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Insolvency is the legal term describing the situation of a debtor who is unable to pay his, her, or its debts.


The new insolvency law, recently approved by the UAE Cabinet, gives the citizens and expatriates both to follow the organized system of payment to settle debts.

Under the new law, legal action may not be taken against debtors if they invoke their insolvency status and begin the process of restructuring their debt. However, the approved law does not decriminalize the bounced cheque.

The new law will protect debtors from legal prosecution, decriminalise the financial obligations of insolvent persons, and offer them an opportunity to work, be productive and provide for their families. The law will be implemented in January 2020.

All your questions answered: –

What is the purpose of a new law on the insolvency of natural persons? What is the legislative source of this law?

The Insolvency Law of Natural Persons addresses a debtor’s inability (if the natural person does not fit the description of a trader) to pay their debts due to bankruptcy and debt default. This is known as the ‘insolvency of the natural person’.

What is the difference between insolvency law and bankruptcy law?

The insolvency law differs from bankruptcy law, which was promulgated by Decree-Law No. 9 of 2016, particularly in the definition of the debtor. The Insolvency Law for Natural Persons applies to a natural person who is not engaged in an economic activity and is not a trader. However, the primary purpose of both laws is the same, as both exist to protect the common interests of both the creditor and the debtor in a fair and balanced manner. The risk is divided between them in such a way so as to alleviate the debtor from the cycle of financial difficulties and enable them to pay off their accumulated debt.

Does this law have any particular characteristic in terms of legislation that makes it unique from ones in other countries?

The promulgation of this federal insolvency law will underscore the UAE’s leading position. Although important, independent legislation dealing with the insolvency of a natural person through specialized independent legislation is rare.

In addition to all its economic objectives, this law has another positive aspect to it: it ensures the protection of the debtor’s dignity as a natural person, and helps create an opportunity for them to manage their finances and reduce their financial burden.

What are the expected repercussions of the Insolvency Law for Natural Persons on the financial and economic stability of the nation?

The insolvency law will bolster the economic stability of the nation and provide a secure environment for personal loans to the contentment of both the creditor and the debtor. The law provides the necessary balance to guarantee the rights of creditors and debtors, and encourages increased cash flows, in support of comprehensive and sustainable development efforts in the country.

Will the law help debtors overcome financial difficulties?

The proposed law provides two means to address the insolvency of individuals; first, through the possibility of settling financial obligations, and second through insolvency and liquidation of funds.

If the debtor is facing current or anticipated financial difficulties that prevent them from settling all their debts, the debtor can file an application with the court in order to have the opportunity to settle their financial obligations according to easy procedures that provide them with the necessary assistance, with the court appointing one or more experts to assist them during these proceedings. Once a plan to reorganize and settle financial obligations is being prepared, the settlement plan shall be voted on by the creditors in line with pre-ordained mechanism. The plan shall be implemented by the debtor directly, with the assistance and oversight of experts, and the court’s supervision.

 How do the debtors settle their obligations?

The debtor shall advance to the court and request opening the procedures for settling their financial obligations without litigating any person therein to settle their financial obligations. This is applicable if they are in insolvency in accordance with the provisions of the insolvency law.

What documents must be provided by the debtor to request a settlement of financial obligations?

The debtor shall attach the following documents when applying for the settlement of financial obligations:

    • A memorandum containing a brief description of their financial position and any data related to their sources of income, both inside or outside the country. Their professional, vocational or professional status, as the case may be, and the liquidity projections of the debtor, as well as the sources of such liquidity within a period of 12 months from the submission of the application.
    • A statement of the names and addresses of creditors, whose debts have been defaulted or are expected to be defaulted, the amount of each debt, the dates of maturity and the guarantees provided to the creditors, if any.
    • A detailed statement of the debtor’s movable and immovable assets inside and outside the country and the approximate value of each on the date of the application.
    • A statement of any legal or judicial proceedings or actions taken against the debtor.
    • A statement by the debtor that they are facing current or anticipated financial difficulties and that they are unable to, or are not expected to be able to pay their debts, at the time of application, or in the future.
    • The funds necessary to support the debtor, their family and any dependents.
    • The debtor’s proposals for the settlement of their financial obligations.
    • The debtor shall nominate an expert to undertake the proceedings in accordance with the provisions of this law.
    • A statement that discloses financial transfers outside the country that took place during the past 12 months.
    • Any other documents supporting the application, or as requested by the court.

What are the procedures for the debtor if they are unable to provide the required information?

The debtor shall state the reasons for not furnishing the required documents or information in their application. If the court considers that the documents submitted are insufficient to rule on the application, it may grant the debtor time to submit any additional data or documents.

How long does the court take to decide on the debtor’s application?

The court shall decide on the application without notice, or pleading, within a period not exceeding five working days from the date of submission of the application to it fulfilling all required conditions. The court shall, if it accepts the request, decide to open the procedure for settlement of financial obligations.

What follows from the court’s decision to open the procedures for settling financial obligations?

The decision of the court shall cease the obligation of the debtor to apply for insolvency and the liquidation of their property. Suspension of execution shall continue during the period of settlement of financial obligations unless the debtor breaches their obligations as set out in accordance with this law.

What does the court’s decision to open the settlement of financial obligations entail?

In the decision to open a settlement of financial obligations, the court shall appoint one or more experts to assist the debtor in settling their financial obligations. The expert shall not be a creditor of the debtor, or be associated with them in any interest, or kinship until the fourth degree.

When can the court decide to reject the request for settlement of financial obligations?

The court shall decide not to complete the procedures for the settlement of financial obligations and refuse a request for settlement of financial obligations in the following cases:

    • If the court determines that the debtor has committed, or refrained from, taking any action with a view to concealing or damaging any part of their property.
    • If the debtor provides false statements about their debts, rights or funds.
    • If the debtor is in a state of non-payment of any of their debts on maturity for more than 40 consecutive working days as a result of their inability to fulfil these debts.

What steps does the appointed expert undertake to prepare a financial liability settlement plan?

    • The expert shall prepare a plan in cooperation with the debtor, provide the creditors with a copy, and deposit a copy with the court within 22 working days, from the date of the court’s decision to instruct the expert to prepare the plan. The court may authorize an extension of the submission period if the need arises.
    • The expert shall invite the debtor and creditors to one or more meetings, specifying the time and place of the meeting, to discuss and vote on the plan. They shall be invited to attend the meeting by any means of communication as deemed appropriate.
    • The first meeting shall be held within a period not exceeding 10 working days from the date of providing the creditors with a copy of the plan. The debtor and creditor shall attend the meeting in person, or by someone authorized on their behalf.

What is the proposed duration of the execution of the financial liability settlement plan?

The proposed period for the execution of the plan may not exceed three years from the date of the ratification of the plan by the court.

Who is not eligible to vote on the plan?

    • The debtor’s spouse.
    • Any person financially supported by the debtor.
    • Relatives of the debtor up to the second degree.

Is it permissible to amend the plan after the financial settlement procedures?

Yes, amendments may be made; the expert shall request the court to approve the amendments, if it is deemed necessary to make amendments to the plan during its implementation. The court shall, before deciding on the application, notify all creditors who may be affected by such amendments, and who deem it necessary to notify the creditors, and the court may issue a decision to authorize the amendment in whole or in part, or to reject it.

When is the financial settlement procedure plan terminated or invalidated?

The court shall decide on the termination of the financial settlement of the debtor in the following cases:

    • If the court finds that the debtor’s financial obligations cannot be settled.
    • If it is impossible to implement the plan because the debtor ceases to pay any of their debts on due dates for more than 40 consecutive working days, as a result of their failure to meet these debts.
    • If the debtor requests the court to terminate the execution of the plan before the settlement of financial obligations with creditors.
    • If the period specified for the implementation of the plan expires without the settlement of financial obligations of the debtor.
    • If the debtor fails to follow the plan.

The court shall issue a decision to nullify the approved plan if it finds that the debtor is evading, or attempting to evade, fulfilling their obligations. This can include concealing or damaging any part of their property, providing false statements about their debts, rights, property or disposition of any of their rights or property.

What is the amount that a creditor is entitled to apply for insolvency of the debtor and liquidate their funds?

The amount is AED 200,000.

When does the court decide on the insolvency of the debtor and the liquidation of their assets?

The court shall decide on the insolvency of the debtor and the liquidation of their assets within 15 days from the date of receiving the secretary’s report.

What is the term that the court can decide to grant the debtor?

The court may, upon the recommendation of the secretary and the debtor’s request, before commencing the liquidation of the debtor’s funds, decide to grant the debtor a term under the secretary’s supervision of no more than three months. This is extendable by a similar period to reach an amicable settlement with the creditors, provided that this does not prejudice the interest of creditors.

Is it possible for any of the creditors to appeal the court’s decision to grant the debtor a time limit for an amicable settlement?

Any of the creditors may appeal the court’s decision to grant the debtor a time for amicable settlement before the Court of Appeal. The appeal shall not result in the suspension of the proceedings and the decision issued in the appeal shall be considered final.

What are the funds excluded from liquidation procedures?

    • Pension or social benefit provided to the debtor.
    • Funds required by the debtor to meet their basic needs and those of their dependents. This amount is specified by the court.

Who is prohibited from buying debtor’s assets?

The following persons may not purchase the debtor’s assets except with the consent of the court, and if it is in the interest of creditors:

    • The debtor’s spouse, or one of their relatives in the second degree.
    • Any other person who, during the preceding two years from the date of the issuance of the decision to open the insolvency proceedings and liquidate the debtor’s assets, is a partner, employee, accountant or agent of the debtor.

 When are insolvency and liquidation proceedings closed?

Following the final distribution of the debtor’s funds to creditors, the court shall issue a decision to close all liquidation procedures. This includes a list of the names of creditors whose debts are accepted, their amount and what has been fulfilled. It also instructs the secretary to publish that decision in two local daily newspapers, one in Arabic and the other in English.

What are the penal provisions in the insolvency law?

Any creditor who commits any of the following acts shall be liable to imprisonment and a fine of not less than AED 10,000 and not more than Dh100,000:

    1. If they make a claim relating to a fake or sham debt against the debtor.
    2. If they increase the debts to the debtor illegally.
    3. If they vote in any meetings on decisions relating to the settlement of financial obligations of the debtor in the knowledge that it is legally prohibited to do so.
    4. If, following the court’s decision to commence insolvency proceedings and the liquidation of funds, the debtor knowingly concludes an agreement which gives them special advantage to the detriment of other creditors.

Each insolvency debtor shall be punishable by imprisonment for a period not exceeding two years and/or a fine of not less than AED 20,000 and not exceeding AED 60,000, if the insolvency debtor is proved to cause a loss to creditors as a result of one of the following acts:

    1. Spending large sums of money in speculative business that is not required by their usual business, or in the purchase of services, goods or materials for personal or domestic use that are not commensurate with their turbulent financial situation, or they have engaged in gambling, knowing that their creditors may be adversely affected.
    2. Paying the debts of 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.
    3. Disposing of 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.
    4. Any disbursement of money knowing that it violates the terms of the plan.

We Yasin al Hamed Advocates and Legal Consultants will help you in your jurisdiction that can help answer your insolvency and bankruptcy questions.


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