How to Apply for Bankruptcy in Dubai?

“How to declare bankruptcy in the UAE?”

A question no business owner ever wants to ask, yet sometimes circumstances leave them with no other choice.

But this is the thing with business. Everyone talks about building a company, creating a brand, scaling it across cities and countries, and growing revenue like anything.

But what if the situation goes the other way? What if payments start falling behind, creditors start demanding settlement, and debts keep piling up?

In such cases, the UAE legal framework offers a way forward through bankruptcy proceedings. Importantly, this option is not limited to business owners alone. Debtors, creditors, and even regulatory authorities can initiate bankruptcy applications in the UAE, depending on the circumstances.

Applying for bankruptcy allows companies to pursue preventive settlement, attempt restructuring to regain financial stability, and, if revival is not viable, move toward bankruptcy and then liquidation, where assets are sold and payments are made to creditors in line with the statutory distribution process.

What Are the Key Laws Governing Bankruptcy in Dubai?

Company bankruptcy in Dubai is governed by the Federal Decree Law No.(51) of 2023, promulgating the Financial and Bankruptcy Law(excluding free zones which have their separate bankruptcy laws). The law gives distressed companies several options to manage their debts before resorting to the final step of bankruptcy and liquidation.  These options are:

1. Out of court restructuring
2. Preventive settlement
3. Financial restructuring
4. Obtain new financing under specific terms
5. If the above mechanisms fail, then the company can be declared bankrupt and eventually go into liquidation.

Many people think bankruptcy means the end of their business, but in the UAE, it can also open doors to settlement or restructuring. At Kayrouz & Associates, our company formation and restructuring team will guide you with the right legal option, whether it is preventive settlement, company restructuring, and final exit planning through bankruptcy and liquidation process.

Who Can File for Bankruptcy in Dubai?

Under UAE law, a bankruptcy application may be filed by the debtor, by creditors whose claims exceed the minimum threshold fixed in the executive regulations of this law and the regulated entities.

1. For debtors, the minimum threshold is divided into three parts.
   
   1. If the debtor is a natural person, then AED 300,000
   2. If the debtor is a legal entity, then AED 500,000
   3. If the debtor is an entity supervised by a regulatory authority: AED 5,000,000
2. For a creditor-initiated application, the minimum threshold:
   
   1. In the case of general companies, the debt should be at least AED 1,000,000
   2. In case of regulated companies, the debt should be at least AED 10,000,000
3. For regulated entities, the minimum threshold to file bankruptcy against institutions they supervise is AED 500,000.

How to Apply for Bankruptcy in Dubai?

The application process for filing for bankruptcy depends on who is making the application, whether it is the debtor, the creditor or the regulated entity. Here’s the application process for each party.

Parties

Debtors

Debtors have the option to submit applications for preventive settlement, restructuring and bankruptcy in a bankruptcy court. The application should be submitted not later than 60 days after the debtor fails to make the payment or when it becomes aware of information that it would be unable to make the payment.

The application must be accompanied by the following documents:

1. Statement of debtor’s financial and economic situation, assets, employees, and their dues.
2. Copy of commercial/industrial license.
3. Copy of the commercial register.
4. Commercial books or financial statements for the past 3 years.
5. List of cases filed by/against the debtor with estimated amounts.
6. List of execution proceedings or other proceedings to be halted.
7. Report including:
   
   1. Cash flow and profit/loss expectations for 1 year.
   2. List of creditors and debtors (names, contacts, values, guarantees, ranking).
   3. Statement of all assets with approximate values and third-party rights.
   4. Details of asset transfers in the last 3 years (with supporting authority records).
8. Nomination of a Trustee.
9. Statement on whether the debtor can/wants to manage its property, with supporting documents.
10. Statement on precautionary measures required for creditors' interests, with justifications.
11. Statement on whether financing is required during proceedings, with amount, purpose, and guarantees.
12. For legal persons: company resolution authorizing filing, incorporation documents, and articles of association.
13. Any other supporting information/documents requested by the Bankruptcy Department.

If you don’t have all the documents, do not worry, our company formation and restructuring team at Kayrouz & Associates will handle all the documentation requirements and reports to make sure your bankruptcy application is successfully submitted.

Creditor

The creditor, before making the bankruptcy application, has to serve a written notice to the debtor demanding payment and granting a 30-day period to settle it. If the debtor failed to take corrective measures, the creditor can make an application for restructuring or bankruptcy to the bankruptcy court.

The bankruptcy application by the creditor must be supported with the following documents:

1. Statement of reasons for filing the application.
2. Copy of the 30-day demand notice served on the debtor.
3. Data, information, and documents proving the debt.
4. Details of any guarantees or securities supporting the debt.

Regulatory Authority

The regulatory authority can submit the application for bankruptcy or restructuring proceedings against the debtor supervised by them after serving a 30 days notice to the debtor to respond. The application must be accompanied by evidence that shows that the debtor has stopped paying the debt, is unable to pay or is financially unstable.

Submission of Costs

The applicants, mainly the debtor and creditor, are required to deposit a sum of money or a bank guarantee, which is determined by the executive regulation on the basis of the debtor's assets or the debt owed by the debtor. This cost may be refunded if the application is dismissed.

Notification Process

The applications are then sent tothe  bankruptcy court via the bankruptcy department within 10 days of filing. Also, the bankruptcy department notifies the bankruptcy unit at the same time.

Evaluation

The financial and bankruptcy unit then evaluates the financial situation of the debtor and prepares a report which includes these 6 points:

1. If preventive settlement is possible.
2. If the debtor's assets are sufficient to cover the debt.
3. If some urgent precautionary measures are required.
4. If the debtor can manage its assets or a trustee should be appointed.
5. Recommend a trustee to complete the proceedings and their fees
6. Any other advice that the unit deems appropriate.

Notify the Parties

The bankruptcy department notifies the debtor if he’s not the one to file the application and in other cases, the creditor. If the debtor is supervised under regulatory authority, then the department must notify the bankruptcy unit and the regulatory authority also. In all cases, the notifying party gets 10 days to respond.

Court Review

The bankruptcy court then decides within 10 days of expiry of the response period whether to admit the application and to initiate a bankruptcy or preventive settlement proceedings. The court also decides on the temporary cessation of payment date. Further, they may impose measures or suspend claims required to protect the debtor's estate.

The decisions on the same are announced within 10 days, where parties are notified, published in newspapers of a foreign country in case the large number of debtors are from that country and also recorded in the commercial and bankruptcy register.

Appointment of Trustee

The bankruptcy court then appoints a trustee or multiple trustees who is usually the one nominated by the bankruptcy unit. The trustee then manages the debtor’s assets and business, represents the debtor in legal matters, reports monthly on the progress, etc.

Moratorium

It is a court-imposed temporary stay that prohibits creditors from pursuing any legal proceedings against the debtor. This period might vary depending on the proceedings. For example:

1. Preventive Settlement: There’s a 3-month automatic stay on the claims by the creditors, which is extendable, but not more than 6 months in total.
2. Restructuring: There’s no fixed moratorium period in restructuring proceedings. The period starts from the date the decision is issued till the time of ratification of the plan or termination of the proceedings.
3. Bankruptcy: Same as restructuring, there’s no perfect timeline, but the stay will end in three scenarios. One, if the debtor has no assets to fund the proceedings; two, if the debts are settled, and three, if the creditors and court approve a composition plan.

Court Decision

The proceedings conclude with a final court decision, which may be:

1. Ratification or rejection of the plan in preventive settlement.
2. Ratification, termination, or conversion into liquidation in restructuring.
3. Closure for lack of assets, termination when debts are settled, or approval of a composition plan in bankruptcy.

What Happens Right After You File for Bankruptcy in Dubai?

When a company enters bankruptcy proceedings in Dubai, several immediate steps take place. These involve how its assets, operations, and responsibilities are managed. Here’s what typically happens after you file for bankruptcy in Dubai:

1. Creditors cannot file new cases or continue the existing ones except in certain cases.
2. Debtors cannot dispose, manage or sell assets without proper court approvals; if done, they will be considered void.
3. A trustee manages the debtor’s assets, business, and preserves its value and creditors’ interests. Further, he will prepare a verified list of creditors' claims and invite final submissions.
4. Creditors cannot unilaterally force any claims on the debtor’s asset without court/trustee permission.

Frequently Asked Questions

Can a Company in the UAE Still Operate if It Has Declared Bankruptcy?

Yes, a company in the UAE can still operate after declaring bankruptcy. Once bankruptcy is declared, the debtor is prohibited from disposing of and managing its assets and business and it is taken over by the court-appointed trustee, who then runs the company’s operations if it serves the best interest of the creditors.

How Long Does Bankruptcy Take in Dubai?

While there’s no fixed timeline within which the bankruptcy in Dubai needs to be completed, it can take anywhere between several months to years, depending on the complexity of the case.

How Kayrouz & Associates helps you apply for Bankruptcy in Dubai?

The bankruptcy process in the UAE can be confusing, especially when it includes multiple steps and processes. Many people in the UAE confuse bankruptcy with the complete closure of a business, criminal proceedings, or the selling of assets. In truth, bankruptcy is used only as a last resort, and in many cases, a business can still be revived and managed depending on the situation.

To know what would be the best call for your business, contact our expert bankruptcy lawyer at Kayrouz & Associates. With over 24 years of experience in providing expert legal representation, we provide trusted bankruptcy legal services in the UAE, which include:

1. Internal reorganisations and entity rationalisation
2. Voluntary liquidation and winding up
3. Ownership transition and succession planning
4. Shareholder buyouts and exit negotiations
5. Asset or share divestment strategies
6. Regulatory filings and compliance management
7. Drafting restructuring plans and board resolutions

Book a free consultation with our expert bankruptcy lawyers in the UAE today!

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