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What to do if you become an Insolvent in UAE?

The UAE cabinet recently enacted Decree-Law No (19) of 2019 on natural person Insolvency, which addresses natural persons inability to pay debts owing to insolvency or debt default. This new law aims to improve the UAE’s competitiveness, and ease of doing business,  and provide more favorable conditions for persons facing difficulties, as well as to keep those who are unable to pay debt commitments from going bankrupt.

What is an Insolvency?
Insolvency is a state of financial distress suffered by a debtor who is unable to pay his debts the state of insolvency may negatively affect an individual’s ability to retain personal assets and restrict employment opportunity.

What are the benefits of an Insolvency Law?
The United Arab Emirates approved the federal decree law no. (19)of 2019 on insolvency. This law aims to address financial concerns relating to a natural person, which applies to companies and institutions.

Debtors must first apply to the court for settling financial obligations. The debtor’s financial situation, property, income, and occupation must all be included in the application. In addition, the debtor must provide the details of his creditors, as well as a description of any legal measures filed against him. If the debtor fails to furnish the abovementioned documents, the debtor must explain why.

The first solution for an Insolvency:
Once a debtor files an application the court will appoint an expert who will supervise the procedure. He will be responsible for reporting to the court and establishing a financial plan that the debtor will have to follow however,  the plan will not become final until and unless it has been approved by a numerical majority of the creditors who collectively represent two-thirds of the overall debt.

1.  Application
2. Initial approval
3. Expert
4.  Notification
5. Creditors Data
6. Report
7. Second approval
8. Plan
9. Meeting
10. Final Approval

What happens if the court rejects the application?
The liquidation procedure may be prescribed instead. This procedure can be ordered by the court or requested by the creditors. The debtor may voluntarily apply to initiate these procedures as well.

Second solution:
This is a simple process where all assets of the debtor are sold to repay the debts. This procedure will be supervised by a court-appointed trustee, whose responsibility will be to sell the assets at the best price obtainable in the prevailing market conditions.

However, there are a few restrictions placed by the law which makes the procedure less daunting. For instance, in some circumstances, the court may prohibit the sale of the debtor’s place of residence even if the proceeds of that sale would have paid off the debts in full.

Insolvency law assists in the protection of residents of the UAE, by way of offering additional protection from legal prosecution. This has enabled people to work to repay their debts and decriminalize their financial commitments, assisting the country in improving its solvency as well as increasing its competitiveness and economic power. The law helps to improve the country’s creditworthiness in the long run by creating an enabling environment that encourages entrepreneurship and provides favorable economic conditions.

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