The proposed changes to the Saudi Arabian bankruptcy regime will provide the judiciary the right to obligate creditors to accept a settlement proposed by the debtor (the “new Law”).
The Ministry of Commerce and Investment is currently in the latter stages of reforming the Kingdom’s bankruptcy laws and regulations. The new Law is intended to replace certain sections in the Commercial Court Law and the Bankruptcy Protecting Settlement Law dealing with bankruptcy.
In these challenging economic times, some businesses are struggling to cope with financial pressures and financiers are concerned with their customers’ ability to service their financing arrangements. An effective insolvency regime is, therefore, an important element of financial system stability. The statutory insolvency regime in the United Arab Emirates (“UAE”) has often been regarded as under-developed and remains largely untested.
UAE Law No. 18 of 1993 ‘Concerning Commercial Transactions’ (the “Commercial Transactions Law”) provides a framework for the bankruptcy of persons engaged in trade.
Part Five of the Commercial Transactions Law sets out provisions dealing with the bankruptcy procedure for traders who cease to pay their debts. This article will take a look at the bankruptcy provisions of the Commercial Transactions Law.
Definition of Bankruptcy
Section 1 of Article 645 of the Commercial Transactions Law provides:
This article is a case study on how the UAE, a country with two cities which are significant international financial and business centres (namely Dubai and Abu Dhabi), functions without effective insolvency laws; and why this state of affairs is likely to continue for some time.
Whilst it is not strictly true that the UAE has no insolvency laws at all, it is fair to say that no one (debtors or creditors) makes use of the existing laws. A new UAE insolvency law has been drafted, but in the writer’s view it will be years before it sees the light.
The UAE is in the process of implementing a new bankruptcy law.
The new bankruptcy law is intended to create a more modern, debtor-friendly regime, with particular emphasis on the rescue of a distressed debtor’s existing business or the restructuring of the debtor’s liabilities, rather than formal liquidation or bankruptcy. The new law will be equivalent of Chapter 11 of US bankruptcy laws. Read more about the UAE’s new bankruptcy law.
On 10 October, the Dubai Court of First Instance issued a potentially ground-breaking judgment in respect of directors’ liability in the context of corporate insolvency.
In particular, in the matter of the liquidation of the public company Marka PJSC (“Marka”), the Court held the company’s board of directors and managers personally and jointly liable for the company’s outstanding debts, totalling close to AED 450 million.
Good evening.
Following are this week’s summaries of the Court of Appeal for Ontario for the week of September 13, 2021.
In a follow-up action to its 2020 amendment to the 2016 Corporate Bankruptcy Law (that defined an Emergency Financial Crisis as “A general situation that affects trade or investment in the country, such as a pandemic, natural or environmental disaster, war, etc.”) the UAE Cabinet has now officially declared that an Emergency Financial Crisis shall be deemed to exist during the period from 1 April 2020 until 31 July 2021 due to COVID-19 with various implications for businesses distressed as a result of the pandemic.
In Brief:
Directors have potential liability in cases of bankruptcy.
Directors must be aware of their statutory obligations. For example, directors are obliged to:
- call for a general meeting if losses exceed half the share capital;
- keep proper books and records; and
- avoid wrongful trading.
Background
Background
The Bankruptcy Law (Federal Decree Law 9. of 2016 concerning bankruptcy) is the first comprehensive UAE law to deal with and delineate insolvency procedures. It offers a number of roadmaps which a business in financial hardship can take advantage of with a view to continuing to trade.
During the current times, it is useful to assess these options.
Government mediation and conciliation