UAE Cabinet has approved an in Oct 2019 further amendment (Amendment Law) to Federal Law No 9 of 2016 (the Corporate Bankruptcy Law). The Amendment Law follows the previous amendment of the Corporate Bankruptcy Law in 2019 (pursuant to Federal Law No 23 of 2019).
The UAE Cabinet has now confirmed that an Emergency Financial Crisis shall be deemed to exist during the period from 1 April 2020 until 31 July 2021 due to COVID-19.
The UAE Cabinet has announced the existence of an Emergency Financial Crisis through the Official Gazette dated 31 January 2021.
By way of reminder, Federal Law No 9 of 2016 (the Corporate Bankruptcy Law) was amended in 2020 to add a new chapter addressing provisions which would apply during a period of Emergency Financial Crisis. The amendment defined an Emergency Financial Crisis as “A general situation that affects trade or investment in the country, such as a pandemic, natural or environmental disaster, war, etc.”
In summary, during the Emergency Financial Crisis period:
Debtors are not required to file for bankruptcy.
If a debtor does elect to file an application for bankruptcy (which may result in restructuring or liquidation of the debtor), the Court: 1) may accept such application and elect not to appoint a trustee in the bankruptcy proceedings, provided that the debtor proves to the Court that their financial disruption was a result of the Emergency Financial Crisis; and 2) shall not take any precautionary measures against the debtor’s assets which are necessary for operation of the debtor’s business during the Emergency Financial Crisis period.
Creditors may not apply to place a debtor into bankruptcy.
If the Court accepts the debtor’s bankruptcy application, the debtor may request from the Court a period of not more than forty business days to negotiate a settlement with its creditors (with the settlement period offered not to exceed twelve months). Such a settlement will be binding on all creditors if agreed by creditors holding at least two thirds of the total debt (noting there is no need for a majority of creditors).
Bankruptcy proceedings filed and accepted by the Court prior to the declaration of the Emergency Financial Crisis will continue and the Court is entitled to extend the time periods set out under the Corporate Bankruptcy Law (doubling the prescribed time periods).
Directors and managers of a corporate debtor may pay unpaid wages and salaries of the company’s employees (excluding allowances, pay raise and other contingent payments) without considering preference issues.
The debtor may request from the Court to obtain new financing on a secured or unsecured basis.