On September 16, 2024, the UAE Cabinet issued Resolution No. 94 of 2024, setting forth the executive regulations for Federal Decree Law No. 51 of 2023 on Financial Restructuring and Bankruptcy. This regulation introduces comprehensive guidelines to bolster financial stability, ensure creditor protection, and streamline the bankruptcy process. It encompasses key definitions, regulatory authorities, the structure of bankruptcy records, and the procedures for insolvency requests by both debtors and creditors. Here’s a detailed breakdown of the resolution’s key elements and its implications for businesses and creditors in the UAE.
Key Definitions and Regulatory Authorities
The regulation starts with essential definitions consistent with Article 1 of the Federal Bankruptcy Law, ensuring clarity for all stakeholders. It establishes the “Financial Restructuring and Bankruptcy Record” (the Record) as a critical tool maintained by the Ministry of Finance, which documents individuals and entities subject to judicial orders on financial restructuring or restrictions imposed by the court.
The regulation also defines the key regulatory authorities involved in the enforcement of the bankruptcy law:
- Central Bank of the UAE – Overseeing financial institutions.
- Securities and Commodities Authority – Governing securities markets and financial instruments.
These authorities ensure compliance within their jurisdictions, adding a layer of oversight that strengthens the UAE’s regulatory framework.
The Financial Restructuring and Bankruptcy Record
A central component of the regulation is the establishment of an electronic or paper-based record managed by the Financial Restructuring and Bankruptcy Unit. This record captures comprehensive data on each insolvency case, including:
- Case details: Names of debtors, their professions, identification numbers, and contact information.
- Legal representative details: Information on the trustee and supervisor if appointed, along with their contact information.
- Debtor’s assets: Specifics on movable and immovable assets, including ownership status and any legal claims or encumbrances.
Right to Access the Record
Individuals or entities with vested interests can apply to access the information in the Record. However, the regulation mandates strict verification procedures to maintain data security. Interested parties must substantiate their relationship to the debtor or the case, specify the required data, and provide valid reasons for accessing the information. This structured access process promotes transparency while safeguarding sensitive information.
Initiating Bankruptcy Proceedings: Procedures and Conditions
Debtors can initiate bankruptcy proceedings if their debt obligations exceed AED 300,000 for individuals and AED 500,000 for corporate entities. Debtors regulated by specific authorities, such as banks or listed companies, must meet a higher threshold of AED 5 million in debt obligations to qualify for bankruptcy.
Creditors can also file a bankruptcy petition, provided the total outstanding debts are no less than AED 1 million. When dealing with regulated entities, creditors must meet a higher debt threshold of AED 10 million. This provision empowers creditors to initiate action against defaulting debtors, facilitating the recovery process.
The regulation also specifies that secured creditors can initiate proceedings if the security interest is insufficient to cover the outstanding debt by a margin of AED 1 million for individual creditors and AED 5 million for groups of creditors, with further distinctions for regulated debtors at AED 10 million.
Requirements for Regulatory Bodies
Regulatory authorities themselves may request bankruptcy proceedings for debtors under their supervision. For these entities, the regulations require a debt threshold of AED 500,000 to initiate a claim. This provision ensures that regulatory bodies can safeguard the financial health of the market by intervening when debtors within their jurisdiction face insolvency.
Collateral Requirements for Filing
Both debtors and creditors must submit a bank guarantee of 5% of the debtor’s total liabilities or assets when filing for bankruptcy. This guarantee, deposited with the bankruptcy court, covers the initial costs of the proceedings, helping to prevent frivolous or financially unsupported claims. In exceptional cases where the debtor lacks liquidity, the court may grant a waiver or allow an alternative arrangement, particularly if the debtor is facing genuine financial constraints.
Key Procedures in Bankruptcy Management
The regulation outlines the protocols for creditors’ meetings, which are essential to vote on preventive settlement plans. The meeting can be conducted virtually with the trustee overseeing the process, and all sessions must be recorded audibly and visually. This ensures a transparent voting procedure, with all objections and support documented meticulously.
Sale of Assets Through Auctions
The regulation requires court approval for the liquidation and distribution of the debtor’s assets through auctions. For immovable assets, the sale price is determined by an expert-appointed evaluator, with an initial bid set based on the evaluation. For securities and other financial instruments, the sale follows established protocols under the Securities and Commodities Authority, maintaining orderly and regulated asset liquidation.
Announcement and Documentation of Auctions
Auction announcements must be published at least five business days before the auction on the bankruptcy court’s website, as well as in a widely circulated Arabic-language newspaper. In cases involving foreign stakeholders, an additional announcement may be published in an international newspaper. The auction details must include the bidding process, asset descriptions, and auction terms, ensuring potential buyers have all the necessary information.
Closed Bidding Process
In some cases, assets may be sold through a closed bidding process, wherein offers are submitted in sealed envelopes or electronically. This method, specified by the trustee, allows for a secure and confidential bidding process. Bidders must comply with the guidelines, including submission deadlines and a minimum bid requirement.
Conclusion
The UAE’s Resolution No. 94 of 2024 on Financial Restructuring and Bankruptcy provides a robust framework for managing insolvency, emphasizing creditor rights, transparent proceedings, and asset liquidation protocols.
By setting clear thresholds, procedural safeguards, and access controls, this regulation strengthens the UAE’s financial system and underscores its commitment to a fair and orderly bankruptcy process.
This regulation not only supports the business environment but also bolsters confidence in the UAE as a stable financial center, aligning with international standards for bankruptcy proceedings.
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