Published by Gbaf News
Posted on February 17, 2015
6 min readLast updated: January 22, 2026
Mr Sarosh Zaiwalla, Founder, Zaiwalla & Co Solicitors
Towards the end of last year, it was announced that the UAE’s long anticipated reform of the insolvency reform bill was reaching its final stages prior to implementation. The legal framework was drawn up following the establishment of the Dubai World Tribunal that resulted from its inability to pay its creditors in November 2009. The case cast a spotlight on the UAE, who until today does not have an officially passed insolvency bill that helps local businesses as well as international investors in maneuvering the, at times muddy waters, of financial difficulty that many businesses experience at some point in their life cycle. The end of 2013 had finally seen the UAE move a step closer to implementing this reality, with the referral of a revised draft of the legislation to the Ministry of Justice and is only awaiting approval. The event was proceeded by an almost 12 month’s long discussion on the subject and its intricacies with representatives of the local government of all seven Emirates. To date however, it is unclear whether the new law will be enacted and since the end of 2013 no further progress updates have been heard. What has been made public since has been seen as slight criticism relating to the applicability of the legislation, mentioning that it is likely more applicable for smaller companies and would possibly be bypassed by any larger companies that are attempting to restructure their debt. This is mainly a result of a term that was commonly used in the legislation and gave the reader a specific connotation that relates more to a trader and retailer in a shop and thereby suggesting the current law could possibly be better suited to the insolvency solutions of smaller companies rather than larger ones. The legislation also incorporates some of the key features of the Dubai World legislation and includes the so-called “cramdown” rule, whereby the court can impose the terms of a bankruptcy without necessarily gaining the approval of all creditors to enforce it. To date, most deals have been resolved privately outside the courts in often lengthy and complex processes that pronounce the necessity of implementing a common insolvency legislation.
The implementation of such a legislation is also important for the continued economic prosperity of the region, which has already seen international investors, such as Richard Branson, founder of Virgin Group, refuse to proceed further due to the uncertain and ambiguous bankruptcy laws currently in place. There have been several public instances where international businesses have been deterred from expanding in the region because the UAE does not have these laws effectively in place and needs to develop them in order to encourage further entrepreneurship and the protection of new businesses. The insolvency legislation has thereby become the UAE’s flagship legislation and presents an important cornerstone in the country’s efforts to improve its competitiveness on an international scale. The UAE presently ranks 23rd in the World Bank’s Doing Business report for 2014 but languishes in 101st place and in the GCC’s fifth lowest place regarding insolvency resolution. The UAE first introduced insolvency laws in 1993 but have not used it since because of persistent uncertainties over the application of the law in highly complex insolvency cases.
Mr. Sarosh Zaiwalla
The key concept is therefore to provide a method by which companies can begin trading profitably or be liquated in a controlled manner, rather than simply facing liquidation that carries a clear stigma attached to it, as it often still is the case in the Middle East. Under the proposed measures, any decision made will be reached through a negotiated agreement with creditors or a formal administrated process and will benefit the country by allowing capital to be redistributed while enabling corporations to admit to facing difficulty more easily. The absence of an efficient and well-defined insolvency regime is seen by many as harmful to the country’s international economic reputation and it has resulted in a reduced lending ratio and a lack of confidence in the local economy. Hence, in spite of the UAE already having some legislation in place, many in the legal and business sectors believe that the existing law is too time-intensive and often with inconsistent outcome, in addition, many believe the current laws are too vague, ineffective and unsuited for restructuring large commercial entities.
The new legislation, is rumoured to contain three main components that address Financial Deregulation, Preventative Composition of Bankruptcy and Bankruptcy. Financial deregulation outlines the processes under which an out of court agreement could be achieved between the debtor and its creditors. Preventative composition of bankruptcy is the restructuring process overseen by the court and an independent supervisor. The procedure shares common traits with the proven Company Voluntary Agreement (CVA) used in the UK and allows the debtor to keep control of the business with the protection of the court for a period of time while solutions are sought. Finally bankruptcy covers a process available to insolvent businesses that ensures that they are controlled by a bankruptcy supervisor rather than the debtor. Through this process, the business would either be restructured or face a liquidation of its assets. In Europe, restructuring is often beneficial and is viewed as a normal part of the business life cycle. It is without stigma and is not necessarily seen as the ‘fault’ of management unless factors such as wrongdoing are present.
In summary, key aspects of any legislation that has the hope to be approved and applied, is that it needs to provide a high degree of assurance for all parties involved. It must provide foreign investors and stakeholders alike with greater confidence and provide clear guidelines that ensure negotiations are conducted in a shorter period of time without resulting in protracted court disputes instead and provide businesses with clear avenues to allow them to save their business. Once all these aspects are met UAE insolvency reform will be well under way and have exceptionally beneficial effects on the region.
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