Vida Grace, Associate

The UAE Cabinet recently approved Decree-Law No. (19) of 2019 on the Insolvency of Natural Persons concerning natural person’s inability to pay debts due to insolvency and debt default. This new law is aimed at enhancing the competitiveness of the UAE, ease of doing business and at facilitating more favorable conditions for individuals facing financial difficulties and protecting those unable to meet debt obligations from going bankrupt. As a measure responsive to the needs of the UAE’s citizens and residents, said law shall support individuals who are facing existing or potential financial distress and allow them to settle their debts.

Key highlights and changes from prior insolvency regulations involve the new law allowing for the following:

  • Decriminalize the financial obligations of the insolvent person and allow an opportunity to work, be productive and provide for their families
  • Protect the debtors from legal prosecution out of the bad debts incurred
  • Enable debtors to reschedule their debts and give an opportunity to take new concessional loans

Coming into force in January 2020, this new law also features the availability of the assistance of one or more experts to be appointed by the court to assist debtors in settling their financial obligations. Also acting as a coordinator between debtors and creditors, the expert/s shall come up with a settlement plan to address all financial liabilities of the debtor to be completed in no more than three years.

The new law is different from that of the UAE Bankruptcy Law (Decree-Law No. 9 of 2016) which also addresses the insolvency of a debtor. The debtor in this new law pertains to the natural person who is not engaged in economic activity and does not match to the description of a trader. Nonetheless, both laws are aimed towards aiding and supporting the swift completion of related legal procedures to reduce the fees for rescheduling or restructuring debts with a view of finding a fair compromise for both creditors and debtors.

The UAE Ministry of Finance has clarified that bounced cheques would not be decriminalized but that debtors can now turn to the insolvency law to resolve their debts without any jail time or legal action taken against them.

We at Al Suwaidi & Company see the approval and implementation of this new law as a key milestone with significant implications throughout the commercial, financial services and consumer finance landscape of the UAE that shall overall improve the UAE’s competitive positioning and sustainability as the Middle East’s premier place to do business and to avail an attractive quality of life for its residents and citizens. Specialized rules and procedures regarding the insolvency of a natural person are expected to enhance transparency on civil debt repayment transactions and increase the general security of financial transactions. Easier access for individuals to obtain loans to help settle debt obligations shall also help in improving collections on bad debts and accelerate the rehabilitation process of debtors. This will improve creditor banks’ confidence in retail lending and ensures the protection of the debtors’ dignity and helps create an opportunity for them to better manage their finances and reduce their financial burdens.