UAE Bankruptcy Law update: Executive Regulation now in force

Following the entry into force of Federal Decree Law No. 51 of 2023 Promulgating the Financial Reorganisation and Bankruptcy Law (the Bankruptcy Law) on 1 May 2024, the long-awaited executive regulation of the law has now been issued through UAE Cabinet Resolution No. 94 of 2024 (the Executive Regulation). The key updates are highlighted below.

Supervisory Entities

One of the most notable changes under the new Bankruptcy Law is the explicit designation of the UAE Central Bank and the Securities and Commodities Authority (SCA) as "Supervisory Entities". While these bodies previously had oversight responsibilities, the Executive Regulation formalises their role in supervising the application of the Bankruptcy Law.

We expect that this will lead to greater stability in the UAE’s insurance, financial, and securities markets as the UAE’s Central Bank and the SCA will be involved in insolvency procedures of entities which they regulate.

This will enhance transparency and ensure that financial institutions, particularly those under the supervision of these authorities, will have well-defined oversight during bankruptcy or restructuring processes.

Bankruptcy register

The Bankruptcy Law mandates the Financial Reorganisation and Bankruptcy Unit with establishing and organising a bankruptcy register to record the applications submitted and actions taken under the Bankruptcy Law. The Executive Regulation now sets out the details to be included in the bankruptcy register and the conditions for interested parties to examine the register.

Any parties with a legitimate interest may request access to the register, provided they submit a formal application specifying the information they wish to review, and the purpose of the request. Approval from the Minister of Justice or his/her representative is required before access is granted.

The bankruptcy register will improve accessibility under certain conditions and ensure a more transparent bankruptcy process compared to the previous regime, as creditors and other stakeholders may access necessary information about insolvency cases if certain conditions are fulfilled.

Debt thresholds to commence procedures

The Executive Regulation has now set out the minimum debt thresholds that are required to commence insolvency procedures. These thresholds are as follows:

• Debtor-led process: Debtors may apply to the Bankruptcy Administration to commence preventative settlement, restructuring, or bankruptcy proceedings if the unpaid debt is not less than AED 300,000 if the debtor is an individual, and AED 500,000 if the debtor is a legal entity.
• Creditor-led process: Creditors may apply to the Bankruptcy Administration to commence restructuring or bankruptcy proceedings if the unpaid debt is not less than AED 1,000,000 (this threshold is increased to AED 10,000,000 if the debtor is an entity regulated by the UAE Central Bank or the SCA). A secured creditor/mortgagee may apply to commence restructuring or bankruptcy proceedings if the total value of the securities at the date of the application is less than AED 1,000,000 of the debt amount if the application is submitted by one creditor, AED 5,000,000 if the application is submitted by a group of secured creditors, and AED 10,000,000 if the debtor is an entity regulated by the UAE Central Bank or the SCA.
• Regulatory process: Supervisory Entities may request the commencement of restructuring or bankruptcy proceedings if the debtor’s debt is greater than AED 500,000.

The previous bankruptcy law had lower thresholds, making it easier for smaller claims to lead to insolvency proceedings. The increased value thresholds under the Executive Regulation reflect a slight shift in how the law addresses the balance of stakeholder interests towards protecting businesses from facing the challenge of bankruptcy proceedings for relatively low-value debts which are more likely to resolve out in the ordinary course of business, and instead focusing attention and assistance of the judicial process (with involvement of professional insolvency practitioners) on what may be considered more substantial cases, and focusing judicial resources on larger, more complex insolvency matters.

Initial payment to commence procedures

The Executive Regulation now requires debtors or creditors, when applying for insolvency procedures, to deposit funds or a bank guarantee with the Bankruptcy Court equal to 5% of the value of the debtor’s debt or assets. These funds are used to cover the court’s expenses that are related to the initial stages of the bankruptcy request.

However, the Executive Regulation allows for flexibility whereby the President of the Bankruptcy Administration can reduce or postpone this deposit if the debtor demonstrates financial hardship or if the initial procedures do not require any financial expenses.

Procedures for small debtors

The Bankruptcy Law introduced a new procedure for small debtors and authorises the Bankruptcy Court to implement less onerous and more streamlined procedures for small debtors. The Executive Regulation now classifies small debtors as debtors with assets that are less than AED 1,000,000 in the case of individuals and AED 2,000,000 in the case of legal entities.

In insolvency cases involving small debtors, the Bankruptcy Court may, at its own accord or based on a request by the debtor, creditor(s), trustee, order the commencement of the preventative settlement, restructuring, or bankruptcy procedures in accordance with the streamlined procedure under the Bankruptcy Law.

Conclusion

The newly issued Executive Regulation provides much-needed details and structure with respect to the application of the Bankruptcy Law. By filling the gaps left by the Bankruptcy Law, the Executive Regulation is the final shift from the previous regime.

Key changes, such as the increased debt thresholds, the enhancement of supervisory oversight, and the transparency of the proceedings will ensure that the bankruptcy process is now more streamlined and targeted towards larger, more complex cases. At the same time, small debtors benefit from less onerous procedures, reflecting a balanced approach to financial distress.

For further information, please contact Keith Hutchison and Sherif Maher.