
The UAE shifted its bankruptcy and financial reorganization structure by the introduction of Federal Decree Law No. 51 of 2023 (“Bankruptcy Law”) earlier this year. The issuance of the executive regulations of the Bankruptcy Law by Cabinet Resolution No. 94 of 2024 (“Executive Regulation”) clarifies the application of the Bankruptcy Law.
While the Executive Regulation was published on 16 September 2024, it is retroactively effective from the day of entry into force of the Banking Law (i.e., 1 May 2024).
Below is a summary of the Executive Regulations’ key updates.
1. Debt Thresholds to Initiate Proceedings and Deposit Requirements: the new thresholds to initiate preventative settlement, restructuring, or bankruptcy proceedings are higher under the Executive Regulation compared to the old one. As previously discussed in our article on preventative settlement ,
this increase reflects the legislator’s efforts in preserving business continuity in the UAE. That said, the thresholds differ based on whether the initiation of proceedings is made by the debtor, the creditor, or the regulatory authority.
1.1 Debt Thresholds
For applications submitted by debtors (for preventative settlement, restructuring, or bankruptcy) the thresholds are as follows:
The value of outstanding debt or amount that the debtor will not be able to pay once due should not be less than AED 300,000 for a natural person, AED 500,000 for a legal entity , or AED 5,000,000 if the debtor is subject to the regulatory authority.
For applications submitted by creditors (for restructuring or bankruptcy), the thresholds are as follows:
For unsecured creditors, the value of outstanding debt by the debtor should not be less than AED 1,000,000 if the debtor is not subject to the regulatory authority, and not less than AED 10,000,000 if the debtor is subject to the regulatory authority.
For secured creditors, the value of the securities on the date of the application is less than the outstanding debt by not less than AED 1,000,0000 if the application is submitted by one creditor, AED 5,000,000 if the application is submitted by a group of secured creditors, and AED 10,000,000 if the debtor is subject to the regulatory authority.
For applications submitted by the regulatory authority (for restructuring or bankruptcy), the threshold is as follows:
The value of outstanding debt or amount that the debtor will not be able to pay once due should not be less than AED 1,000,000.
1.2 Deposit Requirements
Under the old bankruptcy law, the practice was for the court to specify at its discretion the bankruptcy court and expert fees, which were lower than the current thresholds.
However, under the Executive Regulation, save for applications submitted by the regulatory authority, both creditors and debtors must deposit cash or a bank guarantee amounting to 5% of the value of the debtor’s assets or debt on the date of application or the creditor’s claimed debts. The President of the Bankruptcy Administration may, however, reduce this percentage or postpone the payment of the deposit if the initial proceedings will not require financial expenses or if the debtor submitting the application did not have enough liquidity on the submission date. This means that the baseline is the aforementioned 5%, nonetheless this percentage may be reduced based on the President of the Bankruptcy Administration’s discretion.
We believe that the reasons for increasing this threshold are on one hand, to allow the bankruptcy court to focus on complex bankruptcy cases, and on the other hand, to avoid a situation where the bankruptcy proceedings are cut short due to lack of resources. Hence, ensuring that the objectives of the bankruptcy proceedings are achieved.
1.3 Small Debtors
It is worth mentioning that in the case of small debtors, defined as individuals with assets not exceeding AED 1,000,000 or legal entities with assets not exceeding AED 2,000,000, the bankruptcy court may at its discretion, or based on the debtor’s, the creditor’s or the trustee’s request, order the commencement of the preventative settlement, restructuring, or bankruptcy proceedings.
2. The Regulatory Authority: the Executive Regulation specifies the definition of Regulatory Authority, which was silent under the Bankruptcy Law, as the UAE Central Bank and the Securities and Commodities Authority (SCA). In general, the Regulatory Authority’s role under the Bankruptcy Law relates to the execution of the proceedings. For example, the Regulatory Authority may initiate proceedings against the debtor that is a regulated entity. In other instances, the Bankruptcy Unit must adhere with specific notification requirements to the Regulatory Authority if the debtor is a regulated entity. That said, the extent of involvement of each authority and the potential regulatory interplay between them is yet to be observed in practice.
3. Bankruptcy Register: while the Bankruptcy Law indicated the establishment of a bankruptcy register by the Financial Reorganization and Bankruptcy Unit, the Executive Regulation outlines the details to be included in such register. This includes bankruptcy court judgements and orders. In this respect, the register can only be accessible by parties with a legitimate interest via submitting a formal application and following the approval of the Minister of Justice or its representative. We expect this to enhance the transparency for stakeholders in any bankruptcy or financial reorganization proceeding. This will also enhance the due diligence tools available for various transactions.
4. Voting Meeting on the Preventative Settlement Proposal
The Executive Regulation introduces terms and conditions for holding the meeting to vote on the preventative settlement proposal, such as the formalities of the meeting minutes. Once again, this highlights the legislator’s intention to streamline the preventative settlement proceedings led by the debtor and ensures transparency for all stakeholders.
Conclusion
The long-awaited Executive Regulation introduces details clarifying the application of the Bankruptcy Law. By increasing the thresholds for initiating proceedings, the UAE legislator channels the efforts of the courts in significant bankruptcy proceedings and could potentially be shielding businesses with small debts that can be settled through business operations. Further, by defining the regulatory authority, defining the content of the bankruptcy register, the Executive Regulation aims to protect the vitality of the national economy and increase transparency for the stakeholders in bankruptcy proceedings.

Mirna Lakah
Associate
NHB LEGAL