Many debtors strug­gling with fi­nan­cial li­a­bil­i­ties will want to get help. Alice Haine ex­plains the court’s process

The National - News - - BUSINESS | MONEY -

The UAE’s new in­sol­vency law – set to go live in Jan­uary – will help those strug­gling with chronic debts by de­crim­i­nal­is­ing their li­a­bil­i­ties. It will al­low them to ei­ther set­tle their fi­nan­cial obli­ga­tions through a court-ap­proved pay­ment plan, or in­sol­vency and liq­ui­da­tion of as­sets.

But how does it all work? How do you reg­is­ter your case at the courts? The Na­tional guides you through the process set out by the Min­istry of Fi­nance on how to qual­ify, doc­u­ments needed and the im­pli­ca­tions of not hon­our­ing the court’s de­ci­sion.

What are the op­tions if you are in debt?

The Fed­eral De­cree-Law on the In­sol­vency of Nat­u­ral Per­sons is dif­fer­ent from the Bank­ruptcy Law of 2016, as it ap­plies to in­di­vid­u­als rather than com­pa­nies. The pro­posed law of­fers debtors two ways to solve their fi­nan­cial strug­gles: ei­ther set­tle their debts fi­nan­cially by de­vis­ing a re­pay­ment plan through a court-ap­pointed ex­pert that al­lows the debtor to re­pay dues while still work­ing, or debtors can liq­ui­date their as­sets to re­pay their cred­i­tors.

The debtor must ap­proach the lo­cal court in the emi­rate they live in, such as Abu Dhabi Courts for a res­i­dent in the cap­i­tal. To be el­i­gi­ble, they must ei­ther be about to miss a debt re­pay­ment or have missed re­pay­ments in the past 40 days. They must then nom­i­nate an ex­pert to un­der­take the pro­ceed­ings.

What doc­u­ments are needed?

A de­scrip­tion of debtor’s fi­nan­cial sta­tus in­clud­ing sources of in­come, in­side and out­side the coun­try, and em­ploy­ment sta­tus. They must also sup­ply a list of their cred­i­tors – with names and ad­dresses – as well as a de­tailed state­ment of their as­sets within the UAE and over­seas, and any le­gal or ju­di­cial pro­ceed­ings al­ready filed against them. Other con­sid­er­a­tions in­clude a bud­get of how much they need to sup­port their de­pen­dents and de­tails of any fi­nan­cial trans­fers out­side the coun­try.

How long does a case take?

The court will make a de­ci­sion within five work­ing days from the date of ap­pli­ca­tion. If the re­quest is ac­cepted, the court will then start the pro­ce­dure for the fi­nan­cial set­tle­ment. The court can re­ject an ap­pli­ca­tion if the debtor hands in false state­ments or has not paid their debts for more than 40 con­sec­u­tive work­ing days.

The court ap­points one or more ex­perts to as­sist the debtor. The ex­pert will pre­pare a plan with the debtor and then pro­vide the cred­i­tors with a copy and lodge an­other copy with the court within 22 days

– which can be ex­tended by the court if needed.

The ex­pert will then in­vite the debtor and the cred­i­tors to dis­cuss and vote on the plan, with the first meet­ing held within 10 days of the cred­i­tors re­ceiv­ing a copy of the re­pay­ment deal. The debtor and cred­i­tors must at­tend the meet­ings in per­son, or send some­one au­tho­rised on their be­half.

How long does the agreed re­pay­ment plan last?

The plan can­not ex­ceed three years from the date it is rat­i­fied by the court, how­ever, amend­ments can be made at a later date if the ex­pert makes a re­quest.

Can a fi­nan­cial set­tle­ment be ter­mi­nated?

Yes, for a num­ber of rea­sons in­clud­ing if the court finds the fi­nan­cial obli­ga­tions can­not be set­tled or if the debtor ceases to pay any of their debts for more than 40 con­sec­u­tive work­ing days.

It can also be can­celled if the debtor fails to fol­low the plan or if the agree­ment ex­pires with­out the debts be­ing set­tled.The other op­tion is in­sol­vency and liq­ui­da­tion of the debtor’s as­sets.

How does this work?

A cred­i­tor or a group of cred­i­tors can ap­ply for in­sol­vency if the debtor owes more than Dh200,000 and can­not solve their is­sues through a re­pay­ment plan. The court will then ap­point a sec­re­tary to han­dle the liq­ui­da­tion. They will de­liver a re­port within 10 work­ing days, with the court de­liv­er­ing a de­ci­sion on liq­ui­da­tion of as­sets within 15 days from when the re­port is filed.

What as­sets would a debtor have to sell?

They in­clude prop­erty, cars, fi­nan­cial hold­ings or valu­able pos­ses­sions such as paint­ings. Funds that are ex­empt from liq­ui­da­tion pro­ce­dures in­clude pen­sions or so­cial ben­e­fits and funds needed to cover ev­ery­day liv­ing costs for their fam­i­lies.

How long does the process take?

The debtor will be given up to three months to liq­ui­date as­sets. Once the dis­tri­bu­tion of the debtor’s funds to cred­i­tors is com­plete, the court will is­sue a de­ci­sion to close all liq­ui­da­tion pro­ce­dures.

This in­cludes a list of the names of cred­i­tors whose debts are ac­cepted, their amount and what has been ful­filled, which will be pub­lished in two lo­cal daily news­pa­pers, one in Ara­bic and the other in English.

They can­not take on any more credit for three years from the date of in­sol­vency and their name will be listed in a Spe­cial Reg­is­ter.

When is the in­sol­vent debtor con­sid­ered re­ha­bil­i­tated?

Once the three years are up and the debtor has re­paid the debts, they can ac­cess credit again. This pe­riod can be short­ened if they pay a sub­stan­tial sum to­wards their dues or clear their debts en­tirely. A debtor is also in the clear if they die.

Are there any fines un­der the in­sol­vency law?

Yes, there are fines of be­tween Dh10,000 and Dh100,000 for cred­i­tors for crimes such as sham claims against a debtor or in­creas­ing debts il­le­gally.

For debtors, there are fines of be­tween Dh20,000 and Dh60,000 and pos­si­ble im­pris­on­ment if the debtor spends large sums of money that do not match their “tur­bu­lent fi­nan­cial sit­u­a­tion”, know­ing that cred­i­tors will be ad­versely af­fected.

They can also be pe­nalised if they pay off the debts of one cred­i­tor, which then af­fects the chances of oth­ers re­cov­er­ing their money or if they de­lib­er­ately sell their as­sets for less than their mar­ket value.

Are bounced che­ques now de­crim­i­nalised?

Bounced che­ques are not de­crim­i­nalised but debtors with a court-ap­proved pay­ment plan can present this to a crim­i­nal court to have the case “frozen”.

Can ab­scon­ders ap­ply for in­sol­vency from over­seas?

Yes. Those with un­re­solved debts can ask a le­gal rep­re­sen­ta­tive to file a re­quest at the court on their be­half.

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