Executive Summary
Banking disputes in the UAE are increasingly being reframed through an insolvency lens. This is not simply a function of rising borrower distress, but reflects a more structural shift following the introduction of the Financial Restructuring and Bankruptcy Code (FRBC), effective 1 May 2024.
In practice, insolvency is no longer an end-stage recovery mechanism. It has become a procedural environment capable of pausing, reshaping, or strategically redirecting enforcement. For banks, this has expanded the disputes landscape beyond straightforward debt recovery into a more complex matrix of contested proceedings, including challenges to commencement, disputes over security enforcement within court supervision, transaction avoidance claims, and parallel forum strategies across onshore UAE and the financial free zones.
The result is a move away from linear recovery actions toward multi-front litigation strategy, often conducted simultaneously across jurisdictions and procedural frameworks.
Why insolvency-driven disputes are increasing
The FRBC has introduced a more structured and court-supervised approach to financial distress, replacing the earlier 2016 regime. From a disputes perspective, its significance lies not only in procedural reform, but in how it enables borrowers to reposition what would otherwise be a straightforward liquid debt claim into a protected restructuring process.
In practice, borrowers are increasingly deploying preventive settlement and restructuring tools at an earlier stage. This has the effect of converting direct recovery actions into contested procedural environments involving creditor voting, court oversight, and restrictions on enforcement. What was previously a relatively linear claim is now frequently subject to procedural gating and strategic delay.
At the same time, the UAE courts are demonstrating a growing willingness to scrutinise insolvency filings at the gateway stage. There have been instances where proceedings have been challenged and set aside where issues arise around disclosure, asset transparency, or apparent misuse of the process.
From a banking perspective, insolvency filings should therefore be viewed as potentially tactical. Banks should be prepared, where appropriate, to challenge commencement on the basis of incomplete disclosure, lack of good faith, or abuse of process, particularly where the filing appears designed to frustrate enforcement rather than achieve genuine restructuring.
The disputes landscape once insolvency is engaged
Once formal insolvency or restructuring proceedings are underway, the nature of disputes shifts materially. The focus moves away from the underlying debt and towards issues of control, information, valuation, and procedural compliance.
Disputes relating to access to books and records, asset valuation, and financial transparency become central. This is particularly acute in cases involving real estate assets or intra-group receivables, where valuation methodologies can significantly impact recoveries. These issues are rarely neutral and are often actively contested between creditors and the debtor or officeholder.
A further area of tension arises in relation to security enforcement within insolvency. The FRBC reflects a policy objective of facilitating restructuring and preserving enterprise value, which can sit in tension with the rights of secured creditors seeking to enforce their security. In practice, this gives rise to disputes as to whether enforcement should proceed, whether a restructuring plan unfairly impairs secured positions, and how value is to be preserved during any moratorium.
This is an area where UAE jurisprudence is still developing. However, it is increasingly clear that disputes concerning secured creditor rights are now being determined within the insolvency framework itself, rather than through separate enforcement proceedings.
In many cases, the most significant disputes arise not from the underlying debt, but from transactions entered into in the period preceding insolvency. Challenges to related party transactions, disposals at undervalue, preferential payments, and late-stage security arrangements frequently become the central battleground.
From a practical perspective, this reinforces the importance of early evidence gathering. Banks that are able to map asset movements, identify related party relationships, and establish a clear timeline of financial conduct are typically in a stronger position once proceedings commence.
Where restructuring plans are proposed, disputes often arise in relation to creditor classification, voting rights, and the fairness of the plan. The FRBC reflects a broader policy balance between creditor rights and economic considerations, including the preservation of viable businesses. In practice, this can lead to situations where courts are required to assess whether a plan is fair and equitable, even where individual creditors are asked to accept less favourable outcomes in the interests of a broader restructuring objective.
Cross-forum and cross-border considerations
A defining feature of the UAE disputes landscape is the coexistence of multiple legal regimes. In the insolvency context, this creates strategic considerations between onshore proceedings and those in the DIFC and ADGM.
Parties are increasingly adopting forum strategies based on procedural advantage, including speed, availability of interim relief, disclosure mechanisms, and transaction avoidance tools. This can result in parallel proceedings or forum competition, particularly where assets or entities span multiple jurisdictions within the UAE.
Cross-border recognition remains a practical challenge, particularly in relation to onshore insolvency proceedings, which do not operate under the UNCITRAL Model Law framework. By contrast, the DIFC and ADGM offer more developed mechanisms for recognition and cooperation, which may influence strategic decision-making in cases involving international assets.
In practice, insolvency-related disputes frequently extend beyond the UAE, requiring coordinated enforcement and asset tracing strategies across multiple jurisdictions.
A practical disputes approach for banks
From a disputes perspective, insolvency should be anticipated and planned for, rather than approached reactively.
This begins at the pre-filing stage, where banks should ensure that their evidentiary position is robust, including clear records of payment history, covenant breaches, and any indicators of asset dissipation or non-compliance.
Where insolvency proceedings are initiated, banks should consider at an early stage whether there are grounds to challenge commencement, particularly in cases involving questionable disclosure or apparent tactical filings.
Once within the process, the focus should shift to controlling the key drivers of outcome, including access to information, valuation methodology, and the protection of secured positions. At the same time, banks should actively investigate potential transaction avoidance claims, which may offer a more effective route to recovery than the underlying debt claim itself.
Consideration should also be given to parallel strategies, including the use of DIFC or ADGM proceedings where appropriate, and early planning for cross-border enforcement.
Looking ahead: key trends for 2026
Looking forward, insolvency-driven banking disputes in the UAE are likely to become more contested and more procedurally complex.
There is likely to be an increase in challenges to the commencement of insolvency proceedings, particularly on grounds of bad faith or inadequate disclosure. The treatment of secured creditor rights within insolvency is also expected to develop further, particularly in relation to enforcement and priority.
Transaction avoidance and related party disputes are likely to become more prominent, particularly in cases involving complex group structures. At the same time, the continued institutional development of insolvency processes may improve consistency, while also increasing procedural litigation as parties engage more actively with the framework.
Conclusion
Insolvency in the UAE is no longer a contained process. It has become an extension of the disputes landscape, requiring banks to adopt a proactive, strategic, and multi-forum approach to enforcement and recovery.
Seek Legal Counsel
For further information or advice in relation to any of the matters addressed above, please feel free to contact the Banking and Dispute Resolution team at Habib Al Mulla & Partners.