Bankruptcy Law UAE 2025: Process, Creditor Rights & Business Rescue

What changed when Federal Decree-Law No. 51 of 2023 replaced the 2016 bankruptcy law

Federal Decree-Law No. 51 of 2023 came into effect on 1 May 2024 and replaced the 2016 bankruptcy law. This article covers what the law is for, the bodies that now handle insolvency cases, how a debtor or a creditor starts proceedings, and what a creditor can do once proceedings open. It closes by comparing the two rescue routes.

By Nour Attorneys / 22 August 2026

Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant

A company that cannot pay its debts in the UAE does not have only one door open to it. It can apply to begin preventive settlement proceedings before it reaches a state of insolvency, and put a plan to its creditors while it still manages its own business. It can apply for financial restructuring once it is in financial distress, and work with an appointed trustee on a plan. Or it can wait, and find that a creditor has applied first. Federal Decree-Law No. 51 of 2023 came into effect on 1 May 2024 and governs each of those routes.

Stability, creditors, and a workable way out for debtors

Federal Decree-Law No. 51 of 2023 replaced Federal Decree-Law No. 9 of 2016. Article (2) sets out what it is meant to achieve: to maintain the vitality and stability of the national economy and to preserve the rights of creditors. It is also meant to give debtors effective support in settling their financial obligations through transparent and efficient legal mechanisms.

Behind those objectives sits a simple aim. The law is meant to support a business environment in which companies in financial difficulty have a usable legal route through their problems, while the interests of all stakeholders are safeguarded. A temporary financial setback does not necessarily lead to irreversible liquidation.

Its scope is wider than the law it replaced, covering a broader range of entities and financial situations. It details procedures for preventive settlement, for financial restructuring, and for the formal declaration of bankruptcy, each addressing a different degree of financial difficulty. Chapter Three defines the roles, responsibilities and powers of trustees and controllers, so that insolvency proceedings are managed under professional oversight.

Where an insolvency case is now heard

The law sets up a specialised Bankruptcy Court (Article 5) and a Bankruptcy Department (Article 9), so that insolvency cases receive expedited and expert handling. It also creates a Financial Restructuring and Bankruptcy Unit (Article 12), which provides support and guidance throughout the restructuring process.

The emphasis throughout is on early intervention. Companies in financial distress are given several avenues to reorganise their affairs, which reduces the need for outright liquidation. That rehabilitative approach is the centre of the current framework, and it is aimed at business continuity and at wider economic resilience.

Who can start proceedings, and on what footing

A debtor, whether an individual or a company, can submit an application to begin preventive settlement proceedings (Article 56) or financial restructuring proceedings, where financial difficulties prevent it from paying its debts. Applying early lets the debtor negotiate with its creditors under court supervision, with a settlement plan both sides can live with as the aim.

Creditors also have the right to initiate bankruptcy proceedings against a debtor (Article 16) if the debtor fails to pay its debts within a specified period. That gives a creditor a legal avenue to recover what it is owed, and it means a debtor cannot avoid its financial obligations indefinitely. Nour Attorneys acts for creditors on debt recovery.

What the court does with the application

The law specifies the data and documents required for such applications (Article 22, 23), which is what keeps the process transparent and gives both sides due process. The court then evaluates the debtor's financial position (Article 27).

It may also set a cessation of payment date (Article 31). That date is crucial for determining the validity of certain transactions before insolvency.

What a creditor can do once proceedings open

A trustee is appointed to manage the debtor's assets and business (Article 36), which safeguards the interests of creditors. The law sets a clear hierarchy for the distribution of assets, with secured creditors having priority over unsecured creditors. That structure is what makes the settlement of debts predictable and fair.

Creditors are entitled to form a creditors' committee (Article 63) to represent their collective interests and to take part in key decisions, such as the approval of a preventive settlement proposal or a restructuring plan. They can challenge the trustee's actions (Article 48) and appeal court decisions, which builds in a system of checks and balances.

The law also includes provisions to stop debtors acting fraudulently to the detriment of creditors, such as disposing of assets at below-market value before bankruptcy. Protections of this kind are what maintain creditor confidence in the system. Questions of security, ranking and debt recovery are part of our banking and finance disputes work.

Two routes that keep the business trading

The law provides two primary avenues for business rescue: preventive settlement (Part One) and financial restructuring (Part Two). Each lets a debtor reorganise its financial affairs under court supervision, and each often involves negotiating a workable repayment plan with creditors rather than moving straight to liquidation.

How a preventive settlement plan is approved

Preventive settlement allows a debtor to propose a settlement plan to its creditors before reaching a state of insolvency. Once a majority of creditors has approved the plan and the court has endorsed it, the plan becomes binding on all creditors. This route is particularly beneficial for a business in temporary financial difficulty that has a strong potential for recovery.

How a financial restructuring plan is approved

Financial restructuring proceedings are initiated when a debtor is already in a state of financial distress but still has a chance to reorganise and continue operations. A trustee is appointed and works with the debtor to develop a restructuring plan. That plan typically includes measures such as debt rescheduling, asset sales or operational changes, all aimed at restoring the debtor's financial health. The court oversees the process, ensuring fairness and transparency for all parties involved.

The two routes differ in when they begin, what they are for, and what the debtor is left holding at the end:

Feature	Preventive settlement	Financial restructuring
Initiation stage	Before insolvency, proactive measure	During financial distress, to avoid bankruptcy
Objective	Avoid bankruptcy, reach amicable settlement	Reorganise finances, continue operations
Court involvement	Supervision and endorsement of settlement plan	Oversight of restructuring plan and trustee activities
Debtor's role	Proposes settlement plan, manages business	Works with trustee to develop restructuring plan
Creditor approval	Required for settlement plan	Required for restructuring plan
Outcome	Binding settlement plan, continued operation	Reorganised business, continued operation

Both mechanisms point the same way: a business-friendly environment that supports entrepreneurship and gives a second chance to businesses facing economic headwinds.