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Bankruptcy Procedure For Companies In UAE

Bankruptcy is the last resort for any company, when a company’s assets are not sufficient to cover the liabilities, the company is left with the only option of filing for bankruptcy and closing the business. However, it is not encouraged by any country to shut down the company and close the business, especially in a country like the UAE, which is one of the biggest business hubs in the world. The recent amendment to the Bankruptcy Law provides more options to the Debtor before going for filing Bankruptcy. 

The Bankruptcy Law Federal Law No. 23 of 2019 governs all bankruptcies in UAE and is seen by the Ministry of Finance. The Law applies to

  • Companies entirely or partially owned by the government,
  • Free zone companies that are under the provisions of Federal Law No 8 of 2004,
  • A ‘trader’ under the commercial transactions law, and
  • License civil companies carrying out professional activities.

As per the Law, a debtor is required to file for bankruptcy if it has ceased payment of due debts for over 30 consecutive business days due to financial problems or where the debtor’s assets are insufficient to cover due liabilities at any time. The bankruptcy application can also be filed by the creditor or group of creditors, who hold an unpaid debt of not less the 100,000 AED, if a statutory demand has been served on the debtor and has remained unpaid for at least 30 consecutive business days, the public prosecutor, OR the court.

Procedure For Filing Of Bankruptcy Under The Bankruptcy Law

There are 3 different options available to the Debtor to apply for the Bankruptcy under the Law, Preventive Composition, Restructuring Process, and Bankruptcy.

Preventive Composition

Preventive Composition is the first way that enables the Debtor to give a breathing space to reach the settlements with the creditors. This option is only available to the Debtors conditionally if the debtor has not defaulted on any of the debts for more than 30 days.

For Preventive Composition, only the Debtor has the right to apply to the court, if the court approves the application, then the court appoints the trustee. The trustee helps the Debtors to enter into a settlement plan with the Creditors, the settlement plan is called the “Preventive Composition Plan”. The creditors must vote in favor of the plan and the plan shall not take more than 3 years unless the extension is approved by the creditors having two-thirds of the outstanding debts.

If the plan is approved by the court, then the trustee supervises the plan for the implementation period. 

Restructuring Process

The application for restructuring can be filed by the debtor or the creditors who have debts of more than AED 100,000 which have been due and unpaid for over thirty days despite written notice. If the court approves the application for reconstruction, the court appoints a trustee who prepares the report stating the company’s financial condition and ability to pay back the debts by restructuring or not. Once the report made by the trustee is submitted to the court, the court decides whether to proceed further with the application of restructuring or not.

Conditions in which the court shall declare the company bankrupt;

  • If the debtor is not comfortable/satisfied with the restructuring procedure and report and
  •  If the trustee confirms the restructuring is not possible as per the company’s financial condition. 

If the court approves the trustee’s report, then the trustee will make the final Restructuring Plan which is very similar to the Preventive Composition Plan, which must be voted in favor by most of the creditors. The maximum period of the Restructuring Plan shall not be more than 5 years however it can be extended for 3 more years with the approval of the creditors holding at least two-thirds of the outstanding debts.

Once the final Restructuring Plan is approved by the creditors and the court, all criminal and civil proceedings against the Debtor, including criminal actions relating to bounced cheques, are suspended and the Debtor can resume his business activities.  


If the court cancels the application for the preventive composition or restructuring procedure or terminates any plan approved by the court earlier, or if the debtor doesn’t satisfy with the restructuring plan, then the court will proceed with the bankruptcy of the Debtor. The Debtor and Creditors also have the option to apply for bankruptcy directly without applying for the restructuring process.

Once the final decision is made by the court about the bankruptcy of the debtor, then the court appoints the trustee, and the trustee under the supervision of the court starts selling assets of the company, to liquidate the business to pay for the debtors. 


Recent amendment in the Bankruptcy Law positively affects business entities who were suffering from financial losses by giving options of preventive composition and restructuring of the business and not going for bankruptcy directly. However, as it is also a process available to creditors to apply against a defaulting debtor, this is a very powerful tool that a creditor can use against the Debtor to expedite payments or to reach an acceptable settlement.

If you believe an entity is doing a loss in business and bankruptcy is the only way left, then don’t hesitate to contact our legal experts.   

Dr Vinay Sharma - Legal Consultant

Dr. Vinay Sharma

Legal Consultant


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