Everything you need to know about the new UAE debt law

• Bankruptcy Vs Insolvency
• Insolvency Law for Debt Relief
• Apply for Insolvency in UAE
• Modes of Debt Settlement
• UAE Debt Law Misuse Penalty
• FAQs

Following its cabinet approval last year, the new UAE insolvency law has now come into full effect since January 2020. The law protects debtors in Dubai and other emirates from legal prosecution in case of financial debt.

The new federal insolvency law also decriminalises the debtors’ financial obligations and offers a three-year plan to help them repay the loan amount. Here is everything you need to know about the new Dubai debt law and how it will help residents burdened with debt in the UAE. 

BANKRUPTCY LAW VS. INSOLVENCY LAW IN THE UAE

Before we get into the specifics about the new insolvency law in the UAE, it is important to understand what this law actually is. 

‘Article (8) of the Insolvency Law Dubai,’ governs the legislations pertaining to cases of individuals with financial difficulties. This includes cases where people are unable to repay debts such as credit card bills or loans in the UAE. This new UAE law should not be confused with the UAE bankruptcy law.

The existing bankruptcy law in the UAE deal specifically with businesses and companies in the UAE. The insolvency law, on the other hand, caters to individual debtors.

HOW WILL THE NEW INSOLVENCY LAW HELP WITH DEBT RELIEF IN THE UAE?

Previously, individuals who were unable to repay their debt in the UAE were faced with disciplinary measures, which included a possible travel ban and even imprisonment. The new UAE federal law for insolvency has replaced this with a more lenient approach that allows defaulters in the UAE to efficiently manage their outstanding finances.

Here are some of the amendments to the law that will help individuals with debt relief in the UAE.

• Legal support for individuals who have existing debt or anticipate increasing financial difficulties in the near future
• Place debtors in the UAE on a three-year settlement plan with the help of experts to assist with debt pay off
• Protect debtors from legal prosecution by presenting them with opportunities to work and be productive. This will allow them to provide for their families, especially in cases where the debtor is the sole earning individual in the family
• Prevent debtors from taking any further loans unless the court decides otherwise

These amendments to the UAE debt law received widespread praise from residents and legal experts for its positive impact on the community. Emiratis and expats who are unable to pay their credit card bills or outstanding loans in Dubai no longer have to fear imprisonment. These individuals can now, with the support of the UAE Government, continue to work to repay their debt(s). 

HOW CAN DEBTORS APPLY FOR INSOLVENCY IN THE UAE?

Residents who are currently in debt or anticipate financial difficulties that may prevent them from settling all their debts in the future, can file an application with the court. The process to apply for insolvency in the UAE is fairly simple.

STEP 1: RAISE A CASE FOR INSOLVENCY

First and foremost, the debtor needs to approach the court and register their case for insolvency.

STEP 2: PREPARE AND SUBMIT THE DOCUMENTS

As a second step the debtor must prepare the necessary documents and duly submit them to the court. These documents form part of the insolvency application and include:

• A memorandum summarising the financial position of the debtor, including internal and external sources of income, professional and/or vocational status, liquidity projections and income sources for the 12-month period following application submission
• A statement of creditors’ details, including their names, addresses, amounts of debts owed to them, maturity date of debts and any securities placed in lieu of these debts
• A statement of the debtor’s property (movable and immovable) located within and outside the country. The statement must also detail the approximate values of each property on the date of submission
• A declaration of any ongoing judicial or legal proceedings against the debtor
• A statement that declares the debtor currently faces or might face financial problems that lead to inability to pay off debts due at present or in future
• The funds required to support the debtor, their family and/or dependents, if any
• A proposal for debt settlement by the debtor
• The name of the expert nominated by the debtor in accordance with the stipulations of the law
• A full disclosure of out-of-country financial transfers done in the 12 months preceding the application
• Any additional documents required by the court in support of the application

STEP 3: PAY THE FEES AND EXPENSES

The last step is to pay the fees for expert’s services and the judicial proceedings as deemed fit and specified by the court. In case the debtor does not have the means to make these payments, the law allows provisions for delayed payments.

WHAT HAPPENS NEXT?

Once the application is submitted, the court proceeds with the necessary steps required to preserve the existing funds of the debtor. After that, the court decides whether the debtor’s application should be accepted for the settlement of financial obligations or not.

In case the application is accepted, the court assigns an expert or a team of experts to the case for further proceedings. If the application is rejected, the individual can file an appeal in the Court of Appeal. The Court of Appeal’s decision on the matter is considered final.

MODES OF DEBT SETTLEMENT UNDER THE NEW UAE DEBT LAW

Essentially, this new UAE federal debt law will offer two mechanisms to resolve the financial insolvency of individuals. This will be done by offering a plan for settling financial obligations and through insolvency and liquidation of funds. 

This new UAE federal debt law will offer two mechanisms to resolve the financial insolvency of individuals – a plan for settling financial obligations or through insolvency and liquidation of funds. 

1. SETTLING FINANCIAL OBLIGATIONS 

Based on the debtors’ situation, the court will appoint one or more experts to assist the debtors during these proceedings and devise a settlement plan for the financial obligations. Once a plan has been identified, the creditors will vote on it and implement the plan.

The court has the right to deny or decide to discontinue the process of settlement of obligations if:

• The debtor refrains from or commits an action to deliberately damage or conceal any or part of their property.
• The debtor submits false statements about debts, funds or rights of the debtor.
• There is non-payment of debts for over 40 consecutive working days after maturity due to financial inability. The debtor, in this case, can apply for insolvency

2. INSOLVENCY AND LIQUIDATION OF FUNDS

The second way to address insolvency in the UAE is the liquidation of assets and funds to pay off debt. This method is applicable when the debtor is unable to pay off their debts for over 50 consecutive working days past the due date, because of financial issues.

When the debtor opts for liquidation, the court appoints a trustee to facilitate and control the liquidation of funds and assets on behalf of the debtor. This appointment is made in accordance with the provisions of Article (8) of the new debt law.

In certain circumstances, creditors can also request the liquidation of debtor’s funds, where the liquidation amount should not exceed AED 200k.

Essentially, this new UAE federal debt law will offer two mechanisms to resolve the financial insolvency of individuals. This will be done by offering a plan for settling financial obligations and through insolvency and liquidation of funds. 

PENALTIES FOR MISUSING THE NEW UAE DEBT LAW

The Ministry of Finance in the UAE has set up strict penalties for any debtor or creditor who misuses the debt recovery law for defaulters in the UAE.

PENALTIES FOR CREDITORS

Creditors who are found guilty of committing any of the following acts shall be liable to imprisonment and a fine ranging between AED 10k and AED 100k.

• Making a bogus debt claim against the debtor
• Illegally increasing the debtor’s debt
• Voting in any meetings on decisions relating to the settlement of financial obligations of the debtor with the knowledge that it is legally prohibited to do so
• Concluding agreements with the debtor, which gives them a special advantage over other creditors, after the court’s decision to commence insolvency proceedings and liquidation of funds

PENALTIES FOR DEBTORS

Insolvent debtors in the UAE are also subject to hefty penalties such as imprisonment for a period not exceeding two years and/or a fine of AED 20k to AED 60k, if they are found guilty of causing loss to creditors, as a result of one of the following acts:

Incurring any expenditures that violate the terms of the payment plan

• Spending large sums of money in a speculative business outside their usual business, or purchasing services/goods/materials for personal or domestic use, that do not correspond with their current financial situation
• Engaging in gambling, knowing that their creditors may be adversely affected
• Paying the debts off for one of the creditors and in turn causing damage to the remaining creditors within a period of six months prior to the submission of their request to settle their obligations or declare insolvency
• Disposing off their funds in bad faith and at less than the market price or resorting to harmful means to damage creditors with the intention of delaying the declaration of insolvency and liquidating their funds

FREQUENTLY ASKED QUESTIONS

WHEN WILL THIS LAW BE IMPLEMENTED?

The UAE debt collection laws are already in effect from January 2020.

IS THE UAE INSOLVENCY LAW SAME AS THE BANKRUPTCY LAW?

The new insolvency law in the UAE is introduced to deal with and protect individuals going through financial difficulties. The bankruptcy law deals only with liquidation and insolvency matters of companies.

WHAT IS THE COURT’S PROCESS OF DEALING WITH DEBTS?

According to the UAE financial insolvency law, the court will appoint an expert to deal with debt processing. The expert, in coordination with the debtor and their creditors, will devise a debt settlement plan that does not exceed three years. Once the plan is finalised, all financial obligations will be fulfilled according to the stipulations agreed upon.

CAN DEBTORS APPLY FOR FURTHER LOANS DURING THE SETTLEMENT PERIOD?

No, the debtor is not allowed to take any further loans, unless the court decides so, in adherence to a request from the debtor, creditor(s) or the appointed expert.

These new debt laws in the UAE are a breath of fresh air for those burdened with insolvency. The UAE government, like always, remains determined to make life easier for its residents. While you’re in the UAE, debt or no debt, make sure you have a valid Emirates ID with you at all times. It is also important that your stay in the country does not exceed your visa’s validity, so make sure to check your UAE visa status online.

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