Restructuring debt and company liquidation in the UAE

Restructuring debt and company liquidation in the UAE

- Hermione Harrison

The economic toll of COVID-19 on businesses in the UAE and around the world is well documented. It would be prudent for business owners to familiarise themselves with the available mechanisms in the UAE to restructure corporate debt to avoid the risk of default and the process of liquidation should the need arise.

The process and framework for corporate debt restructuring and liquidation is contained in the Federal Law No.(9) of 2016 on Bankruptcy (the "Bankruptcy Law") introduced in December 2016 to bring the UAE into line with international best practice. The Bankruptcy Law applies, inter alia, to entities governed by the Commercial Companies Law as well as Freezone companies not governed by their own Freezone bankruptcy laws.

The Bankruptcy Law establishes a framework for the following court-driven procedures:

  1. protective composition.
    a. Suitable for an entity in financial distress but able to meet its payment obligations.

    b. Enables a company to delay or avoid declaring bankruptcy. With the court’s approval, a trustee will be appointed to propose a contractual restructuring of the entity’s debts with its creditors.

  2. bankruptcy and restructuring.
    a. Suitable for an entity that is considered bankrupt based on the following:
         i. it has ceased payment of its debts as they fall due for more than 30 consecutive days (“cash flow” test); Or
         ii. it is in a situation of over-indebtedness where the value of the entity’s assets is less than its liabilities ("balance sheet" test).
    b. May be petitioned to the court by the entity or its creditors.
    c. Restructuring may be ordered by the court if, in the court’s view, the entity can be saved from bankruptcy.
  3. liquidation
    a. Suitable for an entity that is considered bankrupt based on the “cash flow” test or the “balance sheet" test and protective composition and/or restructuring court-directed procedures have failed or been terminated

The entity may be declared bankrupt by the court and an order for the liquidation of its assets may be issued.

Voluntary Liquidation of a UAE LLC Company

It should be noted that a court order is not the only mechanism by which liquidation can take place.

The Directors of a company may determine that voluntary liquidation is in the best interests of the company or a larger group and can commence voluntary liquidation procedures independent of the court to wind up a company.

For information regarding the practical information on the steps required to liquidate or wind up an LLC in the UAE see our article here.

For information regarding the practical information on the steps required to deregister a branch in the UAE here.

In addition, our article here provides an overview of the role of a liquidator and process for engaging a liquidator in the UAE.

How can PRO Partner Group help?

PRO Partner Group can assist you (and work with your appointed legal counsel) with the practical steps to restructure and/or liquidate a limited liability company or close a branch in the UAE in accordance with the Bankruptcy Law. If you need assistance on this or any other related company set up, restructuring or local partner matters in Abu Dhabi, Dubai, the wider UAE, Oman or Qatar then please do get in touch with us on +971 (0)4 456 1761 for Dubai or +971 (0)2 448 5120 for Abu Dhabi, email us at info@ppg.ae or complete the contact form below and we will be delighted to assist you. 

Get in touch with Hermione Harrison

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