Tips on How the New UAE Law Will Help Residents With Debts

Published December 15th, 2019 - 08:15 GMT
Tips on How the New UAE Law Will Help Residents With Debts
The insolvency law applies to a natural person who is not engaged in an economic activity and is not a trader. (Shutterstock)
The law addresses debtors' inability to pay their debts due to bankruptcy and debt default.

An insolvency law that was approved by the UAE Cabinet earlier this week will protect debtors' dignity and gives them the opportunity to manage their finances, the Ministry of Finance has said. 

On Tuesday, the ministry explained how the law will be applied; how debtors can settle their dues; and what documents they will need to submit.

Purpose of the law

The Insolvency Law of Natural Persons addresses debtors' inability to pay their debts due to bankruptcy and debt default. This is known as the 'insolvency of the natural person'. The regulation of this case is linked to the Civil Transactions Act, in accordance with a principle called 'Facilitator's View'. The latter is rooted in Islamic jurisprudence, whereby debtors are granted a reasonable period of time to fulfill their financial obligations. However, this is done provided that such a delay does not cause serious harm to the creditor.

Insolvency law vs bankruptcy law

The insolvency law applies to a natural person who is not engaged in an economic activity and is not a trader. However, the primary purpose of both laws is the same: Both exist to protect the common interests of the creditor and the debtor in a fair and balanced manner. The risk is divided between them in such a way so as to alleviate the debtors from the cycle of financial difficulties and enable them to pay off their accumulated debt.

How the law will help

Specialized rules governing the insolvency of a natural person are expected to increase transparency on civil debt repayment transactions and increase the general security of financial transactions, thus enhancing financial stability in the country. It is also expected to accelerate growth and make it easier for individuals to obtain loans, as there are clear rules that are easy to apply to collect bad debts and rehabilitate the debtor financially. This enhances creditor banks' confidence in retail lending and encourages individuals to engage in calculated borrowing. In addition to all its economic objectives, the law has another positive aspect to it: It ensures the protection of the debtors' dignity and helps create an opportunity for them to manage their finances and reduce financial burdens.

Will it affect the economy

The law will bolster the economic stability of the nation and provide a secure environment for personal loans to the contentment of both the creditor and the debtor. The law provides the necessary balance to guarantee the rights of creditors and debtors and encourages increased cash flows.

How long will the court take to decide

The court shall decide on the application (without notice or plea) within five working days from the date of submission of the application.

What happens next?

The decision of the court shall cease the obligation of the debtor to apply for insolvency and the liquidation of their property. Suspension of execution shall continue during the period of settlement of financial obligations unless the debtor breaches obligations.

Appointing experts

In the decision to open a settlement of financial obligations, the court shall appoint one or more experts to assist the debtor in settling financial obligations. The expert shall not be a creditor of the debtor or be associated with them in any interest, or kinship until the fourth degree.

Steps experts will take

The expert shall prepare a plan in cooperation with the debtor, provide the creditors with a copy, and deposit a copy with the court within 22 working days, from the date of the court's decision to instruct the expert to prepare the plan. The court may authorize an extension of the submission period if the need arises.

The expert shall invite the debtor and creditors to one or more meetings, specifying the time and place of the meeting, to discuss and vote on the plan.

They shall be invited to attend the meeting by any means of communication as deemed appropriate.

The first meeting shall be held within 10 working days from the date of providing the creditors with a copy of the plan. The debtor and creditor shall attend the meeting in person, or by someone authorized on their behalf.

Who is not eligible to vote on the plan

- The debtor's spouse
- Any person financially supported by the debtor
- Relatives of the debtor up to the second degree.
Duration of executing the plan
The proposed period for the execution of the plan may not exceed three years from the date of the ratification.

Can the plan be amended

Yes, amendments may be made. The expert shall request the court to approve the amendments. The court shall, before deciding on the application, notify all creditors who may be affected by such amendments; and authorize or reject them.

Invalidation of plan

The court shall decide on the termination of the financial settlement of the debtor in the following cases:

- If it finds that the debtor's financial obligations cannot be settled

- If it is impossible to implement the plan because the debtor ceases to pay any of their debts on due dates for more than 40 consecutive working days, as a result of their failure to meet these debts

- If the debtor requests the court to terminate the execution of the plan before the settlement of financial obligations with creditors

- If the period specified for the implementation of the plan expires without the settlement of financial obligations of the debtor

- If the debtor fails to follow the plan.

- The approved plan will be nullified if the court finds that the debtor is evading, or attempting to evade, fulfilling their obligations.

Secretary to liquidate assets

The court shall appoint a secretary if it decides to open the procedures of insolvency of the debtor and the liquidation of their funds.

Functions of the secretary

The secretary shall finalize the claims of creditors and prepare a report on the financial situation of the debtor and deliver it to the court within 10 working days from the end of the specified period, which is 20 working days. The court may extend it for a similar period once more.

Replacing the expert or secretary

The court may replace the expert or the secretary upon the request of the creditor or the debtor if it is proved that their continued appointment may harm the interests of either the creditors or the debtor or both.

Judicial decision on insolvency

The court shall decide on the insolvency of the debtor and the liquidation of their assets within 15 days from the date of receiving the secretary's report.

Time the debtor gets

The court may, upon the recommendation of the secretary and the debtor's request, before commencing the liquidation of the debtor's funds, decide to grant the debtor a term under the secretary's supervision of no more than three months. This is extendable by a similar period to reach an amicable settlement with the creditors, provided that this does not prejudice the interest of creditors.

Appealing the term

Any of the creditors may appeal the court's decision to grant the debtor a time for amicable settlement before the Court of Appeal. The appeal shall not result in the suspension of the proceedings and the decision issued in the appeal shall be considered final.

Penal provisions

Dh20,000 to Dh60,000 fine, imprisonment for debtors if:

- They spend large sums of money in speculative business that is not required

- They purchase services, goods or materials for personal or domestic use

- They gamble

- Dispose of their funds at less than the market price

Dh10,000 to Dh100,000 fine, jail for creditors if:

- They make a claim relating to a fake or sham debt against the debtor

- They increase the debts to the debtor illegally.

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