UAE to have specialist bankruptcy court

K Raveendran

The UAE will soon have a specialist court to deal with disputes relating to bankruptcies, which will emphasise the importance of amicable solutions, broadening the scope for debtors to seek agreements with creditors.

The special court will be set up under the new bankruptcy legislation that is set to come into force on May 1, 2024, replacing the 2016 bankruptcy framework.

The new law will also allow secured creditors to enforce claims against assets directly through the bankruptcy court, which should streamline enforcement.

The move is expected to have a significant impact on how insolvency cases are handled in the UAE, aligning the country more closely with global best practices.

The law also introduces an extended moratorium period. The bankruptcy court will have the authority to halt creditor actions from the start of proceedings until the approval of the restructuring plan, with no set time limit.

With a new approach guiding the bankruptcy proceedings, the courts have of late been taking a cautious approach to handling debtor-led bankruptcy cases, particularly in relation to determining whether there is a legitimate distressed financial position and enquiring as to the conduct of managers leading to the bankruptcy of companies.

The new court would mean that this approach is institutionalised so that all future cases would be handled keeping the interests of both parties to bankruptcy disputes.

While the courts have been dealing with bankruptcy cases under the Bankruptcy Law since it came into force in late 2016, these were principally creditor-led filings with very few debtor-led examples. As a result, the number of bankruptcy cases filed in aggregate across the Emirates has been rather limited, compared to the overall number of instances.

Originally published at Arabian Post.