New insolvency law an organised and transparent system to settle debts

Nusrat Khalil Jamali/Inayat-ur-Rahman, Business Editor/ Chief Reporter

The new insolvency law, recently approved by the UAE Cabinet, gives the citizens and expatriates both to follow the organised system of payment to settle debts.

Under the new law, legal action may not be taken against debtors if they invoke their insolvency status and begin the process of restructuring their debt. However, the approved law does not decriminalise the bounced cheque.

During the process of debt restructuring, debtors will be allowed to work normally and can apply and obtain bank loans, subject to the court approval, which depends on the restructuring plan, to be based on generating money for the benefit of all institutions concerned. As soon as the debtor comes up with a comprehensive restructuring plan, he or she will no longer face any legal action.

According to the new insolvency law, the debtor, unable to pay to the creditors, can approach the civil court within the emirate they reside, to invoke the insolvency status.

While applying for the settlement of financial obligations, the debtors will be required to furnish the following documents along with the application:

• A memorandum containing a brief description of their financial position and any data related to their sources of income, both inside or outside the country.

• A statement of the names and addresses of creditors, whose debts have been defaulted or are expected to be defaulted, the amount of each debt, the dates of maturity and the guarantees provided to the creditors, if any.

• A detailed statement of the debtor’s movable and immovable assets inside and outside the country and the approximate value of each on the date of the application.

• A statement by the debtor that they are facing current or anticipated financial difficulties and that they are unable to, or are not expected to be able to pay their debts.

• The debtor’s proposals for the settlement of their financial obligations.

• The debtor shall nominate an expert to undertake the proceedings.

• A statement that discloses financial transfers outside the country that took place during the past 12 months.

• Any other documents supporting the application, or as requested by the court.

The court will appoint financial experts to devise a payment plan with the debtor to settle the debt either through direct payments or through assets, held by the debtor.

Once payments are made as per the devised payment schedule, criminal case against the debtor in the wake of bounced cheque will be dismissed.

The Ministry of Finance is considering three to six months time to facilitate debtor who can continue with their normal work schedule with the additional (approved) bank loan.

According to Younis Haji Al Khoori, undersecretary at the Ministry of Finance, “The Ministry aims at bolstering financial, social and economic stability in the country through legal frameworks which will help individuals repay their debts, and ensures that institutions receive their financial dues through transparent system.”

He said, “The Federal Decree-Law on Insolvency of Natural Persons serves these objectives by fostering an advanced and stable business environment that encourages small and medium-sized enterprises to drive economic diversification and contribute to achieving the UAE Vision 2021.”

The new law would ensure the rights of both the creditor and debtor, providing more opportunities for investments and cash flows.

This law creates a safe environment for personal loans to the satisfaction of both the creditor and the debtor, as it provides the balance to ensure the rights of both creditor and debtor.

The Ministry of Finance has specified the penalties that will be imposed on those who misuse the law.

Any creditor who commits any of the following acts shall be liable to imprisonment and a fine of not less than Dhs10,000 and not more than Dhs100,000: If they make a claim relating to a fake or sham debt against the debtor.

If they increase the debts to the debtor illegally.

If they vote in any meetings on decisions relating to the settlement of financial obligation.

If, following the court’s decision to commence insolvency proceedings and the liquidation of funds, the debtor knowingly concludes an agreement, which gives them special advantage to the detriment of other creditors.

Also, each insolvency debtor shall be punishable by imprisonment for a period not exceeding two years and/or a fine of not less than Dhs20,000

and not exceeding Dhs60,000, if the insolvency debtor is proved to cause a loss to creditors as a result of one of the following acts:

Spending large sums of money in speculative business that is not required by their usual business, or in the purchase of services, goods or materials for personal or domestic use that are not commensurate with their turbulent financial situation, or they have engaged in gambling, knowing that their creditors may be adversely affected.

Paying the debts of one of the creditors, and in turn causing damage to the other creditors within a period of six months prior to the submission of their request to settle their obligations or declare insolvency. Disposing of their funds in bad faith and at less than the market price, or resorting to harmful means, to damage creditors with the intention of delaying the declaration of insolvency and liquidating their funds.