the Bankruptcy law, in 2016, a draft was formulated along with the draft of the Bankruptcy law, which provided for the framework for the personal insolvency. It was not brought into effect at that time, but subsequently, on 29th November, 2019, it was adopted as The Personal Insolvency Law ( Insolvency Law no. 9 of 2019). It was brought up with the intention to serve an augmented administration for the private people, facing financial predicament. It is a mechanism through which the individuals are spurred to chase the help of the experts and professionals by way of a court led process. It provides with a mean to the debtor to settle with the creditor, where the rights of the creditor does not get jeopardize. The personal Insolvency law is characterized as unsure, since it has remained untested till now.
The sole difference between the bankruptcy law and the insolvency law is that while the latter is only applicable on a natural person, the former has a wider scope as it is applicable on the traders, merchants and commercial companies.
A recent development can be anticipated in the Bankruptcy law which will eventually lead to the altered processes for the restructuring of the companies. These amendments will be effective from the date of publication of the law in the Official gazette. As a result the effects of these development are yet to be seen. These amendments are particularly,
Proceedings outside the crisis
In cases where the commencement orders are against the debtor under either Protective composition Proceedings or Restructuring in bankruptcy proceedings, there will be an extension of stay on such orders. Though in such cases, the creditor has an overriding effect to file an application in the court to lift the stay.
Emergency Financial Procedure,
Due to this global pandemic, which has not only affected the business of UAE but that of the whole world, a new procedure has been introduced in Chapter 15, namely the Emergency Financial Procedure. This has been defined under the law as, “A public situation that affects trade or investment in the state, such as the outbreak of epidemic, natural or environmental disaster, war, or other which case and duration shall be determined by a cabinet resolution, based on the Minister’s proposal”.
Debtor’s Obligation to File Bankruptcy
The obligation on the part of the debtor to file a formal bankruptcy application under part 4 of the law has been suspended in the case of emergency financial crisis of the debtor. The duration of emergency financial crisis as well as its grounds are not mentioned in the amended law, but it is supported with the placeholder provisions which do provide that the duration as well as the grounds will be determined through a cabinet resolution.
Bankruptcy Application by the creditor
The amended law, further provides that, the court can exercise its discretion, in cases where the creditor or the group of creditor files the petition against a debtor during the crisis.
Settlement with the creditors:
In case the court accepts the petition of the debtor and not the creditor whilst the emergency financial crisis, the debtor shall request the court to provide him with not more than 40 working days in order to reach a settlement with the creditor.
Obligation of the Directors and the General Managers:
The next provision that the amendment enumerates is that no civil or criminal liability will be raised on the debtors or general managers of the corporate debtor for disposing off the assets of the debtor, where such disposal is made in order to pay the outstanding salaries of the employees. In addition to this, the directors and the general managers of the debtor are obligated to keep the financial statements of the debtor up to date so that proper reasons for the loses during the crisis can provide for the evidence.
Prohibition on Court’s action
The court cannot take action against the debtor’s property, if the petition has been filed by the debtor himself during the crisis.
New Financing
The amendment also provides for new provisions to deal with new monies of the business with respect to the settlement and “last-in first-out” basis.
Clarification of the position of Creditors:
Article 185 provides a clarification with respect to the position of the preferential creditors where procedure for distribution falls under the formal bankruptcy procedures.
Summary:
In cases of restructuring of the company, limited information is available for the scrutiny of the market, since the companies do not reveal their financial difficulties. Nonetheless, as mentioned previously, the frequency of filing cases under the Bankruptcy law with assistance of company lawyers of Dubai through oversee creditors has increased noticeably. One can however, experience a compelling cultural animosity with respect to the bankruptcy and the reason for avoidance of the formal insolvency regime is same to a large extend.
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