The UAE bankruptcy law creditors 2025 framework introduced  Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy represents a transformative framework for insolvency proceedings in the UAE. Among its key features is the detailed regulation of creditor rights, focusing on the priority and enforcement mechanisms for secured and unsecured creditors during bankruptcy and liquidation processes. A clear understanding of how these classes of creditors are treated under the new law is essential for stakeholders navigating financial distress situations.

Priority and Treatment of Secured Creditors under UAE Bankruptcy Law Creditors 2025

Secured creditors hold debts backed by security interests in the debtor’s assets, such as mortgages, pledges, and charges. The law expressly prioritizes secured creditors, recognizing their rights to repayment from the proceeds of their secured collateral before other creditor classes.

Voting Rights (Article 70)

• Secured creditors may vote on a preventative settlement proposal if it affects their secured rights.
• Otherwise, they can only vote if they give up their security, which will be reinstated if the proposal is later invalidated.

Priority in Liquidation (Article 179)

• Secured creditors are entitled to recover their claims up to the value of their security from the proceeds of the sale of the secured assets.
• This priority applies to both movable and immovable property.
• For immovable property, secured creditors with the earliest registered mortgage or charge on the land registry enjoys priority over later ones (Insolvency 2024).

Enforcement through Bankruptcy Proceedings

• Once bankruptcy proceedings commence, secured creditors cannot enforce their security interests independently outside the bankruptcy framework (Insolvency 2024).
• The law requires all secured claims and proof of security to be submitted to the bankruptcy court or trustee within a prescribed timeframe (Article 98).
• The trustee then manages the liquidation of secured assets, monetizing them under court supervision and allocating proceeds first to repay the secured creditor’s claims (Article 171).

Unenforceable Registration of Mortgage or Lien over Debtor’s Assets (Article 149)

• A court may declare invalid the registration of a mortgage or lien on a debtor’s assets if it was registered after the debtor stopped making payments, provided the creditor was aware of the payment cessation at the time of registration.
• However, this rule does not apply if:
  • The mortgage or lien was registered to secure an existing debt over the same assets before the debtor ceased payments.
  • The registration was made to enforce a ratified contract dated before payment cessation.
• A creditor holding the next mortgage after one declared unenforceable assumes its rank.
• However, this creditor receives only the amount they would have gotten if the prior mortgage were valid; any remaining funds are distributed among the other creditors.

Provision of Alternative Security (Article 217)

• The trustee or debtor can propose an alternative guarantee to secured creditors, as long as it matches the value of the existing one.
• If the creditors reject this offer, the Bankruptcy Court may still order the replacement of the guarantee, provided the alternative is:
  • Of equal or greater value.
  • Does not harm the creditor’s interests.
  • Does not affect the rights established by the original registration.

Repayment of Debt

The Bankruptcy Court may, upon the Trustee’s recommendation, order that initial funds collected in the bankruptcy estate be used to repay creditors holding liens, as long as their debts are undisputed and within the value of the secured assets at the time of payment (Article 138).

Debts under dispute cannot be paid until a final court judgment resolves the disagreement, with the Bankruptcy Court having authority to rule on such disputes (Article 138).

When bankruptcy proceedings are initiated (Article 158):

• All due dates for the debtor’s monetary debts, whether ordinary or secured, are nullified.
• Interest on ordinary debts stops accruing for creditors.

Interest on secured debts can only be claimed from the proceeds of selling the secured assets, with priority given first to (Article 158):

• Repaying the principal,
• Then interest accrued before the bankruptcy decision,
• And lastly, interest accumulating afterward.

Any surplus from the sale of secured assets is turned over to the Trustee for the debtor, while any shortfall after fees and costs is treated as an ordinary debt owed by the debtor. Preferred debts are to be settled over ordinary debts (Article 179).

Creditors within each preferred debt category are treated equally, but if debtor assets are insufficient, debts within that category are proportionally reduced on an equal footing (Article 179). Secured creditors should be aware that being classified as such does not always guarantee full payment.

With Bankruptcy Court approval, the trustee or debtor may repay a secured debt to free up the pledged assets for the benefit of the other creditors (Article 218).

Trustee and Secured Creditor Rights

Reasonable fees and expenses incurred by the Trustee during the sale of secured assets are deducted from the sale proceeds before distribution to secured creditors (Article 179).

• If the Trustee believes the sale proceeds won’t cover its fees and costs, it can stop the sale and notify the secured creditor in writing (Article 179).
• The creditor can object to the Trustee’s decision within 5 days of notification, and the Bankruptcy Court will issue a final ruling within 10 days (Article 179).

If the Trustee does not start selling secured assets within 30 days of the bankruptcy judgment, secured creditors may petition the Bankruptcy Court for permission to enforce their security rights, with the court deciding within 10 days (Article 179).

Secured creditors may, with Bankruptcy Court approval, begin enforcement actions against the assets securing their debts or exercise contractual rights. In such cases, the sale of these assets can be conducted through the trustee without initiating separate enforcement proceedings (Article 213).

Treatment of Unsecured Creditors

Unsecured creditors are those without security interests in the debtor’s assets and include suppliers, trade creditors, and other ordinary creditors.

Ranking Below Secured and Preferred Creditors:

• Unsecured creditors are ranked after secured creditors and privileged creditors. The following debts are classified as preferred (Article 179):

• Judicial fees, trustee and expert fees, and expenses incurred for safeguarding and liquidating debtor’s assets.
• Alimony debts.
• Payment owed to government authorities.
• Employee wages and end-of-service gratuities up to a total of three months’ salary; the Bankruptcy Court may authorize payment of wages for periods under 30 days from trustee-held funds.
• Professional fees agreed between the debtor and experts appointed during bankruptcy; disputes resolved by the Bankruptcy Court within five days.
• Fees and expenses arising after the start of proceedings for procuring goods or services to maintain or continue the debtor’s business.

Claims Submission, Participation and Voting Rights

• Unsecured creditors must submit their claims within the deadlines set by the bankruptcy trustee or court.
• They have a right to participate in creditors’ committees and restructuring plan deliberations, supporting collective decision-making and restructuring negotiations (Article 69).
• Only ordinary creditors with finally approved debts may vote on a preventive settlement proposal, unless the court allows those with temporarily approved debts to participate under specific conditions (Article 70).

Payment Conditions

• Payment to unsecured creditors depends on the availability of funds after satisfying secured and privileged creditors.
• The trustee’s liquidation and distribution plan, prepared within 30 days of the creditors’ meeting and subject to court approval, determines the shares each creditor receives (Article 170).

Continued Business Operations

• The law gives payment priority to suppliers who are essential to keeping the debtor’s business running, as long as there are enough assets to cover these payments (Article 145).

Procedural Protections for Creditors

The Bankruptcy Law institutes several safeguards for both secured and unsecured creditors:

• Creditors’ meetings and committees enable creditor input and voting on restructuring and liquidation matters, with approval thresholds designed to protect majority interests.
• The trustee supervises asset management and liquidation, ensuring transparent and equitable treatment.
• Creditors’ rights to object to restructuring plans or challenge court decisions are preserved, maintaining a fair balance of interests.
• The law prohibits debtors from disposing of or managing assets independently once bankruptcy proceedings begin, with management transferred to the trustee.

Practical Implications for Creditors

The updated UAE insolvency framework promotes a creditor-friendly environment by:

• Assuring secured creditors of prioritized access to collateral proceeds under court supervision.
• Providing unsecured creditors with a structured process for claim submission, participation, and potential recovery based on available assets.
• Enhancing transparency, predictability, and procedural fairness through court oversight and trustee management.

Creditors are encouraged to promptly register their claims and engage actively in proceedings to safeguard their rights.

Conclusion

The UAE’s Bankruptcy Law distinctly clarifies the treatment and priority of secured and unsecured creditors in bankruptcy proceedings to ensure a balanced, transparent, and effective insolvency process. Secured creditors benefit from prioritized recovery on secured assets under court control, while unsecured creditors participate in a structured claims process with opportunities for meaningful involvement in restructuring and liquidation.

Consulting early with a specialized law firm in UAE like Economic Law Partners is essential for creditors and debtors alike to navigate the complexities of insolvency proceedings effectively, protect interests, and optimize outcomes under the UAE’s modern bankruptcy regime.

Contact us today to learn how our bankruptcy lawyers can assist with managing creditor claims, enforcing security rights, and navigating bankruptcy proceedings in the UAE.