Every natural or legal person strives to develop themselves, increase their income, and achieve their goals. Therefore, they sometimes venture into projects that exceed their financial capacity. Naturally, such ventures have varying outcomes, some positive and others negative, as several factors, circumstances, and considerations play a role in the success or failure of a project.

Furthermore, engaging in commercial activity is often fraught with risks. Many individuals or legal entities that were once at the height of their fame, success, and prominence have now found their financial standing precarious, unable to meet their outstanding debts. This threatens the rights of their creditors and negatively impacts the national economy. To address these risks and mitigate their effects, the UAE legislature issued Federal Decree-Law No. (51) of 2023 promulgating the Financial Restructuring and Bankruptcy Law.

Article 2 of the aforementioned Decree-Law upon applying or interpreting the provisions of this Law, it clarifies of the following objectives shall be observed:

1. Maintain the vitality of the national economy.
2. Preserve the rights of creditors.
3. Provide assistance to the debtor to settle its debts with its creditors, in addition to avoiding liquidation of its business and declaration of bankruptcy as much as possible.
4. Enhance the proceedings in a fair, equitable, prompt and organized manner.
5. Ensure fair distribution to creditors and ensure that creditors whose claims are of the same nature are treated on an equal footing.
6. Safeguard and protect bankruptcy estate.
7. Maximize the value of bankruptcy estate as much as practically possible

Article 3 of the Decree-Law clarifies its scope of application, stating that the provisions hereof shall apply to:

1. That companies that are subject to the provisions of Commercial Companies Law.
2. Any natural person having the capacity of a trader.
3. Licensed civil company of a professional nature.

Therefore, the provisions of the aforementioned Decree-Law do not apply to a natural person who is not considered a trader if they are unable to fulfil their debts. In such cases, the provisions of the Insolvency Law apply.

It should be noted that there are exceptions to the application of the aforementioned Decree-Law provisions, namely:

1. The companies wholly or partially owned by the federal or local government, and whose establishment laws, memoranda or articles of association provide that they are subject to special provisions that regulate their preventive settlement, or reconstructive or bankruptcy proceedings to the contrary of this law.
2. The companies and establishments established in the free zones that are subject to special provisions that regulate their preventive settlement, or reconstructive or bankruptcy proceedings.
3. The banks, financial institutions and insurance companies licensed by the Central Bank and which are subject to special legislation that regulates their preventive settlement, or reconstructive or bankruptcy proceedings, within the scope of the mechanisms established by such legislation.
4. The debtor’s debts are incurred for personal, family or consumption purposes, including the purchase of commodities or services or the purchase of real property for the debtor’s personal or family residence.

The provisions of the aforementioned Decree-Law do not apply to the entities mentioned above.

It is clear from the foregoing that the provisions of Decree-Law No. 51 of 2023, promulgating the Financial Restructuring and Bankruptcy Law, ensure the protection of the rights of bankruptcy creditors, safeguard bankruptcy estate and serve the interests of the bankrupt debtor, which positively impacts the national economy.

Consultant, Dr. Ghassan Salim Arnous

Zayed Al Shamsi Advocates and Legal Consultants