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Pay off your debts in UAE rather than running away: A viewpoint under the UAE Personal Insolvency Laws

The UAE’s Personal Insolvency Law allows debtors to file insolvency proceedings before the court, which, after approval, will provide them with legal protection and ensure the scheduled settlement of all financial obligations.

The UAE introduced insolvency law in 2019 by enacting Federal Law No. 19 of 2019, and the law is effective from 29 November 2019, hereinafter referred to as “Insolvency Law. The primary focus of current insolvency law is therefore to give debtors the opportunity to legally repay their debts via a settlement plan.

The term “insolvency” is frequently confused with the term “bankruptcy,” although the two are different. Insolvency law applies only to natural persons, whereas bankruptcy law applies to commercial companies and traders. Bankruptcy cases fall within the jurisdiction of Federal Act No. 9 of 2016.

In accordance with Article 3 of the Law:
Article 3- Submission of the Application the Debtor may file with the Court, an application without litigating any person therein, to settle his financial obligations in accordance with the provisions of this Decree-Law, provided that the following documents are attached thereto:

  • A memorandum containing a brief description of the Debtor’s financial position and any data relating to his sources of income, both inside or outside the State, his professional, vocational or craft status, as the case may be, and his liquidity projections and sources thereof within a period of twelve (12) months following the submission of the application.
  • A statement of the names and addresses of creditors whose debts are not paid or are not expected to be paid by the Debtor, the amount of each debt, the dates of maturity thereof and the securities provided to the creditors, if any.
  • A detailed statement of the Debtor’s movable and immovable property inside and outside the State and the approximate value of each on the date of submission of the application.
  • A statement of any legal or judicial proceedings or actions taken against the Debtor.
  • A statement by the Debtor that he is facing current or anticipated financial difficulties and that he is unable or is expected not to be able to pay all of his debts, whether due at the time of submission of the application or in the future.
  • The funds necessary to support the Debtor, his family and any dependents thereof.
  • The Debtor’s proposals to settle his financial obligations.
  • The Debtor’s nomination of an Expert to undertake the proceedings in accordance with the provisions of this Decree-Law.
  • A statement of the disclosure of financial transfers outside the State that took place during the last twelve (12) months.
  • Any other documents supporting the application or requested by the Court.

If the application submitted by the debtor fulfils all the above conditions, the court shall decide within 5 days of submission of the application without the requirement of further pleading or notice.

If the Court accepts the application of the Debtor for the settlement of his financial obligations, then immediately all the rights of the creditor are suspended towards proceeding with execution against the Debtor’s funds or initiating liquidation proceedings against the Debtor. Stay of execution proceedings against the Debtor will continue in force during the settlement period approved by the Court, unless the Debtor has committed breach of his obligations as determined by the approved plan. An expert will be usually appointed by the Court and the appointed Expert will continue to act as a supervisor of the Plan throughout the duration of the implementation period.

In the instance the Court rejects the application of the Debtor, then the Debtor has the option to challenge the decision before the Appeal’s Court, however, the decision issued in appeal will be considered final.

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