In the recent past, the UAE cabinet has made significant changes to Law No. 6 of 2006 concerning bankruptcy. These changes mainly were made to introduce relief to debtors during an Emergency Financial Crisis (EFC). The EFC will include all public events which have a severe effect on the trade activities or other investment and business activities in the United Arab Emirates, such as Epidemics, natural Disasters, political unrest, war etc.
This Amendment law is yet to be posted in the Official Gazette to make the matters official, and therefore the date of its effect is still not clear to the people.
Significant Changes to the Bankruptcy Law
The amendment Law adds a new chapter to section four of the Corporate Bankruptcy law. The amendment law also defines an Emergency Financial Crisis (EFC) as “A General situation that affects the trade or investment of a country such as a pandemic, natural or environmental disaster, war, etc.
Articles 32 and Article 162 of the Law have been amended. These relate to the bankruptcy proceedings of a business or the moratorium of a debtor. The amendments made provide a date to the moratorium of the debtors, meaning that in any of the two cases, any kind of legal proceeding is suspended until and unless any one of the two following situations occurs:
- The restructuring plan of the business or the protective composition procedure of the company is approved.
- Ten months after the Protective compositing plan or the restructuring plan of the business is approved after the sanctions made by the court. This time of ten months can be extending by four more months by the court.
A change has also been made to Article 185, which confirms that if any court deems a company bankrupt and orders the management to liquidate all its assets, then, in that case, all the secured creditors o the company will possess a priority over the ordinary creditors as well as the preferential creditors.
Changes related to Emergency Financial Crisis (EFC)
The amendment provides the change of the typical bankruptcy procedures in the event of an emergency bankruptcy Crisis. These changes include the following:
- A Grace period for a settlement with the creditors of the Business
The debtor can request for a grace period of 40 days if an application is submitted to the court and the court accepts that the current financial conditions of the debtor were created due to an Emergency Financial Crisis (EFC). If such grace period is allowed, the debtor needs to document it, and if the creditor holding two-thirds of the debt agree to it, then the decision will be binding on the creditor. The creditor is also eligible to challenge the settlement in court.
- A suspension on the requirement to file for bankruptcy
Earlier before the amendments were made, the debtor was required to file the bankruptcy proceedings if they could not pay the debts for a consecutive period of 30 days. This period was removed under the amendment if the debtor proves that the situation arose due to an Emergency Financial Crisis. In such a case, the court has the power to either accept or reject the bankruptcy filing and initiative the bankruptcy process as the court deems fit. Such planning is required on the part of the company.
- Amendments of the other grace periods of the business
If the debtor or the creditor has applied for the initiation of the bankruptcy procedures before the start of an EFC and this was accepted by the court, then the court has the discretion to extend the provided grace period. Under bankruptcy law, the grace period can be extended twice by the court.
The court can also permit a debtor to terminate a contract if the working conditions of the contract are being affected by an Emergency Financial Crisis. (EFC)
- Defining the limitations of the creditors on commencing the bankruptcy procedures
During the EFC, the court should not accept any applications from the creditors’ side to commence the bankruptcy procedures. The court should also take measures to protect the assets of the debtors during the EFC.
- Defining the limitations on the liability of manager and directors
If a corporate debtor is unable to repay its debts as a result of an EFC, the debtor will not be held liable. However, the managers and the directors of the debtor will be required to update the account books to reflect this in the accounts.
We can see that the amendments will provide relief to the debtors and the creditors during the time of an Emergency Financial Crisis (EFC). The aim of the amendment was to provide assistance to companies during EFC, which will, in turn, assist in the successful restructuring of a business.
To know more about the recent financial changes and amendments in the country and how your company can make use of these changes to be more profitable, you can Contact JAXA Chartered Accountants.
They will also provide various other financial services such as Accounting Services, Audit Services, Tax and VAT related services, which will make the business process easier and your company more profitable. Feel free to Contact Us. We will be glad to assist you in your business.