Insolvency in the UAE – Liquidation

An insightful guide to the UAE's insolvency laws and debt restructuring Essential legal strategies and frameworks are explored in depth for understanding the legal remedies and strategic approaches available in situations of financial distress.

A Comprehensive Guide for Creditors and Debtors Liquidation

Welcome to our comprehensive guide on the Federal Decree-Law No. 19/2019 on Insolvency in the United Arab Emirates (the “UAE Insolvency Law”), a pivotal piece of legislation governing insolvency procedures in the United Arab Emirates. This newsletter serves as a crucial resource for understanding the nuances of insolvency law from both creditor and debtor perspectives.

Bankruptcy Petition,
Insolvency Practitioner,
Voluntary Arrangement,
Statutory Demand,
Winding Up,
Debt Restructuring,
Bankruptcy Order,
Creditors' Meeting,
Asset Realisation,
Debt Discharge,
Financial Distress,
Bankruptcy Trustee,
Preferential Creditor,
Secured Creditor,
Unsecured Creditor,
Bankruptcy Discharge,
Bankruptcy Estate,
Proof of Debt,
Debt Moratorium,
Insolvency Law,
Debt Recovery,

Navigating the complexities of financial distress requires a thorough grasp of your rights, responsibilities, and the legal processes involved. Whether you are a creditor seeking to safeguard your dues or a debtor looking for a structured path to resolve financial obligations, this guide offers vital insights and clarity. Join us as we examine the intricacies of the insolvency process, the pivotal role of insolvency trustees, and the post-insolvency implications, ensuring you are well-equipped to navigate these challenging scenarios with confidence and understanding.


The UAE Insolvency Law represents a significant legal framework, primarily applicable to individuals and businesses facing financial distress. The UAE Insolvency Law is specifically applicable to debtors who are not subject to the provisions of Federal Decree-Law No. 51/2023

Promulgating the Financial Reorganizations and Bankruptcy Law (the “UAE 2024 Bankruptcy Law”) abrogating Federal Decree-Law No. 9/2016 (the “UAE 2016 Bankruptcy Law”) – the Bankruptcy Law.

This implies that the UAE Insolvency Law primarily addresses the insolvency issues of individuals and entities that fall outside the scope of the Bankruptcy Law, which generally governs insolvency proceedings for larger corporations and entities​​.

Instead, the UAE Insolvency Law is particularly pertinent to small and medium-sized enterprises (SMEs), entrepreneurs, and individual consumers who find themselves unable to meet their debt obligations.

The UAE Insolvency Law distinguishes between two types of proceedings: one focusing on restructuring and the other on insolvency and liquidation. In this newsletter we will focus on Insolvency and liquidation.

Insolvency and Liquidation

Debtor initiating Insolvency and Liquidation Proceedings

  • Action by Debtor: If a debtor fails to pay any of their debts by the maturity date for more than 65 consecutive working days due to an inability to pay, they shall file an application for insolvency and liquidation proceedings with the court.
  • Minimum Debt Requirement: As updated by Cabinet Decision No. 47/2021, the minimum amount of debt that obliges a debtor to initiate insolvency proceedings is AED 250,000.
  • Application Documentation: The debtor must attach all the documents specified in Article 3 of the UAE Insolvency Law to their application. These documents include a summary of the debtor’s financial situation, details of unpaid debts, a list of assets, information on legal actions against the debtor, and other relevant information.

Creditor/s initiating Insolvency and Liquidation Proceedings

Creditors can also petition for insolvency proceedings if there is evidence that the debtor is unable to pay their debts. Under Article 29 of the UAE Insolvency Law replaced by virtue of Cabinet Decision No. 47/2021 dated 28/04/2021, a debtor’s creditor or a group of creditors can apply to the court to open insolvency and liquidation proceedings. This is applicable when the total amount owed is not less than one million dirhams. The application can be made if the creditor has previously served the debtor with a notice to pay the due debt, and the debtor has failed to pay within 65 consecutive working days from the notice date​​.

When a creditor, or a group of creditors, seeks to initiate insolvency and liquidation proceedings against a debtor, the following documents must be submitted to the court:

  • Proof of Indebtedness: Documentation must be provided that clearly proves the existence of the debt. This includes details of the debt amount, its maturity dates, and any related securities or collateral, if applicable.
  • Copy of the Notice to Debtor: A copy of the notice served to the debtor demanding payment, as mentioned in the previous clause, must be included. This notice is a prerequisite, establishing that the debtor has been given a formal opportunity to settle the outstanding debt.
  • Nomination of a Trustee: The creditor must nominate a trustee to oversee the insolvency proceedings. This nomination should align with the stipulations set forth in the Decree-Law, ensuring the trustee is qualified and capable of managing the process effectively.

Court fee and Bank Guarantee:

  • Judicial Fees: Applicants (debtors or creditors) initiating insolvency proceedings are responsible for paying the judicial fees, as per Articles 28 and 29.
  • Estimation and Notification of Fees: The court estimates the expertise fees and other expenses for the insolvency and liquidation proceedings and informs the applicant of these costs no later than the day after the application submission.
  • Deposit Requirement: Applicants are required to deposit cash or a bank guarantee with the court’s treasury to cover the trustee’s fees and expected expenses. The due date for this deposit is determined by the court.
  • Postponement of Payment: If the applicant lacks the funds to cover these expenses at the time of the application, the court may postpone the deposit. However, these fees must be prioritized and paid from the first amounts received in the debtor’s funds.
  • Additional Fees for Liquidation Proceedings: If the court initiates insolvency and liquidation proceedings during the settlement of financial obligations, it may require an additional cash or bank guarantee to cover further trustee fees and expenses.

Appointment of the Trustee and Exercise of His Functions

Appointment of the Trustee:
  • The court appoints a trustee to manage insolvency and liquidation proceedings.
  • If the debtor has already been involved in financial settlement proceedings, the previously assigned expert may be appointed as the insolvency trustee.
Publication of Appointment:
  • The trustee must announce the court’s decision to open insolvency and liquidation proceedings in two widely circulated local newspapers (one in Arabic and one in English) within five working days.
Submission and Audit of Claims:
  • Creditors are required to submit their claims to the trustee within 20 working days following the announcement.
  • The trustee audits these claims and must submit a report on the debtor’s financial position to the court within 10 working days after the claim submission period ends. This period may be extended once by the court.
  • Claims in foreign currency are converted into the national currency at the exchange rate on the date the insolvency proceedings were opened, unless agreed otherwise.
Court’s Acceptance of Claims and Granting Deadlines:
  • The court reviews the trustee’s report to determine and approve the claims.
  • A decision on the debtor’s insolvency and liquidation of assets is made within 15 days of receiving the trustee’s report.
  • The court, upon the trustee’s recommendation, may grant the debtor up to three months (extendable by another three months) to reach a settlement with creditors, provided it doesn’t harm their interests.
  • Creditors can challenge the decision to grant the debtor this deadline before the Court of Appeal, but such an appeal does not stay the proceedings.
  • Once insolvency and liquidation proceedings commence, all of the debtor’s debts become payable.

Liquidation of Funds

Management of Liquidation Proceedings
  • Trustee’s Role: Upon the court’s decision to open insolvency and liquidation proceedings, the trustee is tasked with liquidating all of the debtor’s funds, except those exempted by law.
  • Debtor’s Disclosure: The debtor must disclose any property acquired after the commencement of the liquidation proceedings, which the trustee then adds to the liquidation pool.
  • Legal Actions: The trustee may take legal or judicial action to claim any property included in the debtor’s financial liabilities.
  • Debtor’s Participation: The trustee may authorize the debtor to continue certain activities for a maximum of six months (extendable by two months) to facilitate the sale of property at the best price.
  • Property Retention: Upon request, the court may allow the debtor to retain certain properties necessary for their profession or occupation.
  • Sales Method: The trustee sells the debtor’s property, usually via public auction or as authorized by the court.
  • Distribution of Proceeds: Proceeds from the liquidation are used to settle claims against the debtor under court supervision. Any excess is returned to the debtor.
  • Priority of Distribution: Sale proceeds are distributed to creditors according to the priority specified in Article 42 i.e.,

a- Fees and judicial expenses, and the fees and expenses of the Expert and the Trustee.

b- Expenses disbursed by a Court order to serve the creditors’ common interest in the preservation and liquidation of the Debtor’s Funds.

c- End-of-service gratuity and wages owed to the Debtor’s workers and employees.

d- Alimony and maintenance imposed on the Debtor by an order issued by a competent court.

e- Amounts due to government agencies.

Right of Recovery:

  • Invitation for Claims: When proceedings are opened, interested parties are invited to apply for the recovery of movable or immovable property owned by them but included in the debtor’s assets.
  • Submission Deadline: Applications for recovery must be submitted within two months from the publication of the decision to open proceedings.
  • Return of Assets: Upon court order, the trustee may return assets to their rightful owners after verifying ownership.

Distribution and Management of Sale Proceeds:

  • Distribution of Revenues: The trustee may distribute liquidation revenues after each sale or upon accumulating total sale proceeds, in line with Article 42’s provisions.
  • Approval of Distribution List: After each sale, the trustee must submit a distribution list to the court for approval.
  • Receipt of Proceeds by Creditors: Creditors receive their share of distribution proceeds from the trustee’s office, unless a different arrangement is agreed upon.
  • Set Aside for Disputed Debts: Funds related to unaccepted or disputed debts are reserved at the court’s treasury until a final decision is made.
  • Payment to Secured Creditors: Proceeds from assets securing debts are first used to pay secured creditors. If these funds are insufficient, the remaining debt is treated as ordinary debt.
  • Surplus to Debtor: Any surplus amounts post-liquidation is returned to the debtor after all obligations are met.
  • Unclaimed Debts: Debts unclaimed by creditors due to absence or unknown residence are deposited at the court’s treasury, serving as clearance.

Measures Against the Debtor:

  • The court may take action against the debtor for offenses such as fleeing the state to avoid debts, disposing of funds to obstruct the trustee, concealing or destroying relevant documents, unauthorized property transfer over AED 5,000, and failing to appear before the court or comply with its decisions.

Debtor’s Acts after Opening the Proceedings:

  • Maturity of Debts: All of the debtor’s debts mature immediately upon opening of insolvency and liquidation proceedings.
  • Disposition of Funds: Any disposition of the debtor’s funds becomes unenforceable unless decided otherwise by the court.
  • Acknowledgement of Debts: The debtor’s acknowledgement of any debt is not enforceable against creditors.
  • Restrictions on Debtor: The debtor is prohibited from managing their business and property and cannot make payments over AED 5,000 without trustee approval, except for living costs and pre-insolvency mutual obligations.

Stay of Proceedings:

  • Stay on Legal Actions: No new legal actions can be initiated against the debtor, and existing proceedings are stayed, except for actions by secured or preferential creditors with court permission.
  • Stay on Interest and Judicial Actions: Interest on the debtor’s obligations is stayed, and actions against guarantors or securities providers are halted pending liquidation.
  • Contractual Obligations: Insolvency proceedings do not automatically terminate existing contracts. The court can terminate a contract if the debtor is unable to meet obligations or if it’s in the interest of creditors.

Prohibitions and Registration:

  • Post-Insolvency Restrictions: After declaring insolvency, the debtor is prohibited from obtaining new loans or financing for three years. This measure is designed to prevent further financial distress and to ensure that the debtor does not accrue additional liabilities that could complicate the insolvency resolution.
  • Limitations on Obligations: The debtor is also restricted from entering new obligations, except for essential needs, for a three-year period. This limitation safeguards the debtor from incurring new debts and allows them to focus on resolving existing financial issues.
  • Registration of Insolvency: The names of insolvent debtors are recorded in a special register. This public record ensures transparency and assists in the enforcement of restrictions imposed on insolvent individuals.

Rehabilitation of Insolvent Debtor:

Recovery of Rights: The rights deprived due to insolvency can be recovered over time. The recovery period varies based on the percentage of debt repayment:

  • Three years if no specific portion of the debt is repaid.
  • Two years if 50% of the debt is repaid.
  • One year if 75% of the debt is repaid.

Rehabilitation due to Debt Payment:

  • Immediate Rehabilitation: A debtor can be rehabilitated before the lapse of the stipulated periods if they pay off all their debts. This provision incentivizes debtors to resolve their financial issues promptly.

Settlement and Discharge:

  • Alternative Paths to Rehabilitation: Rehabilitation can occur before the lapse of the standard periods if:
  • The debtor reaches a settlement with all creditors and implements it.
  • The debtor is discharged from all remaining debts by the creditors after the insolvency declaration.

Rehabilitation of the Deceased Debtor:

  • Posthumous Rehabilitation: Insolvent debtors can be rehabilitated posthumously upon request by their heirs. The timeframes for rehabilitation are calculated from the date of the insolvency declaration.
  • Procedure for Rehabilitation: Debtors or their heirs must submit a rehabilitation application to the court that issued the insolvency judgment. The court notifies the accepted creditors of the application.

Objection to the Application for Rehabilitation:

  • Creditors’ Right to Object: Creditors whose debts are recognized but unpaid can object to the rehabilitation application within 15 working days of notification.
  • Court Decision on Rehabilitation: The court decides on the rehabilitation application, which can be appealed. If rejected, a new application cannot be submitted for six months.


This article clarifies that the penalties mentioned in the UAE Insolvency Law do not override more severe penalties that might be imposed under other applicable laws. It ensures that the most stringent legal consequences can be applied to offenses related to insolvency.

Penalties for Creditors:

  • Creditors face imprisonment and fines ranging from AED 10,000 to AED 100,000 for the following acts:
  • Fictitious Claims: Making claims against a debtor for debts that are fictitious or simulated.
  • Illegal Imposition of Debts: Illegally imposing additional debts on the debtor.
  • Unauthorized Voting: Voting on decisions related to the debtor’s financial settlement in violation of legal prohibitions.
  • Special Agreements Post-Insolvency: Concluding agreements with the debtor after the initiation of insolvency proceedings that grant the creditor special benefits to the detriment of other creditors.

Penalties for Insolvent Individuals:

  • Individuals declared insolvent can face up to two years of imprisonment and fines between AED 20,000 and AED 60,000 for:
  • Irresponsible Expenditures: Spending large amounts not required by their usual business, for personal use, or in gambling, thereby harming creditors.
  • Preferential Debt Repayment: Paying off one creditor to the detriment of others within six months before applying for settlement or declaring insolvency.
  • Bad-Faith Disposal of Funds: Disposing of assets at below-market prices or using harmful means to delay insolvency declaration.
  • Violating the Settlement Plan: Making payments or disposing of funds in ways that breach the terms of the agreed-upon insolvency settlement plan.


In conclusion, the UAE Insolvency Law represents a comprehensive legal framework addressing insolvency issues for individuals and small to medium-sized enterprises (SMEs). This law plays a crucial role in the UAE’s legal system, offering a structured approach for debtors experiencing financial distress, while protecting the rights and interests of creditors.

The UAE Insolvency Law distinguishes between restructuring proceedings, initiated by debtors, and insolvency and liquidation proceedings, which can be initiated by either debtors or creditors. It outlines the process of initiating these proceedings, including the necessary documentation, court procedures, and payment of fees and expenses.

The UAE Insolvency Law also outlines the consequences of non-compliance and fraudulent activities through well-defined penalties. Creditors face penalties for fictitious claims or illegal imposition of debts, while insolvent individuals can be penalized for irresponsible expenditures or preferential debt repayments.

Rehabilitation provisions within the law allow for the restoration of rights for insolvent individuals over time, depending on the repayment of debts or through settlement agreements with creditors. Additionally, the law provides for the posthumous rehabilitation of insolvent debtors being three years.

Author’s Bio:

Nikhat Sardar Khan, a distinguished legal expert with extensive experience in the UAE’s legal landscape, currently heads the Department of Litigation, ADR and Corporate at Hilal & Associates Advocates & Legal Consultants. Her expertise encompasses complex litigation and dispute resolution in commercial matters, banking, finance, corporate practice, and more. As a qualified arbitrator and experienced mediator, she holds certifications from prestigious institutions like the Chartered Institute of Arbitrators (FCIArb) and The Royal Institution of Chartered Surveyors (RICS). Her legal acumen, honed over decades of practice in both India and the UAE, positions her as a formidable figure in the field of law.

Nikhat Sardar Khan (FCIArb)(RICS)
Head of DIFC Litigation, Corporate & Arbitration- UAE,
MENA and India.
Arbitrator | Mediator | DIFC Practitioner

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