Common Bankruptcy Disputes Mistakes to Avoid in Dubai
Most of the damage is done in the months when everyone still thinks it is recoverable.
The recurring errors in Dubai insolvency: waiting until there is nothing left to restructure, filing under the wrong regime, payments and transfers that get reversed afterwards, records that cannot answer basic questions, and the personal guarantees a company's insolvency does not touch.
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
By the time most companies in Dubai take insolvency advice, the interesting options have already expired. Payments have been made to whichever supplier shouted loudest, a shareholder loan has been repaid, an asset has been sold to a related party at a friendly price, and the books have not been closed properly for two reporting periods. None of that was done dishonestly. All of it is now a problem.
The errors below are the ones that recur, whether the company is a mainland LLC, a free zone entity or a DIFC or ADGM company. They have a common feature: each is made in the period when the directors still believe the situation is recoverable and are trying not to make it worse.
Related: Our bankruptcy and insolvency team acts for debtor companies, directors and creditors.
Leaving the decision until there is nothing to restructure
The federal bankruptcy and financial restructuring legislation does not treat insolvency as a purely commercial judgement for management to make at leisure. Once a company can no longer meet its debts as they fall due, obligations attach — to act, and to stop making the position worse. Directors who continue to trade and to incur liabilities past that point can find themselves personally exposed rather than protected by the corporate form.
The commercial cost of waiting is separate and usually larger. Restructuring works when there is still a business worth preserving: customers, staff, a licence in good standing, a lender willing to talk. Each month of drift removes one of those. The companies that come through a formal process intact are almost always the ones that started it while they still had options, not the ones that arrived at the courthouse with nothing left to offer creditors but a queue.
Filing in the wrong place
Dubai has more than one insolvency regime and they are not interchangeable. Mainland and most free zone entities fall under the federal framework. The DIFC and the ADGM are separate common-law jurisdictions with their own insolvency legislation, their own courts and their own office-holders, and a company incorporated in either of them is dealt with there.
Getting this wrong is not a technicality. A filing made in the wrong forum can be struck out or contested, and the time spent on the argument is time in which the underlying position deteriorates. The check is straightforward — where is the entity incorporated, which authority licenses it, and what do its constitutional documents say — and it should be the first thing done, not something confirmed after a strategy has been chosen.
Groups with entities in more than one of these regimes carry more than one process. A restructuring covering the operating company but not the property-holding subsidiary, or one that ignores an offshore entity holding key contracts, leaves creditors free to pursue whichever part of the group was left out.
Transactions in the run-up that get reversed later
Insolvency legislation gives an office-holder the power to look back at what the company did before the process started and to challenge transactions that unfairly reduced what is available to creditors. That commonly covers preferences — paying one creditor ahead of others of the same rank — as well as transfers at undervalue and transactions with related parties.
Directors rarely intend any of this. They pay the supplier who will otherwise stop deliveries, repay the shareholder who lent money personally, or move an asset to another group company because that seemed tidier. Each is capable of being unwound afterwards, and each can produce a personal claim against the people who authorised it.
The safe practice, from the moment insolvency is a realistic possibility, is to make no payment or transfer outside the ordinary course without recording why it was made and taking advice on it first. A short contemporaneous note explaining the commercial reasoning is worth a great deal later.
Related: Where the exposure is contractual rather than insolvency-specific — supply agreements, escrow arrangements, unpaid receivables — our commercial disputes team advises.
Books that cannot answer the questions
Every insolvency process asks for the same things early: a current statement of assets and liabilities, a creditor list with amounts and supporting documents, recent management accounts, bank statements, and an explanation of intra-group balances. A company that cannot produce them starts from a position of suspicion rather than neutrality.
Incomplete or late disclosure has consequences beyond delay. It can invalidate a proposed restructuring plan, cost the debtor the goodwill of creditors whose votes are needed, and in serious cases attract findings that go well past the commercial. Concealing or understating assets is the single most damaging thing a debtor can do in this process, because once credibility is gone every other position becomes harder to advance.
Intra-group balances deserve particular attention. Amounts booked as receivable from a related company that has no ability to pay are not assets, and presenting them as such invites a challenge to the whole statement.
Treating restructuring as an admission of defeat
Many directors approach the framework as though liquidation were the only destination, and so avoid it until liquidation is in fact the only destination. The legislation provides restructuring and composition mechanisms precisely so that a viable business can continue while its debts are reorganised, and the DIFC and ADGM regimes contain their own equivalents.
Those mechanisms need creditor support to work, which means the negotiation begins well before any filing. Creditors who first learn of the difficulty when they receive a formal notice behave differently from creditors who were told early, shown the numbers and asked to be part of the solution. Preparing the proposal — what creditors get, over what period, and why that is better for them than enforcement — is the work that determines whether the process succeeds.
Forgetting the obligations that sit outside the company
A corporate insolvency does not clear the personal obligations attached to it. Personal guarantees given by shareholders or directors to banks, landlords and suppliers remain enforceable against those individuals. Security cheques handed over at the start of a lease or a facility are separate instruments with their own consequences. Anyone who has signed such documents needs to know where they stand before the company files, because the answer often changes what the right strategy is.
Employees are the other group that is regularly overlooked. Unpaid wages and end-of-service entitlements under Federal Decree-Law No. 33 of 2021 are real claims that rank in the process, and handling them badly generates parallel proceedings and regulatory attention while the insolvency is still running.
Premises are the third. A landlord with an unpaid tenant has its own remedies, and lease obligations continue until the lease is properly brought to an end. Our rental disputes team deals with that side, which frequently moves faster than the insolvency itself.
What to do in the first week
Establish the entity, the regime and the licensing authority. Freeze discretionary payments and related-party transfers. Bring the accounts up to date and build the creditor list with documents attached. Identify every personal guarantee and security cheque. Then decide, with advice, between restructuring and a formal insolvency — and open the conversation with the principal creditors before anything is filed. Our firm works with directors at exactly that point, which is earlier than most of them expect to need a lawyer.
Related Services: Explore our Bankruptcy Disputes services for practical legal support in this area.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.
Nour Attorneys Team
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