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Declaring Bankruptcy in the UAE

Declaring Bankruptcy in the UAE blog S & S Lawyers that is the leading law firm in sharjah, UAE consisting of experienced lawyers and advocates in Sharjah that provides high quality legal services to groups and individuals to help them with legal matters, including arbitration, civil, criminal law and crimes, real estate, personal status, and as well free legal consultation.

The UAE Federal Law by Decree No. 9 of 2015 came into effect in December 2016, that governs all bankruptcies on the federal and local level in the UAE and is overseen by the Ministry of Finance.

Declaring bankruptcy in the UAE might seem like an easy task and a heavy breath of relief for those who are no longer able to repay their liabilities in the business industry they’re in. However, knowing what to do in order to formally declare it is important so you won’t be facing serious consequences when you declare bankruptcy in the wrong ways.

Having a bankruptcy lawyer to guide you through the intricacies of this sector will work with you in order to achieve a reasonable and fair outcome for you and for your business.

The courts in the UAE have been taking an extremely cautious approach to handling debtor-led bankruptcy cases, that sometimes lead to either reconstruction of the company or proceed to liquidation if the court considers that restructuring is not possible. Any bankruptcy filing in UAE should be taken seriously as this could have some serious effects on the finances of company shareholders and the company itself.

What Do You Need to File a Bankruptcy?

There are things that you have to do in order to file a bankruptcy in the UAE, some requirements you need to meet in order to avoid having to face legal consequences that could lead to bigger problems before you could even declare liquidation.

The first thing that a business must look for when declaring for bankruptcy is a lawyer that would handle the whole filing processes to prove that the company is in fact insolvent.

Opening an application for declaring bankruptcy requires the debtor or the competent supervisory authority to submit the application with certain documents, along with stating some reasons on why the application is being opened in the first place. A memorandum is one of the documents that needs to be submitted that contains a brief description of the financial and economic situation, asset information, and detailed data of employees. Completing these requirements are necessary whether the application is for restructuring, or to get a legal ruling for bankruptcy and liquidation, along with the justifications for this.

The most important of all these documents is the debt related data that includes the amount of debt and any guarantees available. Followed by the debtor’s cash flow and profit and loss expectations for 12 months following the submission of the application. A statement detailing the names of the creditors, their addresses, amounts due and the guarantees offered to them in return (if there’s any).

It is a must to also submit the certified copy of the debtor’s commercial, industrial or professional license and his commercial register that is issued by the competent authority at the Emirate, along with the detailed statement of all immovable and movable property with approximate value of each of these properties on the date of submission of application, and statement of any guarantees or rights given to others.

And in any case a document cannot be submitted by the debtor or the applicant, the reasons also need to be stated in the application.

It is a possibility that the court does not find the documents submitted sufficient enough, so it may grant the applicant an extended time to provide the additional data or documents needed to support his application.

Failure of Submitting Complete Requirements

And when the court still did not receive the necessary requirements, obviously the application will be rejected.

You need to take note that filing for bankruptcy does not necessarily mean the businesses will be debt-free and the bankruptcy law applies to companies governed by the UAE commercial companies law, companies not otherwise governed by the UAE Commercial Company Law that are owned, wholly or in part, by the UAE federal government of by local governmental entities, and whose legislation, memoranda, or articles of association stipulate the application of the UAE Bankruptcy Law; any individual who qualities as a “trader” under the UAE Commercial Transactions Law, and licensed civil companies that undertake professional activities.

Why Should Businesses Avoid Filing for Bankruptcy As Much As Possible?

⚫️ No Turning Back - If the restructuring process or the plan that is supposed to protect a company are nullified or terminated by the court which is a better option than going through the whole and formal bankruptcy process, then there’s no going back. Unless the company suddenly can settle all its debts.

⚫️Can’t Fully Recover - The nature of the bankruptcy proceedings leads to businesses selling off their assets to pay for its debts. However, creditors do not usually get back all the money they’re owed as selling the business assets in a hurry doesn’t bring in enough money to cover all the debts.

⚫️ Full Disclosure - The Bankruptcy Law requires the trustee to provide a full disclosure of the information about any of the processes in the local newspaper in Arabic and English, including the size of the debt and the name of the creditors, as well as inviting other creditors to join the process through the publication.

⚫️ Big Risks to Owners and Managers - since the whole bankruptcy process requires a full disclosure of information, this puts the owners, the management and the board of directors under a massive risk.

The Bottom Line

No country would want to encourage businesses to go through a bankruptcy proceedings unless it's the last resort, this unattractive process can be long, time-consuming and overwhelming due to its provisions involved so it is recommended to talk to a legal professional that deals specifically with this type of issue. S & S Lawyers is a firm that has experienced lawyers that deals with bankruptcy proceedings, that could definitely help your businesses come up with the best outcome possible.

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