اقرأ هذه المقالة باللغة العربية۔
In a pioneering legislative step, the Cabinet of the United Arab Emirates announced, pursuant to Cabinet Resolution No. (94) of 2026, the application of the provisions of Chapter Five of Federal Decree-Law No. (51) of 2023 concerning Financial Reorganisation and Bankruptcy, relating to preventive settlement, restructuring, or declaration of bankruptcy procedures during the period of the emergency financial crisis, which was declared as of 28 February 2026.
This legislative intervention is significant because it does not treat the debtor’s default as a mere individual failure, but rather takes into account that certain cases of default may arise from a general exceptional circumstance beyond the debtor’s ordinary control. Therefore, Chapter Five opens a more flexible path for affected companies, while maintaining judicial supervision to protect the balance between the debtor’s interest in continuing its business and the creditors’ interest in recovering their rights.
1st: Scope of Application
The provisions of Chapter Five of the Bankruptcy Law apply to preventive composition, restructuring, and declaration of bankruptcy procedures if the financial defaults faced by the debtor are caused by the declared emergency circumstance, from 28 February 2026 until the date determined by the Cabinet for considering such period ended.
Accordingly, it is not sufficient for the debtor to be in default or unable to pay; rather, the debtor must prove the existence of a causal relationship between the disturbance of its financial position and the emergency financial crisis. This causal relationship constitutes an essential condition for benefiting from the exceptional advantages prescribed by the law.
2nd: Acceptance of the Debtor’s Application without Appointing a Trustee
Article (252) of the Law permits the Bankruptcy Court, if the debtor submits an application to commence preventive settlement, restructuring, or bankruptcy declaration procedures during the emergency financial crisis, to accept the application and take such measures as it deems appropriate, including proceeding with the procedures without appointing a trustee.
It is understood from this that the legislator granted the court broad discretionary authority to simplify and expedite the procedures, especially where the default is connected to an emergency circumstance rather than mismanagement or deliberate harm to creditors. However, this facilitation is not automatic; it remains conditional upon the debtor proving that the disturbance of its financial position arose as a result of the emergency financial crisis.
3rd: Period for Negotiation with Creditors
Under Article (253), the Law granted the debtor an opportunity to negotiate with creditors. After acceptance of the application, the debtor may request the Bankruptcy Court to grant it a period not exceeding forty (40) days to negotiate with creditors with the aim of reaching an agreement for the settlement of debts.
The debtor is required to publish a summary of the court’s decision and invite creditors to negotiate within the period specified by law, indicating the place or means of negotiation. The settlement period offered to creditors must also not exceed twelve months from the date of the court’s decision approving the debtor’s application.
The importance of this system lies in encouraging quick consensual solutions instead of directly entering into lengthy and costly bankruptcy procedures that may lead to the final cessation of economic activity.
4th: Binding Nature of the Settlement upon Approval by the Majority of Creditors
Article (253) also provides that if a settlement agreement is reached with creditors representing two-thirds of the value of the debts of the creditors who participated in the negotiation procedures, such agreement becomes binding on all creditors, including creditors who did not participate in the negotiations or refrained from approving it.
This detail is one of the most important manifestations of flexibility in Chapter Five, as it prevents the settlement from being obstructed by the position of a minority of creditors, while preserving the right of a non-approving creditor to submit an objection before the Bankruptcy Court within the legally prescribed period. The court shall decide on the objection by a final and binding decision.
5th: Adjournment of Creditors’ Applications and Protection of Economic Activity Assets
Article (254) requires the Bankruptcy Court to adjourn consideration of applications to commence procedures submitted by creditors during the period of the emergency financial crisis until its end.
The Law also provides that precautionary measures shall not be taken over the debtor’s funds necessary for the continuation of its business, such as placing seals on the business premises or on assets necessary for the activity, unless the court considers that certain assets are not connected with the conduct of the debtor’s business.
Here, the importance of activating Chapter Five of the Bankruptcy Law becomes clear: protecting the continuity of commercial activity where it is capable of survival, rather than taking precautionary measures that may practically paralyse the debtor’s business and increase the harm to all parties.
6th: Modification of the Periods and Time Limits Provided by Law
If preventive settlement, restructuring, or bankruptcy procedures had commenced and been accepted before the declaration of the emergency financial crisis, Article (255) permits the Bankruptcy Court to modify the periods and time limits provided by the Law for additional periods not exceeding twice the original periods.
This aims to enable the court and the parties to deal with the direct effects of the crisis, particularly if the emergency circumstances affect the debtor’s ability to submit documents, implement the settlement plan, or respond to procedural requirements within the ordinary time limits.
7th: Protection of Board Members and Managers When Paying Wages
Article (256) addresses an important matter relating to the liability of board members and managers in debtor companies. If the company ceases to pay its debts due to the emergency financial crisis, board members or managers shall not be held liable merely because company funds were used to pay unpaid periodic wages and salaries necessary for the continuation of the business.
However, this protection is not absolute. The Law requires board members and managers to update the company’s accounts and data in light of the losses arising from the crisis, to act with care and in good faith, and to act in a manner that serves the interest of the legal person and preserves its objectives and financial assets.
Thus, the Law balances allowing the continued payment of salaries necessary to operate the establishment with preventing the misuse of company funds or unjustified preference of certain obligations.
8th: New Financing and the Priority Granted to Such Financing
Article (257) permits the Bankruptcy Court to authorise the debtor, upon its request, to obtain new financing, whether secured or unsecured, once the application to commence preventive settlement or restructuring procedures has been accepted.
This financing enjoys priority over the ordinary debts existing in the debtor’s liability as at the date of the decision commencing the procedures. It may also be secured by a pledge over unencumbered assets, or by creating a pledge over encumbered assets in accordance with the controls provided by the Law, including regard for the rights of creditors holding existing securities.
The importance of this financing lies in that it may provide the liquidity necessary for the continuation of commercial activity, the purchase of necessary materials or services, and the generation of revenues that assist the debtor in implementing the settlement or restructuring plan.
9th: Practical Effect and Application
From a practical perspective, Chapter Five provides companies affected by the emergency financial crisis with an opportunity to rearrange their affairs quickly and under the supervision of the court. It gives them time to negotiate, protects the assets necessary for the continuation of activity, thereby granting them greater financial capacity, allows them to obtain new financing, and reduces the risks of liability on management when taking necessary decisions for the continuation of the activity.
At the same time, the Law does not disregard the interests of creditors. It keeps the settlement subject to notification, objection, and judicial supervision, requires the approval of an influential majority of creditors in terms of the value of debts, and grants the court the authority to reject the settlement if it appears that it is inconsistent with good faith in the performance of obligations.
The application of Chapter Five of the Financial Reorganisation and Bankruptcy Law during the emergency financial crisis represents an important legislative step in enhancing the flexibility of the UAE bankruptcy regime. It does not aim to release the debtor from its obligations, but rather to grant it a temporary and regulated framework to deal with a default arising from an exceptional circumstance, in a manner that allows the preservation of viable businesses and the achievement of more realistic settlements with creditors.
Therefore, companies that have been financially affected by the emergency circumstance should promptly assess their financial position, document the impact of the crisis on their activity, communicate early with creditors, and seek judicial protection when necessary, while ensuring transparency and good faith throughout all stages of negotiation and proceedings.
This publication does not provide any legal advice and is for information purposes only.
