The UAE will enter the new year 2020, supplementing its financial and economic legislative system, with the "bankruptcy" law that has already entered into force for companies and investors, and the "insolvency" that begins work in early January 2020, and relates to individuals.

The two laws aim to serve the interest of both the "creditor" and "the debtor", through strong legislation that protects the rights of the former, and clear and transparent legal texts that open the opportunity for the second to regulate its financial affairs and schedule its debts, which provides an investment environment that investors do not hesitate to enter, considering it as one of the regions Safe investment without risk, and a "safe exit" for the investor from the market, or continuing to engage in activity in the event of a successful restructuring and payment of debts.

The Ministry of Finance affirmed the UAE’s keenness to adopt best practices and criteria that attract investment, explaining that bankruptcy does not necessarily result from financial or administrative default or corruption in the company, as most bankruptcy cases are caused by market factors, supply and demand, and high cost of production with an imbalance in competition factors . The Finance Ministry stressed that the launch of bankruptcy by major international companies is very healthy and intuitive in developed countries.

The bankruptcy law, issued by Federal Decree No. (9) of 2016, is based on international best practices, and modern and evolving legal and economic principles that distinguish it from other equivalent laws at the regional and global levels, and are compatible with the legislative system of the state. The importance of the law lies in satisfying the government's aspirations to achieve the «Emirates Vision 2021», and in being a necessity for the national economy, through its contribution to a great extent in protecting the rights of parties, creditors and debtors, and helps to provide good opportunities for the continuation of businesses that are going through difficult financial conditions. The law also works to raise the level of credit and financial security, by enhancing the confidence of investors and moving the wheel of the state's economy, and encouraging capital owners looking for a safe environment for investment by directing their investments to the state.

As for the insolvency law issued by Federal Decree No. (19) of 2019, it came to confirm the pioneering position of the state, as there are rare independent legislations that address the issue of insolvency of a natural person, through independent specialized legislation, despite the importance of that.

It is expected that the presence of specialized rules governing the natural person’s insolvency will lead to an increase in transparency regarding civil debt payment transactions, an increase in the general guarantee of financial transactions, and thus an enhanced financial stability in the country. The new legislation is also expected to increase the speed of growth and make it easier for individuals to obtain loans, as there are clear and easy rules to apply to collect bad debts and rehabilitate the financial position of the debtor, which increases creditor banks ’confidence in individual lending operations, and encourages individuals to accept borrowing. Thoughtful risks.

«Bankruptcy» .. the protector of companies and attract investment

The Undersecretary of the Ministry of Finance, Younis Haji al-Khuri, said that the process of preparing the relevant laws went through several legislative stages, as each bill was presented to specialized agencies in the country, to discuss the draft law and make the amendments that are agreed upon before its issuance.

He added: “It was the beginning of preparing the first draft, through consulting specialized and accredited law firms, which in turn prepared a draft based on the mechanisms followed in recent legislation, and advanced concepts in the field of bankruptcy, especially in terms of leaving the opportunity for the possibility of restructuring the debt (debtor), and the possibility of obtaining Financing, even though it is subject to bankruptcy, restructuring, or financial settlement procedures in the insolvency law. ”

Al-Khoury emphasized that these preliminary drafts were studied by specialists, as well as studied in terms of their compatibility with the legislation in force in the country, while ensuring that they keep pace with international legislative development, and ensure that the law is in line with the standards required by international application, especially those set by the World Bank. Drafts were also discussed with the specialized committees of local and federal government agencies, which study laws based on the advice of local government and private agencies.

Two new laws

Al-Khoury explained that with regard to the application of Western models to the situation in the region, and the UAE in particular, the decree of a bankruptcy law, and the decree on insolvency law, do not go far from the legislation in force in the state. For example, the bankruptcy law includes many provisions stipulated in the Transaction Law Commercialism, at a time when the two laws are completely new laws, in terms of their composition, and how they offer solutions.

"The creditor" and "the debtor"

He continued: «In all cases, the aim of these two laws is to serve the interest of the (creditor) and (the debtor), so the creditor needs strong legislation that guarantees access and protection of his rights, and not to sell the debtor’s money in an unfair manner against him, and at a lower price than the market, so that this does not lead to derogation From collecting his debt. As for the debtor, he needs a law that guarantees flexibility, and includes clear and transparent legal texts that open the opportunity for him to organize his financial affairs, schedule the debts that have accumulated on him, and establish a plan to settle these debts to present them to creditors, and settle the debt within a reasonable time. Consequently, in the case of a law guaranteeing this balance, this serves the community as a whole, especially attracting investments that provide financing for economic projects and people. It is a matter that must keep pace with international development, and the provisions that investors are familiar with, so that they do not hesitate to enter the state’s markets and consider it one of the safe areas for investment without risk. ”

Corporate help

And on the extent of the bankruptcy law obliging the government to financially assist companies, Al-Khoury indicated that the bankruptcy law is not related to providing financial assistance to troubled companies. Rather, it was found to regulate the state of these companies ’failure, and set legal controls and procedures to control that situation, and guarantee the rights of creditors, while leaving the debtor the opportunity to reorganize its obligations. Finance in accordance with a specific legal framework, and therefore this does not include government intervention to provide financial aid.

Creditors' rights

In response to a question regarding the exemption of companies from their obligations from the rights of employees and creditors, in the event that they enter under the umbrella of the “bankruptcy” law, Al-Khoury said: “Entering the company in bankruptcy does not lead to an exemption from paying its debts, obligations and rights to others, whether it is An employee of the company or one of its providers of goods and services. As for the employee who works for an institution that enters bankruptcy, he has a special treatment, as the law considers him a (concessionaire creditor) priority to collect his rights over other ordinary creditors, and this special, guaranteed transaction aims to encourage the worker to continue production in the institution that enters A difficult financial situation, as part of his contribution to restructuring the company's debts and continuing production lines in it, so that it can pay its debts during the period agreed upon in the restructuring plan.

Criminal responsibility

In a comment to the Undersecretary of the Ministry of Finance about an inquiry, he sees that the company's arrival to bankruptcy means that there has been an order of financial or administrative default or corruption, and how the bankruptcy law addresses criminal responsibility, he said: “Bankruptcy is not necessarily due to financial failure or corruption. Or an administrator, as most bankruptcies result from market factors and the influence of supply and demand, and the high cost of production with an imbalance in competition factors. And whoever follows up on bankruptcy cases of the major companies in the world whose news reaches the international newspapers, he finds that the issue of initiating bankruptcy procedures is very healthy and intuitive for those companies in developed countries, and is not based on the reasons for default or bad faith. But if there is suspicion and evidence of severe failure or corruption and bad faith in dealing is established, the law stipulates in Chapter Six provisions for succession of the debtor and everyone who works for him (if the debtor is a legal person), and this is limited to whoever proves his contribution to corruption And does not affect members of the board of directors or administrators who did not contribute to those acts.

Al-Khoury stressed that coordination is taking place between the Ministry of Finance and state courts, to ensure uniform application of the law, to identify the type of requests submitted to the courts, to hold training sessions for judges, during which dialogue with the courts will be opened, and to identify the most important international standards that must be observed in requests for restructuring For companies, settling financial obligations for natural persons.

company's reputation

On the impact of the application of the bankruptcy law on the reputation of companies, and whether this culture is an obstacle to resorting to the law, Al Khoury said that the most important characteristic of the UAE is its distinctive ability to adopt best practices and criteria that attract investment, and this also applies to the speed of adaptation in the field of social culture Business related.

He continued: «In all cases, these laws need a period of time in order to be absorbed in the markets, and a feeling of confidence and ease of application, and this requires the cooperation of all parties, to ensure the availability of the best experts, or who we call (bankruptcy trustees), who are appointed to assist in applying the law And provide easy models for customers to use, and hear success stories of companies whose financial problems were addressed through law enforcement, ”stressing that all of this is continuing to grow.

Bankruptcy and borrowing

Bankruptcy is for the company to announce its inability to fulfill its obligations to creditors, and then the company liquidates all of its property and bank accounts to pay as much of these liabilities as possible, and then it leaves the labor market.

It is also known as a disturbance in the financial condition of the merchant, so that he is not able to fulfill his financial obligations and stops paying his debts, and the bankruptcy case may be experienced by the individual merchant, and the commercial company may be exposed to it.

Bankruptcy in companies usually occurs as a result of borrowing due to lack of sufficient liquidity, and it may happen as a result of fraud in the company's accounts to hide losses.

The bankruptcy law is not related to providing financial assistance to troubled companies. Rather, it was found to regulate the default situation.

"Insolvency" .. "A soft look" to guarantee the right of "creditor" and "debtor"

The adviser to the Minister of Finance, Dr. Hussam Al-Talhouni, emphasized that the insolvency law came to ensure the stability of financial transactions in the state, through its contribution to establishing an attractive environment for investments, and encouraging business and safe capital, as well as enhancing the state’s competitiveness, up to a stable financial and economic stability for project owners And entrepreneurs, by providing personal loans easily, to the satisfaction of the "creditor" and "the debtor".

He said that the insolvency law provides the necessary balance to guarantee the rights of all creditor and debtor parties, and encourages increased cash flows.

Al-Talhouni explained: “The insolvency law applies to the debtor (if it is a natural person to whom the merchant’s description does not apply) whose debts amount to 200 thousand dirhams, and he is unable to pay it due to the difficulty of his financial condition, and his arrival to the state of stopping the payment of his debts. This case is known as (Insolvency of a natural person), while its regulation is related to the Civil Transactions Law, in accordance with a principle called (facilitator look) whose origin is due to Islamic jurisprudence, and through which the debtor is granted a reasonable (term or time limit) to implement his obligation in accordance with the specific circumstances of that debtor, provided that no That postponement would cause serious damage to the creditor.

Two ways to confront

The Adviser to the Minister of Finance emphasized that the insolvency law provides two ways to confront the occurrence of an insolvency case: the first is the possibility of settling financial obligations, and the second is resorting to insolvency and liquidation of funds. If the debtor faces current or expected financial difficulties that make him unable to settle all his debts, he can submit an application to the court, to obtain an opportunity to settle his financial obligations in accordance with accessible and easy procedures that provide him with the necessary assistance, and here the court appoints one or more experts to assist him during these procedures. A plan to reorganize and settle financial obligations is prepared. That settlement plan is voted on by creditors according to a specific mechanism, and the plan is implemented by the debtor directly, expert assistance and supervision, and court oversight.

He added that the law provides another way in the event of the debtor's insolvency and reaching the stage of the necessity of liquidating his money to pay off his debts, if he had stopped paying any of his debts on their due dates for a period of more than (50) consecutive working days, as a result of his inability to pay these Debts. The creditors of the debtor may also request the liquidation of its funds according to special conditions. In the event of liquidation of funds, a "trustee" is appointed who adjusts and facilitates the procedures for liquidating the debtor's funds in accordance with the terms and conditions contained in the draft law.

Check status

In response to an inquiry regarding the criminal nature of the check, Al-Talhouni said: “The criminal status of the check was not revoked in any of the decree on bankruptcy, or the decree on insolvency. However, the decree of a law in both cases presented an innovative solution based on the provisions currently found in both the Penal Code and the Commercial Transactions Law, whereby the punishment imposed by the law on the one who commits the crime of issuing a check without a balance expires, if the issuer of the check paid the full value of the check, or if the advance was waived Complaining about his right ».

He added: «As a result of the need for the debtor to exist, and his cooperation to develop a plan to pay the debt, and obtain the approval of the creditors, the decree stipulated in a law in bankruptcy and insolvency cases, to stop the criminal procedures until the approval of the financial restructuring plan, or the financial obligations settlement plan, and when Paying the value of the check according to the plan. The criminal lawsuit will be terminated, or the punishment will be stopped according to the circumstances, according to Article (401) of the Penal Code. In the event that the court does not accept the request, or in the event that the necessary percentage of the vote on the plan is not obtained, or the plan fails for any reason, and the debtor enters in the case of liquidation and the sale of property, the cessation of criminal procedures will be removed, and the debtor will be exposed to the penalty imposed for committing a crime ( Check without credit).

Debt forgiveness

As for the question about the possibility of canceling debts by declaring the debtor's insolvency, the answer to that is definitely not. Insolvency and liquidation of funds is a case that comes as a last stage, after the failure to settle the debtor's obligations through the settlement plan, meaning that there is no way to pay, even within a period of up to three years. In this case, his money, which may be sold legally, is sold, and at the end of the procedures the debtor is declared insolvent, and he enters into a new era in which he is prevented from obtaining any debts, and the insolvency process ends.

Al-Talhouni continued, “But nevertheless, the rights of the creditor, whose debt has not been paid after the debtor’s money is liquidated, shall not be extinguished except by the time limit of claims that fall under the civil law, and that takes periods of up to 15 years. Each creditor with whom claims remain may continue to submit requests for any funds entered by the debtor during any stage in the future.

The punishment for the check

Commenting on fears of a lack of confidence in dealing with checks as a means of fulfillment under the law, Talhouni said that the most that the creditor desires is to obtain money and not to imprison the debtor. If there is a law that urges the debtor to pay off his debt, even by means of a plan that gives him a deadline to settle his debts, the creditor will be in a better position, as he will obtain a guaranteed scheduling by a court ruling to collect his debt, instead of initiating penal procedures to imprison the debtor.

He continued: «In all cases, the penalty for the check is still in place, in the event the court rejects the insolvency request, or in the event the creditor refuses to agree to the plan for settlement of obligations, or if the plan is nullified for any reason according to what is stipulated by the law, or for the debtor entering into Insolvency and liquidation of funds.

The liquidation of funds comes as a last stage, after the failure to settle the debtor's obligations, through the settlement plan.

The criminal status of the check has not been abolished in both the bankruptcy and insolvency laws.