How Does the UAE Handle Insolvency Proceedings for Foreign-Owned Entities?

Insolvency proceedings in the UAE are governed by Federal Decree-Law No. 9 of 2016 on Bankruptcy, which establishes a systematic framework for managing financial difficulties. This law, and subsequent revisions, apply to both local and foreign-owned firms operating in the UAE, assuring openness and impartiality in insolvency proceedings.

Jurisdictional Scope

Foreign-owned firms operating in the UAE are subject to UAE bankruptcy rules if they are registered in the country, including non-financial free zones (for example, Dubai International Financial Centre). However, entities in financial-free zones such as DIFC and Abu Dhabi Global Market (ADGM) are subject to their insolvency procedures, which are in line with international standards.

Initiating Insolvency Proceedings

Insolvency proceedings can be started by either the debtor or creditors. If a foreign-owned entity fails to meet its financial obligations for more than 30 business days in a row, it may declare bankruptcy. Creditors, including foreign stakeholders, can petition for insolvency if they meet the legal standards outlined in the UAE Bankruptcy Law.

Restructuring Options

The UAE bankruptcy framework prioritizes reorganization over liquidation in order to sustain enterprises and protect creditors' interests. Foreign-owned companies might offer a restructuring plan to rearrange their financial obligations while maintaining operations. This strategy ensures that firms preserve their worth and maintain ties with stakeholders.

Court-Supervised Liquidation

If restructuring is not an option, the court may impose liquidation. Foreign-owned companies are expected to produce extensive financial documents, such as creditor names, assets, and liabilities. The liquidation proceeds are allocated to creditors in a priority sequence, with secured creditors generally receiving precedence.

Cross-Border Insolvency

The UAE has implemented procedures to handle cross-border insolvency difficulties, notably those affecting foreign-owned firms. Cooperation between UAE courts and those in other countries protects international creditors' rights while also harmonizing the insolvency procedure.

Conclusion

The UAE's insolvency rules provide a comprehensive method for resolving financial problems for foreign-owned businesses. With an emphasis on restructuring and creditor protection, the legal system ensures equitable results. Law companies in Dubai that specialize in bankruptcy and insolvency give vital support in navigating these proceedings successfully, guaranteeing compliance with applicable laws and protecting corporate interests.