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Federal Decree – Law 19 of 2019 on Insolvency (“Insolvency Law”) was published in the Official Gazette on 29 August 2019 and entered into force 3 months after its publication.

In the efforts of the United Arab Emirates (UAE) Government to diversify its economy and move away from an economy dependent on its oil reserves and depend more on the financial services sector, the laws governing the insolvency of corporates and companies domiciled in the jurisdiction of the UAE saw a major development in 2016 by virtue of the Bankruptcy Law, which was subsequently amended in 2019 and 2020.

The purpose of this Insolvency Law is to provide a formal restructuring and insolvency regime for individual debtors who are not subject to the Federal Decree Law No. 9 of 2016 on Bankruptcy (“Bankruptcy Law”). The Insolvency Law also aims to complement the procedures of the Bankruptcy Law and repeals the previous framework set out in Part 5 of UAE Federal No. 18/1993 (the Commercial Transactions Law) as well as specific provisions of the UAE Federal Law No. 3 of 1987 and any other provisions inconsistent with the provisions of the Bankruptcy Law.

Prior to the introduction of the Bankruptcy and Insolvency Law, the matters relating to corporate insolvencies were resolved through informal negotiations without a supporting legislative framework in addition to resorting to criminal proceedings against the debtor. Often, the threat of criminal proceedings would result in the debtor fleeing the country rather than settling their liabilities. The new Insolvency Law introduces a framework which provides a court-approved formal settlement and restructuring process and a subsequent insolvency and liquidation process, resulting in a fairer outcome where the debtor is presented with an opportunity to settle his outstanding dues without litigation proceedings being commenced against him and the creditors benefitting from the actual recovery of their debts.

The Insolvency Law codifies two official court-approved processes for individuals who are not engaged in economic or trading activities (i.e., sole traders):

1. Financial settlement proceedings

2. Insolvency and liquidation proceedings

Commencing Proceedings

The proceedings are initiated by the debtor applying for financial settlement proceedings together with supporting documentation. Since this is a non-litigious process under Article 7 of the Insolvency Law, this encourages the use of the procedure to allow debtors and creditors to agree to a debt repayment plan.


Appointment Of Expert

If the court approves the opening of financial settlement proceedings, an expert will be appointed by the court who shall assist the debtor. This is advantageous to the debtor as the approval of financial settlement proceedings as unsecured creditors will be prevented from any action against the debtor’s assets or petition for the debtor’s insolvency. Furthermore, any secure creditors may only act against secured assets with the permission of the court.

The expert will then undertake the duties similar to those of an insolvency practitioner and will submit a settlement plan to the creditors and the court in accordance with the procedural requirements and being bound by the obligations of confidentiality of Article 23 of the Insolvency Law. If the settlement plan is approved by the court, it becomes binding on all the creditors. However, Article 24 of the Insolvency Law allows for amendments to the plan and any proposed amendments will be considered based on the best interests of the creditors.

Termination and Expiry of Settlement Proceedings

If the debtor can fulfil his obligations under the plan, the court shall issue a decision confirming the fulfilment of the plan.

If the debtor fails to implement the plan within the stipulated time period or is unable to pay his debts for a period of more than 50 days after date of maturity, the court shall terminate the settlement proceedings and issue an order to nullify the plan and commence insolvency and liquidation proceedings. This shall also be the case where the court finds that the debtor has carried out any act which demonstrates that he has evaded or has sought to evade the fulfilment of his obligations.

Commencing Insolvency and Liquidation Proceedings

Where the debtor is unable to pay his debts for a period of 65 days following the maturity date, he shall apply to the court for the opening of insolvency and liquidation proceedings.

Under Article 28, where the amount of debt exceeds AED 250,000, the debtor shall be obliged to apply for the opening of insolvency and liquidation proceedings. However, the application may also be submitted by the creditors where the amount of debt is no less than AED 1,000,000.

Appointment of Trustee

As with financial settlement proceedings, the court will appoint a trustee, who may also be the same person who acted as an expert in the financial settlement proceedings, to undertake liquidation procedures, and the trustee shall follow the procedural requirements to require creditors to submit their claims within the stipulated timeframes and then prepare and submit an audited report to the court.

Liquidation of Assets

If the court decides, after due consideration, that Insolvency and Liquidation Proceedings should be opened, the trustee will sell the debtor’s funds by public auction at the best possible price through any of the methods stated in Article 36 of the Insolvency Law.

In achieving fairness and balancing interests, the court will prescribe an amount to meet the needs of the debtor and his dependents, and these amounts shall be excluded from the liquidation process. Similarly, the debtor’s pension or social benefit are exempt from liquidation. The trustee may also not sell the place of residence of the debtor unless he applies for an order of the court. In granting such an order, the court must consider the interests of the creditors and the alternative residency requirements for the debtor and his dependents.

Distribution of Assets

After the distribution of assets, the liquidation procedures shall be closed by order of the court with details of the creditors and the amounts paid to them under the proceedings.

Implications of Insolvency Proceedings

A decision of the court to open insolvency proceedings, amongst other implications, shall result in the following:

1. The maturity of all of the debtor’s debts

2. The debtor shall be prohibited from making any payments in excess of AED 5,000 unless he obtains the approval of the trustee. Furthermore, the debtor shall be prohibited from managing his business and disposing of his assets.

Commencing Proceedings

Should a debtor be declared insolvent, and this insolvency results in a loss to the creditors, and the debtor proceeds to dispose of any of his assets in a such a manner that violates the terms of the plan or transacts with his funds that prejudices the interests of the creditors, then the court may impose a penalty on the debtor ranging from imprisonment of up to 2 years and/or a fine ranging from AED 20,000 to AED 60,000.


In conclusion, understanding and navigating the complexities of insolvency law is pivotal for businesses facing financial challenges. At Gatestone Group, we recognise the importance of a strategic and informed approach during such critical times. Our team of legal experts stands ready to provide tailored guidance and comprehensive solutions to address insolvency concerns. Contact us today for a personalised consultation and discover how we can assist you in safeguarding your business’s financial future.


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