HOW TO APPLY FOR A SETTLEMENT UNDER UAE’S NEW INSOLVENCY LAW
Many debtors struggling with financial liabilities will want to get help. Alice Haine explains the court’s process
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.