Personal Insolvency Law in The UAE

We have previously discussed the UAE Bankruptcy Law, which applies to commercial companies and traders. A separate law, the UAE Personal Insolvency Law (Federal Decree-Law No. 19 of 2019), deals with the insolvency of natural persons. The law aims to protect individuals facing financial difficulties and those who are unable to pay their debts.

What is Personal Insolvency Law?

In most cases, people facing financial difficulties leave the UAE without settling their debts, which can lead to many legal consequences. One should always try to settle all their debts before leaving the UAE. If that is not possible, a debtor can file an application under the Personal Insolvency Law, which provides an opportunity to pay debts via a settlement plan or apply for Bankruptcy. 

Key Procedures for Financial Settlement Under UAE Insolvency Law

Court Procedures and Documentation for Filing Insolvency in the UAE

For initiating financial settlement under the Law, a debtor is required to submit an application to the Court with several documents, such as:

• a brief description of the debtor’s financial position, 
• a statement of names and addresses of creditors, 
• details of the debtor’s movable and immovable properties, 
• details of any legal or judicial proceedings against the debtor, 
• debtor’s proposal to settle his financial obligations, 
• nomination of experts, etc.

Expert Involvement in Financial Settlement: A Crucial Aspect of UAE Insolvency Law

If the application is accepted, the Court appoints one or more experts to assist the debtor in the settlement proceedings. During the pendency of the settlement proceedings, the creditors are prohibited from taking any recovery actions and initiating liquidation proceedings against the debtor.

The Expert is required to prepare a list of all creditors and a report on the debtor’s financial position. The report must also include the Expert’s opinion on the possibility of a financial settlement. Thereafter, the Court audits the report to verify the debtor’s debts. 

The Court may reject the application for financial settlement in the following cases:

1. If it is established that the debtor has concealed or dissipated any part of his funds,
2. If the debtor has provided any false information about his debts or funds,
3. If the debtor has ceased payment of due debts for over fifty (50) consecutive business days because of his inability to pay such debts.

If the Court is satisfied with the report, it instructs the Expert to prepare a settlement plan in consultation with the debtor. The Expert then invites the debtor and the creditors for a meeting to discuss and vote on the proposed settlement. The following persons are prohibited from participating in the creditors’ meeting and voting:

1. The debtor’s spouse.
2. Any person financially supported by the debtor.
3. Relatives of the debtor up to the second degree.

Understanding Liquidation Proceedings in UAE's Personal Insolvency Framework

A debtor shall apply to the Court to initiate liquidation proceedings if he has ceased payment of due debts for over fifty consecutive business days due to his inability to pay such debts.

A creditor or a group of creditors may also commence liquidation proceedings against the debtor if the total amount of their debts is not less than AED 200,000, provided that the debtor has been formally notified to pay the debt and it failed to do so within fifty (50) consecutive business days from the date of notification.

The Role of Trustees in UAE Insolvency: Liquidation and Asset Distribution

If the application is accepted, the Court appoints a Trustee to conduct the liquidation proceedings. The Trustee invites creditors to submit their claims within twenty (20) working days from the date the Court’s decision is published in newspapers. After auditing creditors’ claims, the Trustee prepares a report on the debtor’s financial position. Upon reviewing the report submitted by the Trustee, the Court determines which claims are acceptable. 

Thereafter, the Trustee liquidates the debtor’s assets and distributes the proceeds among the creditors according to the order of priority specified in the Law. After the final distribution, the court issues a decision to close all liquidation procedures. 

Such a decision includes a list of the names of creditors whose debts are accepted, their amounts, and what has been fulfilled. The decision is published in two local daily newspapers, one in Arabic and the other in English.

During the pendency of the liquidation proceedings, all legal and judicial enforcement proceedings against the debtor and his assets are suspended (except in case of secured debts or privileged debts subject to the court’s approval).