It was a great decision taken in UAE last year when the Federal Decree-Law No. (19)of 2019 was issued eyeing the insolvency. As per the traditional bankruptcy law, companies used to struggle with financial matters. Eventually, with the new and codes imposed for assisting individuals, it is now possible to pay the overwhelming debts.

The new insolvency law in UAE was introduced in the month of January 2020, and the year was named after economic and social development. It was a great aspiration for stable and happier living conditions. The courts have even started taking cases from various individuals as the new insolvency law has set out with easy and clear rules. It is now easier to collect bad debts and rehabilitate the financial position of a debtor. The law also encourages lenders or creditor banks.

A Firm Ground for Repaying

Expats in UAE often face financial hurdles, and they are indebted to a certain point from where the options seem to be limited. Situations often force them to flee to airports with overstuffed luggage which are hastily packed. This is certainly unfortunate for both the country and the people who have wished to work there.

Considering this situation, the UAE Cabinet has issued a much-awaited Insolvency Law to minimize the number of fleeing cases of expats. As per the Federal Decree-Law No. (19) of 2019 announced by the United Arab Emirates Cabinet, individuals can take on cases to tackle financial troubles. The new law introduced aims the concerns regarding financial issues faced by a person. In contrast to the usual bankruptcy law that applies to institutions and companies, the new Insolvency Law is far better.

The new law will ensure breathing space to the debtors as it allows avoiding criminal liabilities for financial issues like bounced cheques. However, it is yet not decriminalized; debtors have the opportunity to resolve the issues of debts using the Insolvency Law. They don’t even have to face legal actions to resolve the problems.

What do debtors need to consider?

When setting up financial obligations, debtors should initially apply to the Court. The application must have an array of evidence presented by the debtor. These include:

  1. Property income
  2. Financial income
  3. Type of occupation
  4. Declaring details of the creditor
  5. Statement of judicial actions (if any)

If the debtor fails to provide any of the documents, it is crucial to include the reasons behind the same.

After the application has been accepted, the financial obligation settlements are commenced. The creditor’s rights claimed will be interrupted if he/she holds a secured mortgage debt. Once an expert lawyer is consulted, he/she will consider working alongside the debtor to set up the financial obligations.

The responsibilities of a lawyer

The expert is held responsible for charging a draft with a list of information of the creditor under the debtor. He/she should also present a report that showcases:

  1. Properties that lead to failure of repayment
  2. Reasons that lead to failure of repayment

The Court will be accepting all the procedures of financial obligation settlements. After complete acceptance from the Court, the expert can then initiate the plan. If the debtor has destroyed or concealed property or provide false information or even fail to make a repayment of any debt for more than 50 consecutive working days, chances are there to get the application rejected.

Does the new law ensure the ceasing of the civil or criminal case against the debtor?

Yes, it is possible as per the legal researchers. The law stipulates during the time of liquidation and insolvency procedures; it is not possible or permissible to initiate any lawsuit. Also, it is not possible to take action (legally) or judicial measures due to the issuance of the decision opening up the liquidation and insolvency procedures entailing the stoppage of entitlement of contractual benefits or legal benefits to the debtor.

As per the newly introduced law, it states that the Court’s decision for accepting the application of a debtor for settling the financial obligations shall result in suspending the right of the creditor for requesting execution against the funds for opening the liquidation and Insolvency proceedings. Such suspension will continue during the period of proceedings regarding the settlement of financial obligations.

What does the plan include?

The plan for insolvency law includes a meeting where the creditor and debtor are allowed to discuss and vote on a particular plan. To create a successful vote, it is crucial to get acceptance from the majority of the creditors. This must not equate to below two-thirds of the total debts. After voting and getting approval, the plan hits the implementation process within a time frame of three years from the approval date of the Court. Alongside, the plan will involve selling the debtor’s properties to cover up the creditor debts.

The expert is responsible for reporting to the Court on a quarterly basis and the progression of the plan. In the case of amendment requirements, further approval may be needed. The Court has the right to terminate the procedure if:

  • It is felt there is no chance of reaching a settlement
  • If the debtor fails to pay the debts within the due date.

In the case of procedure termination, the debtor has to commence insolvency programs that include liquidation of the properties. Creditors can also apply to the Court to initiate the liquidation of the debtor’s properties. Here, the Court will be estimating the fees required for the procedure of the liquidation and insolvency of the properties.

With the introduction of the Insolvency Law in the United Arab Emirates, it is now possible to assist the protection of residents and expats. This can be done by offering further protection obtained from legal prosecution. It is a great opportunity to work and repay the debts while decriminalizing the financial obligations. The Insolvency Law has assisted the entire country in improving the solvency rate to a great extent. It has also meant a lot when it comes to increasing the competitiveness and strength of the economy.