Introduction

In May 2024, the UAE introduced a modernized bankruptcy regime under Federal Decree-Law No. (51) of 2023, replacing the 2016 framework. The reforms aim to make insolvency proceedings faster, more transparent, and more aligned with international best practice, giving businesses in distress a clearer path to restructuring while safeguarding creditor rights.

Insolvency is a financial condition in which a natural or legal person is unable to meet their debt obligations as they become due. Bankruptcy, on the other hand, is a formal legal process that follows insolvency, involving the liquidation of the debtor’s assets to ensure fair distribution among creditors, though it is not the only available remedy for a debtor.

Preventive Settlement is a court-supervised process that allows the debtor to continue operating their business or commercial activity while working to repay their debts, aiming to avoid insolvency escalation.

Financial Reorganization enables a debtor to restructure their financial obligations and, if necessary, aspects of their operations, with the goal of restoring the business’s viability and avoiding liquidation.

This insight outlines two major changes: (1) the creation of a dedicated Bankruptcy Court and supporting units to manage cases, and (2) a guide to the initial filing process.

Who Does this Apply To? (Article 3 – Scope of legislation)

Applies to:

• Most UAE-registered companies
• Licensed civil companies of a professional nature
• Natural persons with trader status

May not apply to:

• Free zone incorporated companies (for example, entities incorporated within the DIFC or ADGM) 
• Wholly or partially government owned entities and, banks, financial institutions and insurers licensed by the Central Bank, subject to their own legislation.
• Personal debts incurred for family/consumption purposes.

Bankruptcy Court and Supporting Departments

The creation of the Bankruptcy Court (Article 5) and its specialized Bankruptcy Administration, led by a Court of Appeal judge, marks a shift from the previous system where judges without insolvency expertise handled restructuring cases. The new structure centralizes proceedings, ensures procedural compliance, manages filings, and coordinates notifications and creditor meetings. This brings greater consistency, judicial expertise, and alignment with international best practices to boost creditor and debtor confidence.

Judgments of the Bankruptcy Court are immediately enforceable without service (Article 7), and their execution cannot be stayed or challenged unless the Court decides otherwise (Article 8). A stay may be granted if:

• The courts decide so of their own accord.
• A creditor, trustee, other interested party or debtor makes such a request.
• A stay application is included in a petition challenging the decision.

• The court of appeal is hearing a challenge.

In addition, the establishment of the Bankruptcy Department (Articles 9-10) aims to streamline insolvency proceedings and enhance creditor protection. Its responsibilities include:

• Receiving, verifying, and registering applications.

• Sending notices and court decision notifications to relevant parties.

• Managing the debtor’s assets and business, and enforcing court-ordered measures.

• Meeting with creditors, chaired by the Head of the Department or their designee.
• Summoning individuals (e.g., debtor, heirs, employees) for statements on debts, assets, or business.

• Performing any other duties assigned by law or the judicial authority head.

The Financial Restructuring and Bankruptcy Unit (Articles 12-13) provides structured oversight for restructuring under court supervision. It is tasked with:

• Overseeing and regulating restructuring/bankruptcy proceedings and giving opinions on applications in coordination with regulators.

• Maintaining the Bankruptcy Register and register of individuals with court-imposed restrictions.

• Supervising the unified e-platform and supporting debtor/creditor education.

• Coordinating training for judges, Trustees, and lawyers.

• Approving and managing the expert roster, setting registration procedures, and proposing fee schedules.

• Submitting regular reports to the Minister.

• Carrying out any additional functions defined by law or Cabinet resolution.

These centralized systems, such as the centralized registry, will improve transparency but requires adaptation by companies and professional advisers, including learning new digital procedures and ensuring sensitive corporate data is protected.  

Trustee Appointment and Powers

The Bankruptcy Court appoints a trustee nominated by the Bankruptcy Unit upon admitting an application (Article 36). The court defines the trustee’s powers (Article 50), typically allowing oversight of the debtor’s business and asset management to ensure creditor fairness and transparency.

If the debtor’s management endangers creditor interests, trustees may assume full control of the business (Article 37). Trustees can also request assistance from the Bankruptcy Department, including appointing or delegating other trustees for specific duties (Article 40).

Individuals prohibited from acting as trustees (Article 41) include:

• Creditors of the debtor;

• Related parties;

• Those convicted of serious financial or economic crimes, even if later acquitted;

• Anyone who, in the two years prior, was a partner, employee, auditor, or legal representative of the debtor.

If the debtor is a company, the trustee assumes all powers of the board of directors, chairman, CEO, or company director as per the company’s articles (Article 43), and acts as the company’s legal representative in all matters requiring board approval (Article 242).

In cases where the management’s conduct threatens creditor interests, trustees may take over full business management (Article 37). A court-appointed trustee may apply to the Bankruptcy Department for any decision that would help them carry out their duties effectively, including appointing or delegating additional trustees to assist with specific responsibilities (Article 40). 

This is a significant development, as it may often be the case that companies entering the bankruptcy process no longer have a functioning board of directors, and prior to the new law, trustees had to obtain approvals from the court to sign documentation on behalf of the debtor, which led to unnecessary delays. This new change is thought to create a more efficient system and reduce the administrative burden on the courts (THE UAE’S NEW BANKRUPTCY LAW: KEY IMPACTS ON RESTRUCTURINGS | Clifford Chance).

Initial Application Procedure

In order to begin bankruptcy, restructuring or preventative settlement proceedings, the required filing procedures must be followed. Here we give you a brief overview of the initial filing process, including debtor obligations.

Who Can Apply?

An application may be filed with the Bankruptcy Department in relation to any outstanding debts. Cessation of payment is considered as the non-payment of any matured debt after 10 days of the debtor being notified to do so (Article 1). Proceedings may be initiated within 60 days from either the date of ceasing payment of debts or the date they became aware of their inability to pay, whichever occurs first. The debtor may apply themselves, or creditors, regulatory authorities may also submit applications (Article 15-16, 18).

The application should indicate the required proceedings, any previously submitted applications and related measures. The following documents should also be attached (Article 22):

• Debtor’s status – brief description of economic/financial position, assets, employees, and employee dues.
• Licenses & registration – copies of commercial/industrial license and commercial register.
• Financial records – commercial books or financial statements for the past 3 fiscal years.
• Litigation summary – list of pending/planned cases (by and against debtor) with estimated amounts, without admitting liability.
• Proceedings to halt – list of cases or enforcement actions to be suspended once proceedings start.
• Detailed report covering:
  • 1-year cash flow and profit and loss projections.
  • List of creditors/debtors with contact details, claim values, securities, and ranking.
  • List of assets with approximate values and related third-party rights or securities.
  • Record of asset dispositions (movable/immovable) over past 3 years with supporting authority statements.
• Trustee nomination – proposed trustee or bankruptcy trustee.
• Management statement – whether debtor can and wishes to manage its assets, or justification for trustee management.
• Precautionary measures – any urgent protective actions needed in creditors’ interest.
• Financing needs – whether post-application financing is required before settlement/plan approval, with details and effects on creditors.
• Corporate authority – for companies, proof of internal approval to file and constitutional documents.
• Other supporting material – any additional relevant data or explanations for missing required items.

Company debts: approval must be obtained prior to submitting an application to initiate proceedings from the majority of partners in a General Partnership, majority of Active Partners in a Limited Partnership, the sole owner in a one-person company, or the general assembly through a special resolution in other company types. For composition proceedings, approval from the trustee alone is sufficient (Article 240). 

An application in relation to any debt of a company or corporate body governed by the regulatory authority may be filed after 10 days have passed following the notification of the competent authority (Article 4).

Creditor application filing: an ordinary creditor/a group of ordinary creditors can submit an application to begin proceedings if the debtor owes them payment, as long as the debt is undisputed, unconditional and payable. These provisions apply where the debts are secured by a mortgage on the debtor’s property or a right over cash flow generated from the property or business, with certain stipulations applying (Article 16). 

What Happens After the Application Has Been Filed?

The debtor cannot sell any property as of the date the application is submitted (Article 15).

• Any attempt to sell or transfer ownership of property will be invalidated as of application date. 
• This does not apply to any properties which are necessary to support the debtor, dependents and any legal costs associated with the application. 
• The debtor will manage any assets and business during this time unless otherwise ordered by the court or requested by the debtor themselves, creditors, trustee or Bankruptcy Unit. 

If multiple applications are submitted concerning the same debtor, such as by different creditors, then they will be consolidated into a single proceeding, and only one unified action will be taken (Article 19).

The party which applies (other than regulatory authorities) must provide a financial deposit or bank guarantee to the court treasury for expenses and costs of the initial application assessment. The Bankruptcy Department Head may reduce or postpone the deposit if the debtor lacks liquidity or if no initial costs are required. Deposits or bank guarantees can be refunded if the application is dismissed (Article 25).

Depending on the specific procedure initiated, the debtor must prepare and submit either a settlement proposal (for preventive settlement) or a restructuring plan (for financial reorganization). In the case of bankruptcy, the trustee is responsible for preparing and submitting a liquidation and distribution plan. These respective plans are then presented to the creditors for discussion and voting, after which they are submitted to the Court for ratification.

Timeline

• Within ten days of notification of a bankruptcy or preventive settlement application (or within any other period set by the Court), the Bankruptcy Unit will assess the debtor’s position regarding debts owed (Article 27). 
• In coordination with the competent regulatory authority at the Bankruptcy Department, the Unit will prepare a report covering (Article 27):
  • Whether a preventive settlement is feasible.
  • Whether the debtor’s assets are sufficient to cover costs.
  • Whether urgent precautionary measures are needed, with reasons.
  • Whether the debtor can manage its business and assets, or if a trustee should take over.
  • The proposed trustee’s name, appointment recommendation, and fees.
  • Any other recommendations deemed relevant.
• The debtor will be notified of any application of proceedings against them no later than ten days after submission (Article 28). 
• They should respond no later than ten days after the notification. The response should include all information, data, and documents required under Article 22 (as described above), unless an exemption is granted due to the application’s inadmissibility (Article 28). 
• Creditors named in the application will be notified and have ten days from notification to respond (Article 28). 
• The Court will decide on the application within ten days after the response periods end, either initiating preventive settlement or bankruptcy proceedings and setting a temporary cessation of payment date. If no date is specified, it will be the date the decision is issued (Article 31).
• Within ten days of the Court issuing a decision to initiate, dismiss, declare inadmissible, or terminate proceedings, the Bankruptcy Department will (Article 35): 
  • Announce the decision
  • Notify relevant parties
  • Request disclosure by securities markets if the debtor is listed
  • Require the debtor to publish it on its website unless otherwise instructed

These stricter deadlines for courts, trustees, and creditors to respond, which exist throughout the entirety of the legislation, aim to increase efficiency, prevent delays, improve certainty and reduce drawn-out cases. However, they also mean that directors and business owners facing the threat of bankruptcy must ensure that all relevant documents and responses are filed in time, to avoid penalties.

Checklist for Debtors:

• Secure internal approvals where applicable (board or shareholder resolution)
• Prepare financial and legal documentation early
• Nominate a trustee and justify any asset management requests

Conclusions

The UAE’s revamped bankruptcy law represents a shift towards a more predictable and business-friendly insolvency framework. The introduction of specialist courts, structured filing requirements, and stricter timelines promises greater efficiency—but also demands careful preparation from debtors and creditors alike. Businesses facing potential insolvency should act early, gather all required documentation in advance, and understand the procedural steps to avoid delays or missed deadlines.

Consulting with experienced lawyers in Dubai like Economic Law Partners early in any financial distress or restructuring process is essential to effectively manage risks, navigate complex legal requirements, and maximize opportunities for business continuity. Our expertise in UAE bankruptcy and restructuring law enables us to provide proactive guidance and strategic solutions that protect your interests, safeguard creditor relationships, and help preserve your company’s value. Protect your investments and position your business for success by seeking expert advice from our bankruptcy lawyers at the earliest signs of financial difficulty.