UAE Bankruptcy law | KPMG | AE
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Bankruptcy law

UAE Bankruptcy law

The UAE government has issued a new bankruptcy law. Law 9 of 2016 was published in the Official Gazette on 29 September 2016 and comes into force on 29 December 2016.


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Key points

  • Current insolvency regime repealed
  • Application is wider – not just commercial traders
  • New financial restructuring committee to be appointed
  • New balance sheet insolvency test
  • Modernized restructuring and insolvency procedures, although still court-driven "Bankruptcy by default" (also known as the 30 day rule) has been rescinded
  • Proceedings for bounced checks stayed if rescue procedures initiated
  • New minimum threshold (AED100,000) for creditor-initiated insolvency proceedings


Statistics show that insolvencies in the UAE are generally more time-consuming, and result in significantly lower recovery rates than in other jurisdictions. The UAE's current insolvency regime were contained in Federal Law 18 of 1993 - the commercial code. Its provisions are largely untested and generally regarded as needing modernization. The UAE government has been considering amending the insolvency regime since 2009, and a previous draft insolvency law was published in 2011.

Key changes

Repeal of the current regime: 

Chapter V of the commercial code, which sets out the UAE's current insolvency regime, will be repealed, together with various bankruptcy-related crimes set out in the penal code.

Wider application:

The new law applies more widely than the current commercial code, covering:

  • Companies governed by the Commercial Companies Law (CCL)
  • Most free zone companies
  • Sole establishments
  • Civil companies conducting professional business
  • Government-owned companies not established under the CCL, such as companies formed by decree, may opt-in to the provisions of the new law
  • Companies in the DIFC and ADGM have their own insolvency provisions

There are no provisions addressing individuals acting in a private capacity.


  • A financial restructuring committee will be formed under the authority of the Ministry of Finance. 
  • The committee will maintain a list of insolvency experts and a register of insolvencies.

New insolvency test: 

  • The new law introduces an alternative "balance sheet" test to test if the assets of a business are sufficient to cover its liabilities.

Processes and procedures: 

Three main procedures for a business in financial difficulty:

Protective composition: 

  • A debtor-led, court-sponsored process
  • Designed to facilitate the rescue of a business which is in financial difficulty but not yet insolvent
  • Requires the approval of both a majority in number and two-thirds by value of the unsecured creditors
  • Must be implemented within three years of court approval
  • Can be extended for a further three years with creditor approval.

Insolvency with restructuring:

  • If a debtor is insolvent but the court determines that the business is capable of being rescued, it may approve a restructuring scheme.
  • Similar to the protective composition described above, requiring the same levels of creditor approval
  • A longer period of five years (extendable by a further three years) is allowed for implementation.

Insolvency and liquidation:

  • The court can order the insolvent winding-up of a business if:
  • A protective composition or restructuring scheme is inappropriate, not approved or terminated
  • A debtor is acting in bad faith to evade financial obligations

  • A "trustee", independent of the debtor, is appointed to manage the process.
  • The law includes strict time limits for making filings and lodging objections. 
  • It is expressly provided that the relevant process continues while the court considers any objections.
  • Otherwise time-consuming proceedings could prove to be a practical obstacle.
  • Procedures are not substantially different from those currently available under the commercial code.
  • The new law does not include provisions for an out-of-court financial restructuring procedure – although this may be addressed by the financial restructuring committee in future.

Other areas addressed:

Removal of bankruptcy by default:

Current regime:

  • A trader unable to pay its debts must apply to be declared bankrupt within 30 days.
  • Failure to do so is a criminal offence (bankruptcy by default) and may result in fines and potential imprisonment.
  • The risk of imprisonment may have encouraged business owners in financial difficulty to abscond.

The new law decriminalizes this behavior:

  • A debtor which fails to repay due debts for over 30 business days, or which is insolvent on a balance sheet basis, is required to initiate insolvency procedures.
  • Failure to do so may result in a disqualification order against the debtor in certain circumstances - but it is not a criminal offence.

Bounced cheques:

Current law:

  • Non-UAE nationals who sign checks that bounce are potentially subject to criminal charges
  • This is often cited as a reason why traders in financial difficulty ‘skip’.

The new law:

  • Stays proceedings in respect of bounced cheques issued by a debtor:
  • Once a protective composition or restructuring scheme has been initiated
  • Provided the cheque in question was written prior to the application.
  • The stay continues until the relevant procedure is completed
  • The cheque holder is treated in the same way as the debtor's other creditors
  • Settlement will be in accordance with the scheme discharging the debt and potentially rectifying the criminal breach.
  • This is a particularly helpful change which is likely to encourage debtors to take proactive steps to address their financial difficulties.


Under the current law:

  • Any creditor regardless of amount may apply to have a trader declared bankrupt
  • The new law introduces specific new requirements:
  • Before filing insolvency proceedings against the debtor, a creditor or group of creditors must:
  • Hold debts of at least AED 100,000
  • First notify the debtor in writing to discharge the debt(s), allowing 30 consecutive business days for repayment.

New financing:

Provisions allow priority to new finance following a protective composition or restructuring scheme, with safe-guards for existing secured creditors.

KPMG view of the new law

  • The new law represents a step forward for the UAE's insolvency regime and contains much to be welcomed. The law remains complex and requires insolvency expertise.
  • The removal of the criminal offence of bankruptcy by default, provisions for bounced checks and new requirements for creditor-initiated insolvency proceedings are likely to be particularly helpful.
  • Protective composition and insolvency with restructuring rescue schemes should encourage corporates to ‘not bury their heads in the sand’.
  • The ultimate success of the new regime will depend on the availability, expertise and willingness of both the local courts and UAE-based insolvency experts to implement it and application of the law to real life cases.


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