There are two court systems in the UAE. First, the mainland “onshore” courts are based on a civil law system and give effect to the “onshore” regime, one based on federal laws. Secondly, the “off-shore” courts encompass the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC). These courts operate within the framework of a common law system and uphold their own “offshore” implementations, especially in company liquidation in Dubai cases.
Understanding the Different Types of Insolvency
The UAE Bankruptcy Law has been amended to help restructure the business and preserve it before it goes into liquidation| Liquidation Company in Dubai Accordingly, new instruments of recovery have been established by the law, serving to ease the process for creditors and debtors alike.
One of the novelties of the new law is the preventive arrangement, which replaces the old preventive composition regime. Preventive settlement comprises measures taken by a debtor to continue operating his/her business under judicial supervision while negotiating and ultimately settling its debts in accordance with a proposal, which has been approved by creditors. This setup allows for a more cooperative and productive method of dealing with financial distress, serving as a more palatable solution compared to the usual company liquidation in the UAE.
Types of Creditors in Company Liquidation in Dubai
Under the new Bankruptcy law, Article 179 organizes creditors into three classes that are prioritized, especially in cases where the company liquidation in UAE needs to be carried out:
Secured creditors are at the top of the list. These include collateral debts secured by mortgages, special liens on property, or general liens on the debtor’s assets, meaning they have priority in payment.
Article 179(7) -Privileged debts follow.
Most debts fall into the category of unsecured creditors, who are last in line. They are those that have unsecured debts or debts with contested guarantees (Article 104 of the new Bankruptcy Law).
This classification creates an easy-to-use map that prioritizes repayment, based on various creditor groups, during the liquidation process in UAE.
Key Statutory Officers
Statutory officers appointed in proceedings typically include trustees and controllers.
For trustees, the bankruptcy court designates the trustee nominated by the Bankruptcy Unit when it approves an application to initiate restructuring or bankruptcy adjudication procedures. This designation occurs in the same decision that opens the proceedings.
Regarding controllers, the bankruptcy court may assign the nomination of one or more controllers to the Bankruptcy Unit or creditors. This assignment can happen either on the court’s initiative or at the request of the debtor, creditors, or the Bankruptcy Unit, especially if the debtor is under a supervisory entity. Controllers are selected from the roster of experts, and their fees are determined. The court then finalizes their designation and approves their fees in its decision.
Creditors with Secured Claims
UAE laws empower individuals, corporations, and licensed or unlicensed banks or financial institutions, regardless of nationality, to secure qualifying property.
Creditors can access various types of security under UAE federal and local laws. These include the Federal Civil Transactions Code, Federal Commercial Transactions Code, Federal Maritime Code, Federal Law No. 4 of 2020 on Securing the Rights in Movables, Dubai Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai, and Cabinet Resolution No. 29 of 2021 on the Implementing Regulations of Federal Law No. 4 of 2020. Together, these laws enable creditors to establish diverse forms of security in a civil case in UAE.
Unsecured Creditors in a Civil Case in UAE
Articles 169 to 185 of the new Bankruptcy Law clearly define creditors’ rights and priorities under civil law in UAE. The trustee develops a plan to liquidate the debtor’s assets and distribute the proceeds to creditors. The trustee must prepare this plan within 30 days of the creditors’ meeting and share it with relevant parties, such as the creditors committee, the Bankruptcy Administration, and regulatory bodies, if applicable. If needed, the bankruptcy court can extend this deadline by up to three months at the trustee’s request.
During creditors’ meetings, the trustee leads the proceedings. If required, a creditor or another party can chair the meeting, provided they receive the necessary majority approval. For decisions to be approved, creditors representing more than half of the total debts must attend, and at least two-thirds of the represented debts must vote in favor.
Conclusion
Under Dubai law, the function of creditors’ committees in the liquidation of an enterprise is key to providing an orderly and fair process. The dual legal framework of the UAE, with civil and common law systems, offers separate paths for the handling of insolvency and liquidation. Innovative measures, more frequently the authorynthesis measure: preventive arrangements or arrangements, that lead to the preservation of businesses and promote cooperation.
The creditors are divided into secured, privileged, and unsecured with well-defined rights and priorities. To ensure an overhaul of processes, statutory officers, which include trustees and controllers, are established to see the process through as defined and to implement plans of liquidation, statutory acts admittedly carry more weight. The goal of the legal regime in, Dubai is to balance the interests of creditors and debtors in a manner that will facilitate the liquidation process and promote economic stability.
Having said that, Contact Khairallah Advocates & Legal Consultants and benefit from our free 30-min legal consultation.
*Disclaimer: our blogs, law updates and FAQ’s are freely distributed for educational purposes and to showcase recent updates and regulations in the UAE’s framework.
If you have any questions and need assistance, contact us at our number or book an appointment online.
