The meaning of insolvency is legally embodied in the face of current or expected financial difficulties that make the debtor unable to settle his debts. The UAE insolvency law to regulate cases of insolvency has entered into force in January 2020 after it was approved by the council of Ministers, and to include both citizens and residents of the United Arab Emirates. In this article, we shall have an overview of the UAE insolvency law and the most important details related to it, such as the characteristics of the law and its objectives.
Definition of insolvent
An insolvent person is a natural person who does not meet the description of a merchant and is facing current or expected financial difficulties that make him unable to meet his debts, and unable to settle them, whether those debts are owed to individuals or legal entities, and the insolvency law in the UAE protects non-trader individuals from legal prosecution in the event of the inability to pay the debts owed by them, as it was issued to protect them from accountability and give them an opportunity to work and productivity to pay the money owed to them, and it applies to debtors who are not subject to the provisions of Federal Decree-Law Number 9 of 2019 on bankruptcy.
Objectives of the UAE insolvency law
Protecting the dignity of the debtor as a natural person, regulating his financial affairs, easing the financial burden on his shoulders, and giving him other opportunities to work and produce and support his family, are one of the most prominent features of the UAE insolvency law, as it provides legal solutions to financially insolvent individuals.
The UAE insolvency law includes two ways to assist the debtor in paying the money owed by him:
- The first is the settlement of financial obligations
- The second is the creditor’s recourse to the competent court, requesting the declaration of his debtor’s insolvency and the liquidation of his money if the value of the debt exceeds 200 thousand dirhams, and the law protects the debtor from any legal prosecution and denies the criminal status of the financial obligations of the insolvent person.
The new insolvency law in the UAE aims to enhance financial stability in the country and to provide many benefits to individuals themselves, including:
- Facilitating citizens and residents who face current or expected financial difficulties, giving them the opportunity to reorganize their debts;
- Giving people the opportunity to work and be productive so that they can provide for themselves and their families;
- Protecting debtors from legal prosecution, as it negates the criminal status of financial claims;
- Assists individuals in settling their financial obligations or dues during a plan for a maximum period of 3 years.
Documents required to submit a request for settlement of financial obligations
Based on the defaulter’s law in the UAE, all the debtor has to do is submit a request to the court to settle his financial obligations, so that an expert is appointed who will prepare a plan for debt settlement in coordination with both the debtor and the creditor if the settlement request is approved. The debtor should seek advice from banking and finance lawyers to attach a set of documents to the settlement request, which includes:
- A memorandum containing a brief description of the debtor’s financial position and any information regarding its sources of income inside or outside the United Arab Emirates;
- Data clarifying the job, professional, or craft situation of the debtor, as the case may be;
- Expectations of any cash flow for the debtor with mentioning its sources during the next 12 months from the date of submitting the settlement request;
- A list of the names and addresses of the creditors whose debts the debtor has failed to pay or is expected to be unable to pay, indicating the amount of each of the debts and the due date for payment, and clarification of any guarantees presented to the creditor, if any;
- A statement that includes the details of the debtor’s movable and immovable funds inside or outside the country and their approximate value up to the date of submitting the settlement request;
- Funds necessary to support the debtor, his family, and any person dependent on him; Funds necessary to support the debtor.
- A list of any proposals made by the debtor to settle its financial obligations;
- A statement explaining any lawsuits or legal actions that have been taken against him/her;
- A statement in which the debtor states that he is facing current or expected financial difficulties and that he is currently unable or expected to be unable to pay all of his dues to creditors;
- A statement that includes all data related to financial transfers that the debtor has completed outside the country during the last 12 months;
- Nomination of the debtor, the name of an expert in charge of the settlement procedures;
- Any other documents that would further support the settlement request or be requested by the court.
Penalties of the UAE insolvency law against the creditor
With regard to the penalties of the insolvency law in the UAE against the creditor, he shall be punished by imprisonment and a fine of no less than 10 thousand dirhams and not more than 100,000 dirhams, or either of them if it is proven that he has committed one of the following acts:
- Filing a claim for a fictitious or fictitious debt against the debtor;
- Increasing debts to the debtor by illegal means;
- Voting at any meetings on decisions related to the settlement of the debtor’s financial obligations, knowing that it is legally prohibited from doing so;
- Making a contract with the debtor after the court’s decision to initiate insolvency procedures and liquidate funds, revolving around finding an agreement that would give him special advantages to the rest of the creditors.
In addition to the above, whoever declares his insolvency and it is proven that the month of insolvency has caused a loss to his creditors as a result of performing one of the following acts:
- Spending large sums of money in a speculative business that is not required by his normal business;
- Spending large amounts of money on purchasing services, goods, or materials for personal or home use that are not commensurate with his troubled financial situation;
- Engaging in a gambling business with full knowledge of the possibility of harm to his creditors;
- Paying the debts of a creditor to the detriment of others within 6 months prior to submitting a request for settlement of his obligations or declaring his insolvency;
- Disposing of his money in bad faith at less than its market price;
- Resorting to various means to harm his creditors in order to delay the declaration of his insolvency and liquidate his money;
- Paying any indebtedness or disposing of any funds knowing that they are in violation of the terms of the plan.