Bankruptcy Amendments – Federal Legislative Decree No. 35
1st November 2021 saw a crucial amendment to the UAE’s bankruptcy law. The Federal Decree – Law No 35 of 2021 has been adopted, which amends certain provisions of the Federal Decree – Law No 9 of 2016 on bankruptcy. This important amendment comes at a pivotal time, providing much needed clarification on the granting of designated persons the right to a fair hearing and to defend themselves if found in a business failure scenario, and the responsibilities of those persons. in the event of a company filing for bankruptcy, in the event of negative activity on the part of company managers or appointed agents.
To illustrate the importance of this amendment, we can cite the case of Marka Holdings PJSC, the UAE-based retail and entertainment company, which was declared bankrupt by the Dubai court in a landmark judgment in October 2021. With all group assets put into liquidation with a court ruling applying to all Marka subsidiaries, board members were also required to pay up to AED 448 million to creditors . The managers and directors of the company have been deprived of all management rights of the company or its subsidiaries.
It is important to note that no business is “outside” the law. In their prime, Marka was a hugely successful business with franchise deals with brands such as Real Madrid and Reem Al Bawadi. They had a hugely successful IPO and were listed on the Dubai Financial Market in 2014. However, they suffered consecutive quarterly losses from the IPO through 2017, with the blame going to different parties. .
The new amendment is a very important step for UAE legal persons in terms of clarifying the law and is positive news for UAE businesses and business leaders as a whole, as well as the confidence of the United Arab Emirates. global market in the region.
Jimmy Haoula, Managing Partner, BSA Ahmad Bin Hezeem & Associates LLP, headquartered at DIFC, Dubai and one of the region’s largest full-service law firms, comments on the importance of the amendment. Haoula said: “This amendment to the UAE Bankruptcy Law is a positive clarification on the responsibilities of those named in corporate scenarios. The previous decision of Marka Holdings was indicative of the risk directors and directors of a company could face in the event of an underfunded bankruptcy under the provisions of the UAE bankruptcy law. Previously, bankruptcy law presented serious risks in cases where a debtor could not collect at least 20% of his debts. Likewise, the criminal prohibitions in Title 6 of the Bankruptcy Act could be invoked to support the imposition of civil liability, when channeled through the provisions of Article 144. Since the question of liability personal managers and directors is an important consideration in attracting investment to the UAE, this additional judicial guidance is extremely consequent. It is a matter of both public policy and maintaining market confidence that any business executive charged with prudent oversight of the business adheres to their statutory obligations and the amendment now makes it clear where to look. find these bonds.”.
Key points of the UAE Bankruptcy Law Amendment from 1st November 2021;
- In a declaration of bankruptcy of a company, by which the assets are insufficient to settle at least 20% of its debts, the court can order all or part of the members of the board of directors or of the management to pay all or part the debts of the company, (in their respective liability for these debts) if the Court finds that one of them has committed one of the acts provided for in paragraphs (a), (b) and (c) of article (147) hereof, without prejudice to paragraphs (2, 3) of said article.
- Any member of the board of directors or manager against whom an order has been issued pursuant to paragraph (1) above may appeal against this order in accordance with the provisions provided for by the Code of Civil Procedure.
- The appeal of the order rendered against the members of the board of directors or of management does not have the effect of staying the execution or of affecting the authority of res judicata of the order declaring the bankruptcy of the society.
- The members of the board of directors, the managers and the liquidators of the company declared bankrupt by final order will be sentenced to a term of imprisonment not exceeding (2) two years and / or a fine not exceeding 100 000 AED if they commit the following acts:
- Deliberately failing to keep business books that sufficiently reflect the actual financial position of the business, or to take inventory as required by law, with the intention of harming the business or its creditors.
- Voluntarily withhold the information required by the curator appointed in application of the provisions of chapter four of this decree-law or by the court, or voluntarily submit false information to him.
- Dispose of company assets after default, with the intention of concealing those assets from creditors.
- Pay off a creditor’s debt after cessation of payments to cause damage to other creditors, or accept special guarantees or benefits for one creditor that are more favorable than for other creditors, even if it was intended to conclude the conservatory or restructuring composition.
- Dispose of company assets for less than market value in bad faith or use methods or means that would harm the interests of creditors with the intention of receiving funds in order to avoid or delay Cessation of Payments or a declaration of bankruptcy or the end of the Protective Composition Procedure or restructuring.
- Spending gross amounts on gambling or speculative ventures that are outside the scope of business activities.
- Make gross commitments for an interest other than the interest of the company, and without consideration, in relation to the financial situation of the company at the time of such commitments.
- The penalty provided for in this article does not apply to a person whose participation in the acts prohibited by this article has not been established, or whose reservations about the company’s decision to perform said acts have been established.
- Any member of the board of directors or management against whom a decision has been rendered by the competent court in the light of the request for judicial reorganization aimed at imposing a travel ban on him, provisionally seizing his funds or any other measure may appeal against this decision or measure before the competent authority court of appeal in accordance with the procedures and requirements stipulated in the Code of Civil Procedure.
- The Court of Appeal may order the suspension of the execution of the decision or order pending the adjudication of the subject of the appeal, if the execution of this decision or order results in damages. -interests irreparable and that the request is based on serious and valid reasons.
The new amendment to the UAE Bankruptcy Law is published in the Official Gazette and entered into force on 1st November 2021.
For more information on BSA Ahmad Bin Hezeem & Associates LLP, visit www.bsabh.com.
BSA – Ahmad Bin Hezeem & Associates LLP was founded in Dubai in 2001. Now based at DIFC and with offices throughout the Middle East, BSA is now one of the largest full-service law firms in the world. region. BSA helps people do business all over the Middle East. Whatever the sector or the size. With offices in Dubai, United Arab Emirates, Saudi Arabia, Oman, Lebanon and Iraq, BSA helps organizations negotiate the maze of regional regulations, with people at the heart of the business. BSA consolidated its regional reach focused on excellence. Access to leading local authorities and strong legal expertise across a wide range of industries distinguish BSA as one of the few Dubai-based law firms that have gone beyond their original boundaries. To learn more, visit www.bsabh.com
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© Press release 2021