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 twelve months to amicably negotiate mutual terms with their creditors.
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.
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 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 Bankruptcy Law.
For further information, please feel free to contact one of the lawyers above or your usual Baker McKenzie contact.
Baker McKenzie Habib Al Mulla is a member firm of Baker & McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner or equivalent in such a law firm. Similarly, reference to an “office” means an office of any such law firm. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.