Everything you need to know about the 2020 UAE Personal Insolvency Law

Everything you need to know about the 2020 UAE Personal Insolvency Law

The UAE Personal Insolvency (Law) came into effect on 29 November, 2019. The Law is intended to address the traditional stigma associated with personal bankruptcy, reduce the number of people leaving the UAE without settling all of their financial obligations and to ease the burden on financial institutions left with the high cost of bad or doubtful consumer debt.

It has been a long time in the making. A personal insolvency framework was suggested and drafted for incorporation into the bankruptcy regime at the time that the UAE Federal Bankruptcy Law (now Decree Law No (9) of 2016) (UAE Bankruptcy Law) was formulated. However, a personal insolvency Chapter in the draft law was not adopted – hence the wait until now for a discrete insolvency framework for individuals.

Historically, the position of an insolvent individual was dealt with through relevant provisions in the UAE Civil Code which gave jurisdiction to the Courts to issue Restriction Orders against affected individuals who were unable to pay or discharge their non-commercial debts. This process was little-used.

The Law does not apply to traders, commercial companies and other persons carrying out commercial activities who fall under the scope of the current UAE Bankruptcy Law. Consequently, relevant debts incurred by an individual may be a mix of both personal and commercial debts provided that such debts are not incurred by that individual in the course of carrying out any commercial business as a trader.

Consistent with the approach made in the UAE Bankruptcy Law, the Law offers (i) a Court-sponsored Settlement procedure (similar to Protective Composition for traders); and (ii) a formal insolvency or liquidation procedure.

Access into either set of proceedings will be determined by the debtor’s financial position at the relevant time.

How to apply for Personal Insolvency with the UAE courts?

Submit your Personal Insolvency Application

The Debtor will require to file with the Court, an application without litigating any person therein, to settle his financial obligations in accordance with the provisions of this Decree-Law.

Documents required for UAE Personal Insolvency Application

  1. A memorandum containing a brief description of the Debtor’s financial position and any data relating to his sources of income, both inside or outside the State, his professional, vocational or craft status, as the case may be, and his liquidity projections and sources thereof within a period of twelve (12) months following the submission of the application.
  2. A statement of the names and addresses of creditors whose debts are not paid or are not expected to be paid by the Debtor, the amount of each debt, the dates of maturity thereof and the securities provided to the creditors, if any.
  3. A detailed statement of the Debtor’s movable and immovable property inside and outside the State and the approximate value of each on the date of submission of the application.
  4. A statement of any legal or judicial proceedings or actions taken against the Debtor.
  5. A statement by the Debtor that he is facing current or anticipated financial difficulties and that he is unable or is expected not to be able to pay all of his debts, whether due at the time of submission of the application or in the future.
  6. The funds necessary to support the Debtor, his family and any dependents thereof.
  7. The Debtor’s proposals to settle his financial obligations.
  8. The Debtor’s nomination of an Expert to undertake the proceedings in accordance with the provisions of this Decree-Law.
  9. A statement of the disclosure of financial transfers outside the State that took place during the last twelve (12) months.
  10. Any other documents supporting the application or requested by the Court.

What if you fail to provide the mandatory documents?

If the Debtor is unable to provide any of the documents or data required , he will require to state the reasons for his insolvency demand in his application. Further,if the Court deems that the documents submitted are not sufficient to decide on the application, it may grant the debtor a time-limit for the submission of any additional data or documents.

Fees and Related Expenses

All judicial fees shall be met by the debtor. Further, the Court will estimate the expertise fees and the expenses expected for the financial settlement proceedings and notify the Debtor thereof no later than the day following the submission of the application.The Debtor will require to deposit with the Court’s treasury a cash amount or a bank guarantee on the date determined by the Court to cover the expertise fees and the expenses expected to be incurred for the financial settlement proceedings.

What if the debtor can’t pay the judicial fees?

In such instances, the Court may, at the request of the Debtor, postpone the deposit of the cash or bank guarantee and, if the Debtor does not have the necessary funds to cover the said expenses and fees on the date of submission of the application, provided that such expenses and fees be paid in preference to all other creditors.

Protection of funds

The Court may decide, at the request of any Interested Party or on its own initiative, to take the necessary Measures so as to preserve the Debtor’s Funds until determination of the application, or during the settlement of financial obligations.

Decision process for personal insolvency applications

  1. The Court will decide on the personal insolvency application without notice or pleading, within five working days from the date of submitting the duly completed application.
  2. If the Court accepts the application, it shall rule to open the proceedings for the settlement of financial obligations.
  3. The Court’s decision to accept the Debtor’s application for the settlement of his financial obligations will result in the suspension of the creditor’s right to request execution against the Debtor’s Funds or the opening of his Insolvency and liquidation proceedings. Such suspension shall continue during the period of the Debtor’s proceedings of the settlement of financial obligations.
  4. The creditor having a secured debt, shall have the right to execute against his securities, when his debt is due, provided that he obtains permission from the Court.
  5. The Court will decide on granting the permission within ten (10) working days from the date of submission of the application without litigation. Upon granting permission, the court will verify that there is no collusion between the Debtor and the secured creditor, as well as the secured creditor’s priority category if there is more than one creditor having a lien on the same fund.
  6. The Court’s decision to deny permission may be challenged before the Court of Appeal. The appeal shall not result in the stay of the proceedings for the settlement of financial obligations. The decision issued in the appeal shall be considered final.
  7. The decision of the Court shall result in the suspension of the Debtor’s obligation to apply for his Insolvency and liquidation of his funds. Stay of execution shall continue during the period of settlement of financial obligations unless the Debtor breaches his obligations as set out in the Plan, pursuant to the provisions of this Decree-Law.
  8. The Debtor’s application for the settlement of his financial obligations shall not result in the maturity of deferred debts on the date of submission of the application.

How are experts assigned in personal Insolvency proceedings in the UAE

  1. The Court shall, in the decision to open the proceedings of the settlement of financial obligations, assign one or more Experts to assist the Debtor therein.
  2. If more than one Expert is appointed, they shall perform their duties jointly and the decisions shall be taken by majority. In case of equal votes, the matter shall be referred to the Court. The Court may divide the tasks among the Experts and determine their mode of work, whether jointly or individually.
  3. The Court shall notify the Expert of the decision of his appointment no later than the day following the issuance of its decision to open the proceedings and shall provide him with all the information available thereto on the application.
  4. The Expert shall not be a creditor of the Debtor or associated therewith in any interest or kinship up to the fourth degree.
  5. The Expert shall assume his functions as soon as he is informed of his appointment decision.
  6. Within five (5) working days from the date of his notification of the appointment decision, the Expert shall publish the summary of the decision to open the proceedings in two widely circulated local daily newspapers, one in Arabic and the other in English. The publication shall include an invitation to creditors to submit their claims and supporting documents, provided that the same be delivered to the Expert within a period not exceeding twenty (20) working days from the date of publication.
  7. The Expert may request any data or information from the Debtor or from any other person with information relating to the settlement proceedings, and in the event of failure to provide such data or information, the matter shall be brought before the Court.
  8. The Debtor shall provide the Expert with any additional details on his creditors or the debt’s amounts, of which the Court has not been notified, and that, within the period specified by the Expert.
  9. The Expert may submit to the Court any request to assist him in the performance of his duties as required, including a request for disbursement of any amounts to cover the expenses and fees necessary for the conduct of the proceedings.

Submission of Debt Lieu Documents

Creditors, even if their debts are not urgent or are secured, shall hand over the Expert , their debt documents accompanied by the statements and collaterals thereof, if any, and the dates of their maturity and amount thereof in AED as per the Exchange Rate on the date of issuance of Court’s decision to open the proceedings.

The Expert may request the creditor whose claims have been submitted, to provide clarifications on the debt or to complete the documents relating thereto, or to have any of his claims certified by the creditor’s auditor or an independent auditor.

Preparation of Debtor’s Report

  1. The Expert will now prepare a list of all the Debtor’s creditors with the address of each of them, the amount and maturity date of the debt, a statement of the holders of the secured debts and securities prescribed for each of them, the estimated value of such securities, if any, and any other data deemed necessary by the Expert to perform his duties.
  2. The Expert will further prepare a report on the Debtor’s Funds and indebtedness and all circumstances relating to his default or Cessation of Payment and shall submit the same to the Court within twenty (20) working days from the date of expiry of the period granted to creditors for the submission of their debts documents. He shall also indicate in his report the possibility of settling financial obligations or otherwise, in the light of the Debtor’s income sources.
  3. The Court may, at the request of the Expert, grant him additional time to prepare the report.

The Debt Report’s Audit

The Expert’s report shall be audited by the Court to verify the Debtor’s Debt.If the Court deems it necessary to complete the proceedings for the settlement of financial obligations, it shall issue a decision instructing the Expert to prepare the Plan.

Reasons for rejection of applications relating to Personal Insolvency Proceedings

In all cases, the Court shall rule the completion of the proceedings for the settlement of financial obligations and the rejection of the application for settlement of financial obligations in the following cases:

  1. If it is established to the Court that the Debtor has carried out any action or refrained therefrom with a view to
  2. concealing or destroying any part of its funds.
  3. If the Debtor has provided false statements on his debts, rights or funds.
  4. If the Debtor has ceased to pay any of his debts on the maturity date thereof for more than fifty (50) consecutive working days, as a result of his inability to pay such debts.

Presentation of Plan to the Creditors

Upon completion of the debt report’s audit, the Expert will now prepare a settlement plan in cooperation with the Debtor, provide the creditors with a copy thereof and deposit a copy with the Court within twenty-two (22) working days from the date of the Court’s decision to instruct
the Expert to prepare the Plan.The Court may authorize the extension of the Plan deposit period if the need arises. The Expert shall co-ordinate the Debtor and creditors to one or more meetings, at a specified place and date, to discuss and vote on the Plan. The first meeting shall be held within a period not exceeding ten (10) working days from the date of providing creditors with a copy of the Plan. He may invite creditors to other meetings during the preparation of the Plan, or postpone the date of the meeting of creditors, taking into account the number of creditors known thereto and any other significant circumstances to hold the meeting.

Maximum duration to settle debts with Creditors

The proposed period for the implementation of the Plan may not exceed three years from the date of its approval by the Court. The said period may be extended subject to the approval of a majority of creditors who own two-thirds of the debts that have not been paid in accordance with the Plan.

Can a debtor object to the expert’s settlement plan?

The Debtor (or any creditor) may propose any amendments to the Plan during the meeting, and creditors shall vote at the meeting on any amendments to the Plan. The Expert will further convene a second creditors’ meeting to vote on the proposed amendments.

The Plan shall be approved by a majority vote of the creditors present and whose debts are not less than two thirds of the value of the debts verified. The Expert will further grant creditors who have not approved the Plan, abstained from voting thereon or failed to participate therein, a deadline not exceeding fifteen (15) working days from the date of ratification of the Plan, to join such Plan.

A creditor who has not attended meetings scheduled to vote on the Plan shall be deemed as having approved said Plan if he has provided the Expert with his claims and included the same without change in the Plan before the meeting.

If the Debtor agrees with a creditor to grant him special privileges in exchange for voting on the Plan and in such a manner as to prejudice the rest of the creditors, the Court may cancel this agreement on its own initiative or at the request of a creditor.

Approval of the Expert’s Settlement Plan

The Court will now verify that the Plan ensures that all creditors affected thereby receive at least the amount they would have received if the Debtor’s Funds had been liquidated on the date of voting on the Plan, at the discretion of the Court. The court will shall issue a decision approving the Plan if all the conditions are met and will be binding on all creditors.

If the Court decides to refuse to approve the Plan, it shall rule to commence the Insolvency and liquidation proceedings in accordance with the provisions of Book 3 of this Decree-Law. Within five (5) working days following the decision of the Court to approve or reject the Plan, the Expert will notify creditors of the Court’s decision.

Management of Plan Implementation

The Expert will act as a supervisor of the Plan for the duration of its implementation. He will follow up its implementation and inform the Court of any failure to implement it. He may access any data necessary to carry out his duties.

The Expert’s appointment will not affect the Debtor’s ability to conduct his business directly, during the implementation of the Plan for the settlement of financial obligations, nor shall it relieve him of any legal or contractual obligations arising from the conduct of his business.

Sale of the Debtor’s Property

The Expert shall sell the Debtor’s property decided to be sold in accordance with the implementation of the Plan at the best price obtained under the prevailing circumstances in the market on the date of sale. The proceeds of the sale or any income arising from the implementation of the Plan shall be deposited in the Court’s treasury.

Future Amendments to the Plan

If the Expert finds it necessary to make amendments to the Plan during its implementation phase and such amendments would cause a change in the rights or obligations of any party thereto, he shall request the Court to approve such amendments. Before deciding on the application, the Court shall notify all creditors who may be affected by such amendments and any creditors it deems necessary to notify, within five (5) working days from the date of submission of the Expert’s request, in order to make any observations on the required amendments, and that, within ten (10) working days from the date of the notification. The Court may issue a decision approving the amendment in whole or in part or rejecting the same, taking into account the interest of creditors.