The absence of a legal framework for bankruptcy has long been a hindrance to UAE business. In the absence of proper bankruptcy laws, even a bounced cheque could land an entrepreneur in jail.
The implementation of the relatively new bankruptcy law in the UAE is a huge step forward in improving the country’s economic and regulatory environment.
If your company is thinking of filing a bankruptcy petition under the relatively new bankruptcy law in the UAE (Federal Law Decree Law No. 9 of 2016), there are a few key things to keep in mind prior to filing the petition:
1. The Law is Untested:
The UAE bankruptcy law is untested at Court, so you may not get what you want – black and white answers. The law states one thing but what pans out in practice may be different given that the implementation of the law is unchartered territory for the Courts as well.
2. Costs
Your company may be bankrupt, but you will have to fork out funds in order to file the petition. The key costs involved are:
- Court deposit: The petitioner will have to deposit an amount of AED 20,000 with the Court to cover the Court’s costs in relation to the bankruptcy proceedings.
- Translation Fees: Most of your company documents are likely to be in English and all of them will have to be translated into Arabic. Be prepared to spend at least around AED 5,000 in translation fees in relation to the supporting documents for your company’s applications.
- Lawyer’s Fees: This is likely going to differ from case to case depending on the complexity as well as the lawyers whom you approach.
3. Manager’s Power of Attorney:
Your company’s manager will need to issue a notarised or a legalised power of attorney in favor of the lawyers and may also need to represent the company before government authorities. If the manager is out of the country, which sometimes tends to be the case when a company is in financial trouble, then the company needs to ensure that the manager issues a comprehensive power of attorney in favour of a person in the UAE who may be able to carry out some of the responsibilities on behalf of the manager.
4. Shareholders’ Resolution:
The shareholders of the company will have to issue a notarised or a legalised resolution approving the filing of a bankruptcy petition. If the shareholders are located outside the UAE, ensure that they also delegate their authorities to persons in the UAE (if possible), as the company will likely be required to produce shareholder resolutions for various actions consequential to filing a bankruptcy petition.
5. Supporting Documents:
Filing a bankruptcy petition involves collating various supporting documents for your company’s applications, including the following:
- The company’s trade license and constitutional documents;
- A short memorandum explaining the economic and financial situation of the company, its employees, and details relating to its assets;
- A report containing the company’s cash flow forecasts, details of creditors, the movable and immovable properties of the company;
- Financial statements of the company for the last financial year;
- A credit report on the company from a competent authority; and
- Nomination of a trustee for managing the bankruptcy procedures.
Not having these documents may put your company at a risk of getting its application rejected.
6. Time:
Collating the supporting documents will take you time (at least two to four weeks) so don’t expect overnight wonders.
7. Overall Picture:
Prior to filing your bankruptcy petition, consult with your trusted lawyer as to the company’s options, rights, and protections under the law. Bear in mind that the bankruptcy law offers protection only for corporates and not individuals. So if you are a shareholder of the company and have provided a personal guarantee which the bank seeks to enforce, you could be in a sticky situation.
To know more about filing bankruptcy petition, or any other query, email us to [email protected] or call +971 4 435 7577