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The New Insolvency Law

The New Insolvency Law: A breath of fresh air for Debtors and Creditors

With a more defined and consolatory legal and regulatory framework in place, the UAE’s financial sector now rates parri-passu with other well-regulated global jurisdictions. Having been approved by the UAE cabinet, the new Insolvency law will take effect from January, 2020 and with it comes many benefits for both creditors and debtors.

Benefits of the New Insolvency Law

As the UAE advances its positioning as a regional economic hub and financial safe haven, gradually, laws are being enacted to support entrepreneurs and business owners which in turn improve the ease of conducting business in the country.  Some of the benefits of the Insolvency Law are as follows:

  • A bounced Cheque will no longer result to a Jail term if the debtor files for insolvency before a Civil Court to commence payment.
  • The law applies to both citizens and expatriates.
  • It is advantageous to both Creditor and Debtor.
  • As soon as the debtor declares his insolvency status and begins the restructuring process, no legal action can be taken against the debtor.
  • Subject to the Court’s discretion, a debtor can continue taking other loans to pay off old ones.

To have a better understanding, here’s how it works:

  • Should someone who took a loan or a credit card run into debt before finalizing payment, such a person can approach the civil court to declare his or her insolvency status.
  • The civil Court will appoint a financial expert to devise a convenient repayment plan for the debtor in such a way that he will be able to settle his debts with the creditor. The payment may either be through liquid cash or via assets.
  • As soon as payment is completed, any criminal case previously filed will be dismissed.

On a final note, the insolvency law will indeed prove to be mutually beneficial to business owners and the banking sector as it offers individuals the opportunity to restructure their finances and also helps lenders reduce their cost of bad debt.

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