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.
Scope of Application
The emergency financial crisis provisions apply to debtors whose financial distress arises during the declared crisis period. The framework recognises that defaults occurring in this window may stem from exceptional circumstances of a general nature rather than mismanagement, and adjusts the ordinary bankruptcy machinery accordingly.
Acceptance of the Debtor’s Application without Appointing a Trustee
Under the ordinary regime, the court appoints a trustee to examine the debtor’s position. During the emergency financial crisis period, the court may accept the debtor’s application without appointing a trustee, reducing cost and procedural delay at a moment when the debtor’s resources are already strained.
Period for Negotiation with Creditors
The legislation grants debtors an opportunity to negotiate with creditors for a period of up to 40 days following the court’s approval of the application. During this window, the debtor and its creditors may reach a settlement arrangement without the full weight of formal insolvency proceedings.
Binding Nature of the Settlement upon Approval by the Majority of Creditors
A settlement agreement becomes binding on all participating creditors when it is approved by creditors holding two-thirds of the value of the debts of the creditors who participated in the negotiation, a threshold designed to balance debtor rehabilitation against creditor protection.
Practical Effect and Application
For businesses navigating financial distress in the current period, the emergency provisions offer a materially different calculus: faster court acceptance, breathing space to negotiate, and protection of economic activity assets while a settlement is pursued. Directors and managers should take early advice on eligibility and timing.
This publication does not provide any legal advice and is for information purposes only.