Jihene Arfaoui, Legal Assistant

Insolvency Law No. 9 of 2019 enters into force from January 2020, which is the year of economic and social betting on development and aspiration for a happier and more stable country.

What is the role of the insolvency law in this context?

Contrary to the federal bankruptcy law, the insolvency law includes civilians who are not merchants whose financial difficulties have prevented them from paying their debts and discharging their financial receivables – the insolvency law has set out clear and easy-to-apply rules for collecting bad debts and rehabilitating the financial position of the debtor, which increases the credibility of creditor banks in loaning individuals, and encourages.

According to the third article of the insolvency law, which requires commencement of procedures, the debtor shall submit to the court an application without contesting anyone in it, to settle his/her financial obligations, provided that the required documents are attached to the application.

  • Protective and penal measures
  1. Opening insolvency proceedings, does stop the claims?

The law stipulated that during the insolvency and liquidation procedures, it is not permissible to initiate or pursue any lawsuits or take legal or judicial measures against the debtor, as the issuance of the decision to open the insolvency and liquidation procedures entails stopping the entitlement of legal or contractual benefits to the debtor, including the interest due, or compensation due for late payment, and the cessation of any judicial action against any person who granted a personal guarantee to the debtor, or transferred his/her money as a guarantee of the debtor’s obligations, pending the issuance of a judgment to liquidate the debtor’s money, within the limits of that guarantee.

  1. Penal procedures

If the court decides to initiate procedures for settling financial obligations, or commences insolvency and liquidation procedures, it orders, on its own initiative or at the request of the debtor, to suspend any penal procedures if they arise from cases of issuing a check without balance for checks issued by the debtor before requesting the commencement of procedures settlement of financial obligations, or prior to the request to open insolvency procedures and liquidation of funds.

  1. Measures against the debtor and penalties against the creditor

The law has been misled by the debtor, with the intent to harm the insolvency and liquidation procedures, in a way that prevents the secretary appointed by the court from performing his duties in accordance with the provisions of this law.

In the event that it becomes apparent to the court after the debtor’s insolvency decision and the liquidation of his/her funds, that any debtor’s money has not been disclosed, then it may include that money in the debtor’s liquidated funds, then the court may take the necessary measures against the debtor if he/she commits any of the acts or the following actions: fleeing outside the country to avoid or postpone the payment of any of its debts, avoid, postpone, disable the insolvency procedures or liquidate his/her funds,  dispose of any of his/her funds with the aim of preventing the Secretary from possessing it or delaying possession thereof, as well as hiding or destroying any of his/her funds, documents or other relevant information which creditors can take advantage of, and transfer any property in his/her possession of more than 5000 AED without the approval of the Secretary, failure to appear before the court after being announced to attend, or failure to implement decisions of the court without an acceptable excuse.

The law  stipulated that the debtor shall be punished with imprisonment for a period not exceeding two years, and a fine of no less than 20 thousand AED and no more than 60 thousand AED,  or one of these two penalties, whoever declares insolvency, and  has been approved  that the insolvency caused a loss to his/her creditors, as a result of committing one of the following actions:

  • Spending large sums on speculation that his/her usual business does not entail, or in the purchase of services, goods, or materials for personal or household use that are not appropriate to his/her troubled financial situation, or he/she undertook gambling work, knowing that he could harm his/her
  • Paying the debts of one of the creditors which harmed the other creditors during the period of six months prior to submitting his/her request to settle his/her obligations or declare his/her insolvency.
  • Disposed of his/her funds in bad faithless than its market price or resorted to harmful means to harm his/her creditors with the intention of delaying declaring his/her insolvency and liquidating his/her funds.
  • Paying any debt or disposing of any funds, knowing that it violates the terms of the plan.

Regarding the creditor, the law approved the punishment of the creditor by imprisonment and a fine of no less than 10 thousand AED and not more than 100 thousand AED, or one of these two penalties, if he/she performs any of the following actions:

  • Making a claim related to a fictitious or mock debt against the debtor.
  • Increasing his/her debts to the debtor illegally.
  • Voting in any meetings on decisions related to the settlement of the financial obligations of the debtor, knowing that it is legally forbidden to do so.
  • If, after the court’s decision, signs with the debtor to initiate the insolvency and liquidation procedures, a private agreement grants him/her special benefits knowing that it would harm other creditors.
  • The invalidity or the end of the settlement?
  • The insolvency law was exposed to the end and invalidity of the settlement, as it approved two types of cases that end in the availability of the settlement:
  1. If the court finds that the debtor’s financial obligations cannot be reached, and if the plan is impossible to implement due to the debtor ceasing to pay any of its debts on its due dates for more than 40 consecutive working days as a result of his/her inability to pay these debts, and if the debtor requests the court to finish the implementation plan procedures before the completion of the settlement of financial obligations with creditors, or the specified period for implementing the plan has ended without being able to complete the settlement of financial obligations to the debtor, and in the event the debtor fails to implement the plan.
  2. If all the obligations stipulated in the plan has been fulfilled.
  • Either the invalidity of the settlement or the invalidity of the approved plan, if the court finds that the debtor is evading, or trying to evade fulfilling his/her obligations, such as hiding or damaging any part of his/her money, or submitting false statements about his/her debts, rights, funds, or disposes of any of his/her rights or funds.
  • Does the Emirati legislator exclude money from the debtor’s funds upon liquidation?

The law did not exceed the rules of justice and fairness upon setting out the articles regulating the insolvency and liquidation procedures, as it excluded two types of funds, namely the pension or social benefit provided to the debtor, and the money decided by the court to meet the needs necessary for the debtor and the dependents to live. Whereas, it is permissible to object to the court’s decision, which did not take into account the principles of justice and fairness within five working days from the date of its issuance, and the court will decide this within five working days, and its decision will be final.

Therefore, this law achieves a positive aspect, mainly related to preserving the debtor’s dignity, and regulates the relationship between the parties without compromising their rights and this supports the economic environment and encourages natural persons to civil actions without fear of insolvency that may occur to them.