TRW & Co · Disputes & Arbitration
Insolvency and Bankruptcy in the UAE
Insolvency in the UAE now runs on a modern rescue-focused law. Since May 2024, onshore businesses can use preventive settlement, court-supervised restructuring or bankruptcy, while DIFC and ADGM entities follow their own common-law regimes. Knowing which applies, when the filing clock starts and how directors are exposed decides whether a business is saved or sold off.
Key pointUnder the 2023 Bankruptcy Law a restructuring plan can be carried by creditors holding roughly a third of admitted claims, and the court can impose a plan that misses the majority, so early creditor mapping matters more than ever.
At a glance
Rebuilt onshore regime
Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy came into force on 1 May 2024, replacing the 2016 Bankruptcy Law.
Three onshore procedures
Preventive settlement for early distress, restructuring under trustee supervision with possible court cram-down, and bankruptcy with liquidation by a court-appointed trustee.
60-day filing window
A debtor should apply within 60 days of ceasing payments; directors face contribution claims for errors in the two years before cessation.
Separate DIFC and ADGM rules
DIFC and ADGM entities use their own insolvency laws, courts and UNCITRAL-based recognition regimes, which the onshore system has not adopted.
Individuals have a route
Non-trader individuals can use the 2019 personal insolvency law, including a court-supervised settlement plan of up to three years.
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What insolvency in the UAE covers
Insolvency in the UAE covers the legal tools available when a company, a trader or an individual cannot pay debts as they fall due: court-supervised settlements with creditors, formal restructuring plans, bankruptcy and liquidation, and the personal liability questions that follow for directors and managers. It also covers the creditor side, from filing claims to enforcing security and challenging transactions made in the run-up to failure.
The subject became more practical in 2024. The onshore regime was rebuilt by the Financial Restructuring and Bankruptcy Law, which came into force on 1 May 2024, and its implementing regulation followed later that year. The new law was designed to make rescue a realistic option rather than a last resort, with a dedicated Bankruptcy Court, a defined test for cessation of payments and tools such as court-approved new financing.
A cash-flow problem becomes a legal question earlier than most boards expect. Once a business has stopped paying debts, statutory clocks start running, transactions with related parties come under scrutiny and directors' own exposure begins to grow. The decisions taken in the first few weeks usually determine whether the outcome is a negotiated restructuring or a liquidation.
The legal framework: onshore, DIFC, ADGM and individuals
There is no single code governing insolvency in the UAE. Which rules apply depends on where the debtor is incorporated and whether it is a company, a licensed trader or a private individual. Getting this right at the outset matters, because the procedures, voting rules, moratorium and courts all differ.
Onshore companies, traders and licensed professional companies fall under Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy, which repealed the 2016 Bankruptcy Law. Its implementing regulation, Cabinet Resolution No. 94 of 2024, deals with matters such as initial cost deposits, streamlined handling of small debtors and the central bankruptcy register. The Financial Reorganisation and Bankruptcy Unit within the Ministry of Justice maintains that register and the roster of experts.
The two financial free zones run their own common-law regimes and are outside the federal law. The DIFC Insolvency Law of 2019 (as amended) provides rehabilitation, company voluntary arrangements, administration, receivership and winding up, with proceedings before the DIFC Courts. The ADGM Insolvency Regulations 2022 provide administration, receivership and liquidation before the ADGM Courts, with schemes of arrangement available under the ADGM companies rules.
| Debtor | Governing regime | Main procedures | Forum |
|---|---|---|---|
| Onshore (mainland) company, trader or licensed professional company | Federal Decree-Law No. 51 of 2023 and Cabinet Resolution No. 94 of 2024 | Preventive settlement; restructuring; bankruptcy and liquidation | Bankruptcy Court within the competent onshore judiciary |
| Most non-financial free zone companies | Federal law, unless the free zone has its own insolvency rules | As for onshore, subject to free zone registrar requirements | Onshore courts |
| DIFC entity | DIFC Insolvency Law 2019 (as amended) | Rehabilitation; CVA; administration; receivership; winding up | DIFC Courts |
| ADGM entity | ADGM Insolvency Regulations 2022 | Administration (with deed of company arrangement); receivership; liquidation; schemes | ADGM Courts |
| Private individual (non-trader) | Federal Decree-Law No. 19 of 2019 on Insolvency | Court-supervised settlement; liquidation | Onshore courts |
Personal insolvency
Individuals who are not traders use the 2019 personal insolvency law. It allows a debtor to propose a court-supervised settlement plan of up to three years, which creditors can extend, and it provides a liquidation route where debts have gone unpaid for a sustained period. While the process is running, creditors are generally restrained from seizing assets, and criminal proceedings over cheques issued before the process began can be suspended.
The three onshore procedures compared
The federal law offers three routes. The right one depends on how deep the problem is, who needs to be bound and whether management can credibly stay in control.
Preventive settlement
Preventive settlement is the lighter, debtor-only procedure for a business that is in difficulty but has not necessarily ceased payments. Once opened, it gives an automatic stay on creditor claims of three months, which the court can extend up to a total of six months. Employee claims are outside the stay. A creditors' committee is formed quickly and the debtor's proposal must follow within the statutory window. The court cannot impose a preventive settlement on dissenting creditors in the way it can with a restructuring plan.
Restructuring
Restructuring is the tool for heavier balance-sheet problems. Either the debtor or a creditor may apply. Management stays in control under the supervision of a court-appointed trustee, and the moratorium runs from opening until the court ratifies the plan. The plan must be submitted within six months of opening; extensions beyond that need the required creditor majority. A plan can include the sale of the business as a going concern, and the Bankruptcy Court can ratify a plan that misses the voting majority if the statutory fairness tests are met.
Voting is in a single pool. Creditors holding half of the admitted voting claims must participate, and two-thirds of those participating must approve. In practice that means a well-organised group holding roughly a third of admitted claims can carry a plan, which makes creditor mapping and early engagement decisive.
Bankruptcy and liquidation
Where rescue is not viable, the court declares bankruptcy and a trustee takes control, realises assets and distributes proceeds. Creditors may apply only above monetary thresholds set by the law (higher for regulated debtors such as banks and insurers), and only for a debt that is due, undisputed and unpaid after formal notice. For solvent wind-downs, see our page on company liquidation in the UAE, which is a different process.
The onshore law now rewards the debtor that moves first: a timely restructuring application keeps management in place, while a late one hands control to a trustee and exposes the board.
Directors' liability and transactions at risk
Directors' exposure is the issue that most often turns a commercial problem into a personal one. The debtor must file within 60 days of ceasing payments or of becoming aware that it cannot pay its debts as they fall due. Missing that window does not bar a restructuring, but it weakens the board's position if the business later fails.
If assets prove insufficient, the court can order board members, managers, anyone in actual control and liquidators to contribute towards company debts where their errors in the two years before cessation of payments contributed to the loss. The contribution is proportionate to the fault. The defences are practical: showing that the person took the care a reasonable person would, or that they recorded an objection to the decision in question. Board minutes are therefore evidence, not formality.
Transactions are also exposed. Dispositions in the six months before cessation of payments can be challenged if they harmed creditors, and the look-back extends to two years for related parties. Transactions justified by genuine commercial considerations are protected. Concealing assets to damage creditors is a criminal offence. For the wider governance picture, see directors' duties and liability in the UAE.
When cash runs short, the most common board mistake is quietly paying a friendly lender, a group company or a shareholder first. Under the 2023 law those payments are the easiest to unwind and the most likely to be cited against the directors. Document why each significant payment serves the business as a whole before making it.
A creditor's playbook
For lenders, suppliers and landlords, insolvency in the UAE is often first visible as missed payments and unanswered emails. The creditor's choice is between pressing for payment through debt recovery, negotiating standstill terms, or applying to open proceedings. Each step changes leverage, so the choice should follow an assessment of the debtor's assets, other creditors and likely forum.
Secured creditors keep their priority but may need the court's permission to enforce once a procedure opens, with sale typically conducted through the trustee. A secured creditor that wants to vote on a plan may have to waive security, and any shortfall is likely to be treated as unsecured. Lenders structuring new facilities should consider the security package carefully; our page on secured lending in the UAE explains the movables and real estate options.
Set-off is restricted after proceedings open, except under a settlement proposal, a restructuring plan or a court order, but contractual netting arrangements are protected under the federal netting legislation. Rescue financing approved by the court can rank ahead of other unsecured debt and, in some cases, take security over assets, including priming security with the existing first-ranking holder's consent.
How a debtor-led restructuring runs
- Diagnose and stabilise. Build a 13-week cash-flow forecast, identify the date payments stopped or will stop, and freeze discretionary payments to insiders. Take advice on which regime applies.
- Choose the procedure. Compare preventive settlement, restructuring and an out-of-court deal with key lenders, considering the moratorium each gives and whether dissenters can be bound.
- Prepare the application. Assemble financial statements, creditor and asset lists, a viability narrative and the cost deposit required by the implementing regulation, which the court can reduce in cases of hardship.
- Opening and moratorium. The Bankruptcy Court accepts the application, appoints a trustee or expert, and the stay takes effect. Notify creditors, banks, landlords and employees with consistent messaging.
- Claims and creditor engagement. Creditors lodge claims, the trustee verifies them, and the debtor negotiates plan terms with the main creditor groups and any new-money provider.
- Plan, vote and ratification. Submit the plan within the statutory period, hold the vote and seek ratification, including a court-imposed plan if the majority is missed but fairness tests are met.
- Implementation. Execute asset sales, refinancing and debt-for-equity steps under trustee supervision and report on milestones until the plan completes.
Documents and evidence to assemble
In cases of insolvency in the UAE, courts and trustees decide quickly on paper, so the quality of the file shapes the result. Start collecting the following as soon as distress appears:
- Audited and management accounts for at least the last two years, with aged creditor and debtor ledgers.
- A complete creditor list showing amounts, security, guarantees and related-party status.
- Facility agreements, security documents, guarantees and any intercreditor or standstill arrangements.
- Board and shareholder minutes recording decisions on payments, funding and strategy since difficulties began.
- Employment records, including payroll status under the Wage Protection System and accrued end-of-service liabilities.
- Licences, leases and key customer and supplier contracts, with any termination-on-insolvency clauses flagged.
- A viability case: business plan, cash-flow projections and a comparison against a liquidation outcome.
Employee claims run outside the moratorium and continue in the labour courts, so the end-of-service position needs separate planning; see termination and end-of-service benefits.
Risks and common mistakes
Waiting for a single big receivable before acting
Boards often delay because one large payment is "due next month". If it slips, the business may already be past the point where payments ceased, and the statutory filing window may have closed. The two-year look-back for director contribution claims also continues to run. A better approach is to prepare the application in parallel with collection efforts, so that it can be filed the day the receivable fails. Preparing a filing does not commit the company to making it, and it gives the board evidence of diligence if matters deteriorate.
Assuming the federal law applies to a DIFC or ADGM entity
Group structures in the UAE commonly mix mainland operating companies, free zone trading companies and DIFC or ADGM holding companies. Each layer may sit under a different regime with different courts and voting rules. A restructuring that only addresses the onshore entity can leave guarantees or security at holding company level untouched. Map every obligor and guarantor to its regime before designing the plan, and consider whether a scheme or administration in the DIFC or ADGM should run alongside onshore proceedings.
Treating cheques and guarantees as someone else's problem
Security cheques and personal guarantees from founders remain common in the UAE. A company restructuring does not automatically release a guarantor, and creditors may pursue cheque-based execution against signatories in parallel. Bounced cheques can now be presented directly for execution, and criminal exposure remains for bad-faith conduct. Founders need their own advice early, and any plan should address guarantee releases expressly where creditors will agree to them.
Moving assets or paying insiders before filing
Transfers to related parties in the two years before cessation of payments can be set aside, and concealment intended to harm creditors is a criminal offence. Even legitimate intra-group transactions look suspicious when made late without documentation. If group funding or asset transfers are commercially necessary, record the rationale, obtain valuations where relevant and consider whether creditor or court approval should be sought first.
Under-estimating the cost and pace of the process
The implementing regulation requires an upfront deposit to cover initial costs, trustee fees accrue throughout, and the court will expect a credible plan within the statutory timetable. Debtors who open proceedings without funding or a near-final term sheet risk drifting into liquidation. Line up interim funding, ideally structured as court-approved new financing, and agree heads of terms with core lenders before filing where possible.
Cross-border insolvency in the UAE
Cross-border insolvency in the UAE turns on forum. The DIFC and ADGM have adopted versions of the UNCITRAL Model Law on Cross-Border Insolvency, so foreign office-holders can seek recognition and assistance there. The onshore regime has not adopted the Model Law, and recognition of foreign proceedings onshore remains largely untested, so creditors should plan on the basis that local proceedings or local enforcement may be needed. Our pages on foreign judgment enforcement and DIFC Courts proceedings cover the routes.
For groups with operations in Bangladesh, India or Saudi Arabia, the practical question is where assets and lenders sit. A Dubai trading company owned from Dhaka or Chattogram may have its bank facilities in the UAE and its factories in Bangladesh, where insolvency and winding-up rules differ substantially. Saudi Arabia's bankruptcy regime and India's insolvency code each have their own procedures, so any group plan needs coordinated local advice.
English-law facilities and London or Singapore restructuring tools, such as schemes of arrangement and restructuring plans, are sometimes used for UAE groups with foreign-law debt. Whether a UAE court will give effect to a foreign plan depends on the forum, so the strategy should be agreed before any foreign process is launched. Where cross-border work is needed, TRW & Co coordinates across its offices in Dhaka, Singapore and London and with local counsel elsewhere.
How TRW & Co helps
We advise boards, creditors, investors and individuals on insolvency in the UAE from the first sign of distress through to implementation. Where representation before UAE onshore courts or the DIFC/ADGM Courts is required, we work alongside locally licensed advocates and registered practitioners.
Board and director advice
We help boards understand when the filing clock starts, what to minute and which payments to stop. The aim is to protect directors from contribution claims while keeping options open.
Procedure selection
We compare preventive settlement, restructuring, an informal standstill and free zone procedures for your structure. You get a clear recommendation tied to the moratorium and voting each option provides.
Restructuring plans
We work with financial advisers on plan terms, creditor mapping and new-money structures. We also prepare the legal documentation for court ratification.
Creditor strategy
For lenders and trade creditors we assess security, claims and leverage, and decide whether to press, negotiate or apply. We also review transactions that may be open to challenge.
Group and cross-border coordination
We map entities across onshore, free zone, DIFC and ADGM regimes and coordinate with counsel in Bangladesh, India, the UK and Singapore so that the group plan holds together.
Founders and guarantors
We advise individuals facing guarantee calls, cheque claims or travel restrictions, including the personal insolvency route. We set out the options alongside negotiated releases.
See also debt restructuring in the UAE for consensual deals with lenders, ADGM Courts proceedings for Abu Dhabi structures, or browse all our practices.
Checklist for decision-makers facing insolvency in the UAE
- Confirm which regime applies to each group entity: federal, free zone, DIFC or ADGM.
- Fix the likely date of cessation of payments and diarise the 60-day filing window.
- Stop discretionary payments to related parties and document the rationale for every significant payment.
- Minute board discussions, including any dissent, and keep advisers' reports on file.
- Identify secured creditors, guarantors and cheque exposure, including founders' personal positions.
- Prepare a viability case and a liquidation comparison before engaging creditors.
- Line up interim funding and consider whether it should be court-approved new financing.
- Plan employee communications and end-of-service liabilities separately from the moratorium.
- Map foreign assets and lenders and agree a cross-border strategy before filing anywhere.
To discuss a specific situation, contact TRW & Co or email info@trw.co. Early advice is usually the cheapest advice in an insolvency matter.
Frequently asked questions
01Which law governs insolvency in the UAE for a mainland company?
Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy, in force since 1 May 2024, together with Cabinet Resolution No. 94 of 2024 as its implementing regulation. It applies to companies under the Commercial Companies Law, natural persons with trader status and licensed professional companies. DIFC and ADGM entities are outside it and use their own regimes. Individuals who are not traders use the separate 2019 personal insolvency law.
02What is the difference between preventive settlement and restructuring?
Preventive settlement is a lighter, debtor-only procedure with an automatic three-month stay that can be extended to six months in total. It suits a business in early difficulty with broad creditor support. Restructuring can be started by the debtor or a creditor, runs under a court-appointed trustee with management usually staying in place, and allows the court to ratify a plan even if the creditor majority is not reached, provided fairness tests are met.
03Can directors be personally liable when a UAE company fails?
Yes. If assets are insufficient, the court can order board members, managers, anyone in actual control and liquidators to contribute to company debts where their errors in the two years before cessation of payments contributed to the shortfall. Liability is proportionate to fault. A director can defend a claim by showing reasonable care or a recorded objection, which is why contemporaneous board minutes and advice matter.
04Can transactions made before insolvency be reversed?
Transactions that harmed creditors in the six months before cessation of payments can be challenged, and the period extends to two years for transactions with related parties. Transactions justified by genuine commercial considerations are protected. In practice, payments to shareholders, group companies and connected lenders are the most likely to be scrutinised, so they should be documented carefully before they are made.
05Can a creditor start bankruptcy proceedings against a UAE debtor?
Yes, for restructuring or bankruptcy, but not preventive settlement. The debt must be due, undisputed and unpaid after formal notice, and creditor applications are subject to monetary thresholds that are higher for regulated debtors such as banks and insurers. Because the court will examine the debt closely, a creditor with a disputed claim usually does better to establish the debt first through litigation, arbitration or summary procedures.
06Does a UAE restructuring stop employees from suing?
No. Employment claims fall outside the moratorium under the onshore procedures and continue in the labour courts. That makes payroll, accrued wages and end-of-service entitlements a priority in any rescue plan. Businesses should model these liabilities early and keep staff informed, since unpaid wages also trigger Wage Protection System consequences with the Ministry of Human Resources and Emiratisation.
07Will a foreign insolvency be recognised in the UAE?
It depends on the forum. The DIFC and ADGM have adopted versions of the UNCITRAL Model Law, so foreign office-holders can seek recognition and assistance there. Onshore, the Model Law has not been adopted and recognition of foreign proceedings is largely untested, so a foreign liquidator or trustee should expect to rely on local proceedings or enforcement routes for assets held onshore.
Sources and official materials
- Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy — Onshore insolvency law in force since 1 May 2024
- Cabinet Resolution No. 94 of 2024 — Implementing regulation of the Bankruptcy Law
- UAE Ministry of Justice — Home of the Financial Reorganisation and Bankruptcy Unit
- DIFC Courts: rules and decisions — Forum for DIFC insolvency proceedings
- ADGM rules and regulations — Includes the ADGM Insolvency Regulations 2022
- ADGM Courts — Forum for ADGM insolvency and recognition applications
General information only, current as at 27 October 2026. It is not legal advice and does not create a lawyer–client relationship. UAE law differs between the onshore jurisdiction, the DIFC, ADGM and the free zones, and changes frequently; check current official sources and take advice on the facts of your matter.
