What is the first step to start bankruptcy proceedings in the UAE

Under the UAE Federal Decree-Law No. 51 of 2023 on Bankruptcy (the "Bankruptcy Law"), individuals and companies facing insolvency may initiate protective proceedings, restructure debts, or liquidate assets while seeking to safeguard legitimate property; the law applies across the UAE mainland and, where opted-in, the DIFC and ADGM courts.

Related Services: Explore our Bankruptcy Disputes and Commercial Disputes services for practical legal support in this area.

WHAT IS THE FIRST STEP TO START BANKRUPTCY PROCEEDINGS IN THE UAE?

The core step is filing a petition for preventive settlement, restructuring, or bankruptcy with the competent UAE court, accompanied by required documents under Federal Law No. 9 of 2016 on Bankruptcy, which governs insolvency proceedings and asset protection across the United Arab Emirates.

• a statement of affairs that details the debtor's assets, liabilities, income and expenditures;
• a complete list of known creditors, including their claims and any security interests; and
• either a proposed preventive settlement plan, a restructuring scheme, or a liquidation schedule, depending on the debtor's objective.

Under Article 7 of the Bankruptcy Law the petition must be submitted in Arabic to the court where the debtor's centre of main interests (COMI) is located. The court reviews the filing and, if satisfied that the formal requirements are met, issues an admission order within five business days. This order serves two purposes:

1. It officially admits the petition, thereby commencing the insolvency process;
2. It appoints a trustee (or administrator) who will take control of the debtor's estate for the duration of the proceedings.

Once the admission order is made, Article 12 triggers an automatic stay on all enforcement actions by creditors. The stay prevents seizure, transfer, or any other disposition of the debtor's property without court approval.

The debtor then has ten days to file a detailed statement of assets and liabilities. This statement must be supported by:

• audited financial statements for the preceding financial year;
• recent bank statements showing cash flows and balances;
• material contracts, including loan agreements, supply contracts, and leases; and
• any other documentation that substantiates the value and ownership of assets.

The trustee verifies the submitted information, convenes a creditors' committee (if required), and oversees the preparation of either a preventive settlement plan (Articles 13-20) or a restructuring scheme (Articles 21-30). If the court determines that the proposed plan is feasible and complies with the law, it confirms the plan; otherwise, the case proceeds to liquidation under Articles 31-45.

Costs associated with the process are set out in the Ministry of Justice fee schedule and typically include:

• court filing fees (generally AED 2,000-5,000, depending on the claim value);
• trustee remuneration, calculated as a percentage of the realised asset value (often ranging from 3 % to 7 %);
• administrative expenses such as notice publication, expert valuation fees, and costs of creditors' meetings.

HOW CAN A DEBTOR PROTECT ASSETS DURING BANKRUPTCY PROCEEDINGS?

Asset protection under the Bankruptcy Law is achieved through three interlocking mechanisms: the automatic stay, the segregation of exempt property, and the statutory priority regime.

Automatic stay (Article 12)

The stay takes effect immediately upon the admission order and remains in force until the court lifts it, the plan is confirmed, or the case proceeds to liquidation. It bars creditors from:

• initiating or continuing execution proceedings;
• attaching bank accounts or other movable property;
• enforcing security interests without court permission; and
• taking any action that would diminish the debtor's estate.

Violations of the stay can be sanctioned by the court, including contempt findings and orders for restitution.

Exempt property necessary for ongoing operations (Article 22)

The debtor may retain assets that are essential for the continuation of business activities, provided they are:

• disclosed in the statement of affairs;
• approved by the trustee as reasonably required for the debtor's trade or profession; and
• not excessive in value relative to the debtor's needs.

Typical exempt assets include:

• production equipment and machinery;
• inventory required to fulfil existing contracts;
• intellectual property that generates revenue (e.g., software licences, patents); and
• vehicles used for business logistics.

Retaining these assets helps preserve the debtor's ability to generate income, which can improve the prospects of a successful preventive settlement or restructuring.

Priority of claims (Articles 31-34)

The Bankruptcy Law establishes a clear hierarchy that determines how proceeds from the estate are distributed:

1. Secured creditors - paid first from the proceeds of the specific collateral to which their security attaches.
2. Preferential claims - comprising employee wages for the three months preceding the bankruptcy date, government dues (e.g., taxes, social security contributions), and certain other statutory claims.
3. Unsecured creditors - share any remaining funds on a pari passu basis after secured and preferential claims are satisfied.

To maximise protection, debtors should:

• Register security interests promptly with the relevant movable collateral register (Federal Law 4/2020) or immovable property register, ensuring perfection and priority.
• Maintain accurate asset registers that reflect acquisitions, disposals, and encumbrances in real time.
• Avoid preferential transfers within the six-month look-back period prohibited by Article 38. Transfers made to favour a particular creditor shortly before insolvency may be set aside by the trustee, thereby increasing the pool available for distribution to all creditors.

If a debtor fails to observe these safeguards, the trustee has the power to avoid suspicious transactions, recover the assets, and redistribute them according to the statutory order.

WHAT ARE THE CONSEQUENCES OF NON-COMPLIANCE WITH BANKRUPTCY OBLIGATIONS?

Non-compliance can trigger a cascade of adverse outcomes, ranging from procedural setbacks to criminal liability.

Dismissal of the plan and conversion to liquidation (Article 27)

If the debtor fails to implement an approved preventive settlement or restructuring plan without reasonable cause, the court may:

• revoke the plan;
• order the immediate conversion of the proceedings to liquidation; and
• appoint a liquidator to take over the administration of the estate.

The court's decision is based on an assessment of whether the debtor's failure stems from genuine inability (e.g., unforeseen market collapse) or from neglect or bad faith.

Personal liability for managers (Articles 27-28)

When a company's management is found to have contributed to the failure-through misrepresentation, concealment of assets, or reckless trading-the court may impose personal liability on the directors or officers. This liability can extend to:

• reimbursement of the estate for losses caused by their conduct; and
• disqualification from holding directorial positions for a period determined by the court.

Criminal penalties for fraudulent behaviour (Article 40)

Acts such as:

• concealing assets or liabilities;
• submitting false statements of affairs;
• obtaining credit through deceit; or
• fraudulently preferring one creditor over another

are punishable by imprisonment of up to two years and/or a fine not exceeding AED 500,000. The trustee is obliged to report any suspected offences to the Public Prosecution under Article 42, which may initiate criminal proceedings independently of the civil insolvency process.

Discharge and rehabilitation (Article 45)

Conversely, debtors who:

• fully disclose all assets and liabilities;
• cooperate with the trustee and creditors' committee;
• adhere to the court-approved schedule; and
• refrain from fraudulent conduct

may obtain a discharge of remaining debts upon successful completion of liquidation or restructuring. This discharge releases the debtor from liability for debts that were not satisfied through the insolvency proceedings, providing a fresh start while preserving the integrity of the process for creditors.

CAN CREDITORS CHALLENGE A DEBTOR'S ASSET PROTECTION MEASURES?

Creditors retain the right to scrutinise and contest protective measures that they believe undermine their interests. The Bankruptcy Law provides several avenues for such challenges.

Objections to the preventive settlement or restructuring plan (Article 13)

Creditors may file a written objection to the plan if they contend that it:

• unfairly prejudices their rights;
• fails to meet the feasibility test; or
• does not comply with the statutory requirements (e.g., inadequate disclosure, unrealistic cash-flow projections).

The court must hear the objection before confirming the plan. At the hearing, creditors can submit evidence such as:

• expert valuations of contested assets;
• transaction histories that suggest undervaluation; and
• financial models demonstrating the plan's inadequacy.

If the court sustains the objection, it may:

• require amendments to the plan;
• extend the period for formulation; or
• reject the plan outright, leading to liquidation.

Setting aside suspicious transactions (Article 38)

Under the look-back provision, any transfer of property made within six months prior to the petition that constitutes a preference or a fraudulent conveyance may be voided. Creditors can request the trustee to:

• initiate avoidance proceedings;
• recover the transferred asset or its monetary equivalent; and
• have the recovered amount added to the estate for distribution.

The process involves:

1. filing a motion with the court detailing the transaction and the grounds for avoidance;
2. providing supporting documentation (e.g., bank transfers, sale agreements, correspondence); and
3. attending a hearing where both parties may present expert testimony.

If the court agrees, it issues an order for restitution, and the trustee proceeds to realise the recovered asset.

Challenging the classification of exempt assets (Article 22)

Creditors may argue that certain assets claimed as exempt are not reasonably necessary for the debtor's business or exceed the permissible threshold. The trustee evaluates these claims, and the court makes a determination based on:

• the nature of the debtor's trade;
• the proportionality of the asset's value to operational needs; and
• any evidence of attempts to shield assets from creditors.

Successful challenges can result in the asset being re-classified as part of the estate, thereby increasing the pool available for creditor distribution.

FREQUENTLY ASKED QUESTIONS

What is the timeframe for completing preventive settlement under the Bankruptcy Law?
Preventive settlement must be concluded within twelve months from the court's admission order. The period may be extended by a further six months upon a justified request, subject to the court's satisfaction that the debtor has made genuine progress and that extension will not prejudice creditors.

Are wages of employees protected during bankruptcy?
Yes. Employee wages due for the three months preceding the bankruptcy date are classified as preferential claims under Article 34 and are paid ahead of unsecured creditors. This protection aims to safeguard workers' livelihoods during insolvency proceedings.

Can a debtor continue to operate its business while under bankruptcy protection?
The debtor may continue operations if the court approves a business continuation plan and the trustee oversees compliance (Article 22). The plan must demonstrate that ongoing trading will enhance the estate's value or facilitate a successful restructuring, and the trustee monitors adherence to reporting and operational conditions.

What happens to secured creditors if the collateral is insufficient to cover their debt?
Secured creditors receive payment from the proceeds of their collateral up to the asset's market value. Any shortfall becomes an unsecured claim and is paid alongside other unsecured creditors after preferential claims are satisfied (Article 31).

Is it possible to appeal a court's decision on bankruptcy proceedings?
Parties may appeal interlocutory orders-such as the admission or rejection of a petition, the appointment of a trustee, or the confirmation of a plan-to the Court of Appeal within thirty days of the decision, pursuant to Article 181 of the Civil Procedure Law. Final judgments on liquidation or discharge are also subject to appeal, though the scope of review may be limited to questions of law.

Do DIFC and ADGM courts apply the UAE Bankruptcy Law?
The DIFC and ADGM maintain their own insolvency regimes (DIFC Insolvency Law and ADGM Insolvency Regulations). However, parties may elect to apply UAE law and submit to the onshore courts for enforcement by including a governing law and forum clause in their contracts. This election is recognised and enforced provided the choice is clear, lawful, and not contrary to public policy.

This overview is intended for general informational purposes and does not constitute legal advice for any particular situation. For advice tailored to your specific circumstances, please consult a qualified commercial disputes lawyer in the UAE.

If your matter involves UAE bankruptcy lawyer: how to deal with bankruptcy procedures and protect your assets in the United Arab Emirates, you are welcome to request a consultation with Nour Attorneys. Our team can assess your position under the law currently in force and outline the options available to you. Request a consultation

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