Running a business involves both growth opportunities and financial challenges. In the UAE, the government has created a clear legal framework to protect business owners facing financial distress. The UAE Bankruptcy Law provides procedures that help companies restructure, avoid insolvency, and, when necessary, wind down operations in an orderly and lawful manner.

At Falcon Law, we assist business owners, shareholders, and creditors in understanding and navigating the UAE Bankruptcy Law to safeguard their rights and minimize risks.

Overview of the UAE Bankruptcy Law

The UAE’s Bankruptcy Law is governed by Federal Decree-Law No. 9 of 2016, as amended by Federal Decree-Law No. 35 of 2021. The law applies to:

• Companies established under the UAE Commercial Companies Law
• Licensed professionals and traders
• Companies wholly or partially owned by the government (unless exempted)

Its objective is to balance debtor protection and creditor rights, ensuring that struggling businesses can recover rather than face abrupt liquidation.

Key Objectives of the Bankruptcy Law

1. Encourage business continuity through restructuring and preventive settlements.
2. Protect debtors from arbitrary legal actions by creditors.
3. Promote transparency in managing financial distress.
4. Enhance investor confidence in the UAE’s commercial system.
5. Ensure fair treatment of all creditors.

When Does the Bankruptcy Law Apply?

A company may apply for protection under the Bankruptcy Law if it:

• Has ceased paying debts for over 30 consecutive business days, or
• Is insolvent, meaning liabilities exceed assets.

The law also allows creditors with claims exceeding AED 100,000 to file a bankruptcy petition against a debtor company under certain conditions.

Procedures Under the UAE Bankruptcy Law

1. Preventive Composition

This procedure allows a business facing financial difficulties — but not yet insolvent — to propose a settlement plan with creditors under court supervision.

• The company retains control of operations.
• The plan must be approved by creditors representing two-thirds of the debt value.
• The goal is to help the business recover without liquidation.

2. Restructuring

If the company is already insolvent, it may file for court-approved restructuring.

• A trustee is appointed to oversee the process.
• The company continues operations while implementing a debt repayment plan.
• This stage aims to revive viable businesses under judicial oversight.

3. Bankruptcy and Liquidation

If recovery is not possible, the court may order bankruptcy and liquidation.

• Company assets are sold, and proceeds are distributed among creditors.
• Directors and managers are investigated for potential misconduct.
• If found guilty of negligence or fraud, they may face fines or criminal liability.

Protection for Debtors

The law offers several protections for business owners:

• Suspension of legal claims: Creditors cannot pursue individual lawsuits once bankruptcy proceedings begin.
• Limited liability: Owners of limited liability companies are generally protected beyond their investment, unless fraud or mismanagement is proven.
• Rehabilitation: After completing procedures, business owners may resume commercial activities.

Responsibilities and Penalties for Business Owners

Business owners and directors must act promptly and responsibly when facing insolvency. Under the law:

• They must file for bankruptcy within 30 days of becoming insolvent.
• Concealing assets, falsifying records, or favoring certain creditors can lead to criminal penalties.
• Delayed filing or negligence may result in personal liability for corporate debts.

Role of the Courts and Trustees

• The court oversees all stages of the process — from filing to final settlement.
• A trustee (court-appointed financial expert) manages asset valuation, creditor communication, and restructuring plans.
• The Ministry of Justice and local courts coordinate to ensure compliance with UAE regulations.

How Falcon Law Can Help

At Falcon Law, we guide clients through every step of the bankruptcy process, including:

• Evaluating financial status and available legal options
• Drafting and submitting preventive composition or restructuring applications
• Representing clients before UAE courts
• Negotiating with creditors and trustees
• Advising on director liability, debt recovery, and liquidation procedures

Our goal is to help businesses in distress find the most practical and legally compliant path forward — whether through recovery or orderly exit.

Final Thoughts

The UAE Bankruptcy Law is designed not to punish business failure, but to support recovery and responsible entrepreneurship. By acting early and seeking proper legal guidance, business owners can protect their companies, employees, and personal reputation.

If your business is facing financial challenges, Falcon Law can help you assess your situation and navigate the UAE’s bankruptcy procedures with confidence and professionalism.