Revised Bankruptcy Law set to aidUAE companies

Emergency provisionswill safeguard national economy and boost investor confidence

The UAE Cabinet’s decision to amend the UAE Bankruptcy Law by adding emergency provisions for business continuity during pandemics and natural disasters is a timely move that will hugely boost the country’s economic sector. The new amendments aim to enable companies in the UAE to overcome credit difficulties during such emergencies in away that not only assures the fulfilment of obligations and reduces losses resulting froma debtor’s financial situation, but also establishes a legal framework to protect debtors’ rights and allowthem access to newfinancing according to specific rules. The amended provisionswill also help companiesmeet their ongoing commitments and reduce the losses arising out of financial default.

These are situations that have been in focus given the catastrophic global economic impact of the coronavirus pandemic— and the UAE has also not been immune from its effects. As a result, many individual and corporate debtors face financial difficulties and problems that are not of their own making — and the amended Bankruptcy Law will thus help contain the cascading effect of such situations onto company bottomlines.

Under the new provisions, a debtor does not need to file immediately for bankruptcy proceedings in the UAE if their business or company falls under the ambit of the new rules. Rather, the debtor needs to submit an application— whichif cleared by the competent court, will allow business owners to reach a settlement mechanism with their creditors. The debtor has the right to request time to negotiatewith creditors to reach an agreement to settle all debts within a period of 12 months. If the court approves the bankruptcy request, nomeasures will be taken on the funds that are necessary for the business or company to continuewithin this the specified period.

Allowing businesses access to funds that they generate is a massively valuable lifeline under the current critical situations, and will go a long way to prevent struggling businesses from collapsing. This is especially good news for SMEs and entrepreneurs who might otherwise find it impossible to continue accessing their funds— but debtors and businesses should utilise the revised law in a responsible and prudent manner and only as an extreme resort after exhausting all other options.

As the UAE has demonstrated time and again, its laws are always responsive and continue to evolve with situations — and in this case the amendments will not only safeguard the national economy and ensure its soundness and agility, but also facilitate solutions that immensely boost the level of confidence in the creditmarket and reassure foreign and domestic investors.