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Clearing Debts: Understanding the UAE’s New Insolvency Law

The UAE’s New Insolvency Law has ushered in significant changes for individuals facing financial distress. Understanding the intricacies of this law is crucial for those seeking to clear their debts and regain financial stability. In this comprehensive guide, we’ll explore the key aspects of the UAE’s New Insolvency Law, provide actionable insights, and address common FAQs to help you navigate the path to debt relief effectively.

Understanding the UAE’s New Insolvency Law:

  1. Overview of the Insolvency Law:
    • The UAE’s New Insolvency Law, introduced in 2019, aims to provide individuals with a structured framework for managing their debts and avoiding bankruptcy.
    • It offers various mechanisms for debt restructuring and settlement, offering individuals a chance to regain control of their finances while safeguarding the interests of creditors.
  2. Eligibility Criteria:
    • Individuals who are unable to meet their financial obligations as they fall due may qualify for relief under the Insolvency Law.
    • The law applies to both UAE residents and non-residents who have assets or debts in the UAE, providing a comprehensive solution for individuals facing financial difficulties in the country.
  3. Debt Restructuring Process:
    • The Insolvency Law offers debtors the opportunity to negotiate with creditors to restructure their debts through formal procedures overseen by the courts.
    • Debtors can propose repayment plans tailored to their financial circumstances, subject to approval by the court and creditors.
  4. Protective Composition:
    • Under the Insolvency Law, debtors can apply for protective composition, which provides a temporary moratorium on debt enforcement proceedings.
    • This allows debtors to negotiate with creditors without the threat of legal action, providing a window of opportunity to reach mutually beneficial agreements.
  5. Bankruptcy Proceedings:
    • In cases where debt restructuring or protective composition is not feasible, individuals may opt for bankruptcy proceedings as a last resort.
    • Bankruptcy proceedings involve the liquidation of assets to repay creditors, with the remaining debts discharged upon completion of the process.

Clearing one’s debt

Under the Insolvency Law, the debtor is required to appear in court. During this appearance, the debtor submits a request to the court seeking permission to resolve their financial obligations with creditors through amicable negotiations, avoiding litigation. If the court determines that the debtor meets the criteria for insolvency as outlined in the new law, the application becomes eligible for approval.

Required Documentation for Initiating a Financial Settlement Request

To proceed with a financial settlement request under the Insolvency Law, specific documents are necessary. Upon successful application, the following documentation is typically required:

  • A detailed statement containing the current and expected creditors of the debtor, including their names, addresses, and respective debt amounts.
  • A memorandum providing an overview of the debtor’s current financial situation, including sources of income locally and abroad, liquidity projections for the next 12 months, and the debtor’s professional status at the time of application.
  • A concise inventory listing all movable and immovable assets of the debtor, along with their estimated values.
  • A statement disclosing any legal or judicial proceedings initiated against the debtor.
  • A declaration from the debtor acknowledging their financial difficulties and inability to meet current and future financial obligations.
  • An itemized breakdown of the debtor’s day-to-day expenses, such as family upkeep.
  • A proposed plan from the debtor outlining how they intend to settle their debts.
  • A statement detailing all external financial transfers made outside the country within the past 12 months.

At this stage, the court may appoint an expert to oversee the settlement proceedings, ensuring compliance with the law.

Failure to Provide Required Documentation

If the debtor is unable to furnish the necessary documents as outlined above, they must provide reasons for their inability to do so. Should these reasons be deemed valid by the court, the debtor may be granted an extension to gather additional information.

Once a sufficient set of documents has been submitted, the court will render its decision within five working days.

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Can the Court Reject a Financial Settlement Request?

In cases where:

  • The debtor provides false information.
  • The court suspects the debtor of withholding potentially incriminating data.

Role of the Appointed Expert

The court-appointed expert will collaborate with the debtor to devise a viable payment plan. Copies of the plan will be distributed to all creditors and subsequently submitted to the court within 22 working days. Extensions to this timeframe may be granted by the court as deemed necessary.

Within 10 working days of distributing the plans to creditors, the expert will arrange meetings between the debtor and each creditor. The expert will schedule these meetings with the objective of discussing and reaching agreement on acceptable plans.

Can Revisions be made to the Final Settlement Plan?

After all creditors have consented to their respective plans, amendments may still be proposed by the expert to the court. If the court approves any or all of the changes, all creditors will be notified accordingly.

Closing Insolvency and Liquidation Proceedings

Upon the debtor fulfilling all outstanding payments to creditors as per the plan, the court will issue a statement signifying the conclusion of all liquidation procedures. This statement will enumerate the creditors’ names and the amounts paid. Additionally, it will be published in two local daily newspapers, one in English and the other in Arabic.

Consequences of Entering a Settlement

  • The debtor is barred from obtaining any form of loan or financial aid for a period of three years following the declaration of insolvency.
  • The debtor’s name will be recorded in a Special Register, indicating their insolvency sentence.
  • The debtor is prohibited from engaging in financial transactions, unless necessary to support dependents, for three years following insolvency declaration and asset liquidation.

FAQs (Frequently Asked Questions):

Q1: Who is eligible to apply for relief under the UAE’s New Insolvency Law? A1: Individuals who are unable to meet their financial obligations as they fall due may qualify for relief under the Insolvency Law, regardless of their residency status in the UAE.

Q2: How does debt restructuring work under the Insolvency Law? A2: Debt restructuring involves negotiating with creditors to develop a repayment plan that aligns with the debtor’s financial capabilities. The proposed plan must be approved by the court and creditors to take effect.

Q3: What is protective composition, and how does it benefit debtors? A3: Protective composition provides debtors with a temporary moratorium on debt enforcement proceedings, allowing them to negotiate with creditors without the threat of legal action. It offers a window of opportunity to reach mutually acceptable agreements.

Q4: What happens if debt restructuring or protective composition is not successful? A4: If debt restructuring or protective composition is not feasible, individuals may opt for bankruptcy proceedings as a last resort. This involves the liquidation of assets to repay creditors, with remaining debts discharged upon completion of the process.

Conclusion

Navigating debt relief under the UAE’s New Insolvency Law can be complex, but with proper understanding and guidance, individuals can overcome financial challenges and pave the way to a brighter financial future. By leveraging the mechanisms provided by the Insolvency Law and seeking professional assistance, debtors can take proactive steps towards clearing their debts and regaining financial stability.