Bankruptcy services in Dubai, UAE

Bankruptcy services in Dubai, UAE

The introduction of the new Bankruptcy Law was a sigh of relief for a large number of companies that existed in the UAE. The legislation under the new law is applicable to all commercial companies except for those which were registered under the legislation of free zones. Companies, that are not solely owned by the state, are exempt from the bankruptcy law and hence will not gain anything from the new law.

What is Bankruptcy?

Bankruptcy is the legal status of a firm or a government agency that is unable to repay its outstanding debts to creditors. Generally, it is either initiated by the debtor or imposed by a court. A business may go bankrupt for various reasons.

There are several advantages to gain while filing for bankruptcy, which includes the following:

✔         Helps to avoid the never-ending demand letters, legal threats, and ransom calls from creditors to your home, family, or business.

✔         Helps to maintain a certain baseline, e.g., houses and cars are protected in most cases.

✔         Burdens of debt are taken care of (truly gone, in most cases), instead of just being put on hold.

However, Bankruptcy is not a simple one-step process and has disadvantages as well. It takes a lot of commitment and effort. Sometimes, they even demand individuals to make ongoing payments and undergo some post-bankruptcy procedures.

It may reduce the chance of getting approved for certain types of loans and rental agreements, as it negatively impacts your credit score. In some cases, it also means giving up your credit cards, which makes it difficult to make payments where credit cards are required.

If the Court approves the debtor’s application due to an Emergency Financial Crisis (EFC), the debtor might ask for a 40-day term to achieve a settlement with its creditors. The debtor’s requested settlement time for debt payback should not exceed 12 months from the date of court approval.

The debtor must record the agreement, and it will be binding on the other creditors if creditors representing at least two-thirds of the debt agree. The Court will decide on whether or not to approve the settlement. Any settlement might potentially be challenged in court by creditors.

As per Article 6 of the Federal Law Decree No 9 of 2016, only the debtor has the right to apply for the Protective Composition Procedure. A protective composition procedure of legal means for a debtor to reach settlements with its creditors under the supervision of the court and appointed trustee. The procedure application will be accepted by the court only when the debtor has completed a minimum of 30 days of non-payment towards its creditors due to financial hardships.

A draft of the Protective Commission Plan is to be submitted to the court within 45 business days from the date of the commencement order. The court will appoint a trustee as a mediator between the debtor, the court, and creditors and there can be no more than three trustees appointed for the protective composition procedures.

What are the requirements to consider while undergoing bankruptcy?

The following are required to be considered while undergoing bankruptcy:

✔      A panel of experts should be appointed to determine the validity of the protective composition application requested by the debtors by assessing the debtor’s assets.

✔      The creditors can appoint controllers to supervise the implementation of the protective composition.

Any creditor holding an ordinary debt of not less than AED 100,000 can appeal to the court to commence the bankruptcy proceedings if the debtor has failed to pay the sum within 30 successive business days after providing a written notice. Even though there are various ways to determine whether a company and an individual can be declared bankrupt, any misinformation or manipulated reporting of the financials can lead to strict action by the court.

Conclusion

It may also lead to a fine of a million Dirhams and even imprisonment if the debtor is found accused of fraud, embezzlement, or laundering. It is not always wise to depend on the known eyes who manage your finances. Thus, a third party should be legally appointed for the purpose of controlling the finances within the company. Seeking bankruptcy services is always beneficial to overcome hindrances from creditors.