The recently promulgated Financial Reorganization and Bankruptcy Code – Federal Decree No. 51 of 2023 (“FRBC”) is considered a pioneering piece of legislation given the shake-up it has caused in the UAE insolvency landscape.
Something was missing however, the Executive Regulation (also referred to as ‘Implementing Regulation’), which was just recently issued on 02 September 2024, and which has now been published in the Official Gazette under Cabinet Decision No. 94 of 2024 (the “Regulation”).
The Regulation is issued based on Article 4 of the FRBC, which states that “the Cabinet shall issue the Implementing Regulation and the decisions necessary for the implementation of the Law enclosed to this Decree-Law”.
What’s new?
The Regulation is not extensive as it is comprised of only 19 statutory articles. The following key developments are introduced:
- The Regulation defines the ‘Supervisory Entity’ referred to in the FRBC as the Central Bank and the Securities and Commodities Authority, thereby relieving stakeholders of the ambiguity behind this term.
- It set out the guidelines to be applied by the Financial Reorganization and Bankruptcy Unit when creating and administering the Bankruptcy Registry as provided for in Article 13 of the FRBC (in terms of the information to be published therein and the process permitting interested parties to obtain access to said information).
- As required by Article 15(3), the Regulation sets the minimum liability threshold for an application filed by the debtor:
- AED 300,000 if the applicant debtor is a natural person.
- AED 500,000 if the applicant debtor is a juridical person.
- AED 5,000,000 if the applicant debtor is subject to the supervision of the Supervisory Entity (defined as the CB or SCA).
- On the other hand, if the application is filed by one or more creditors, the minimum aggregate liability threshold has been set at AED 1,000,000 (regardless of the debtor being a natural or juridical person); but AED 10,000,000 if the debtor is regulated by the CB or SCA. The Regulation also sets a special threshold as when the application is filed by a secured creditor(s).
- Article 7 states that the minimum liability threshold for an application filed by the CB or SCA shall be AED 500,000.
- The Regulations provides further guidelines related to the creditor voting process under a Preventive Settlement Scheme.
- The Regulation provides for a Trustee pre-approval process that debtors must abide by before conducting certain acts while being subjected to restructuring proceedings. These acts include pledging/mortgaging certain assets, satisfying certain financial obligations (whether mature or pre-mature debts), entering into incorporations or corporate acquisitions, dealing in assets in a manner contrary to the ordinary course of business, and settling or foregoing any legal proceedings.
- The Regulation also sets out the guidelines and rules that must be applied with respect to the public auction of the assets under liquidation.
The Regulation is likely to be heavily relied on by insolvency practitioners and stakeholders given they pertain to important functional purpose that they serve in terms of defining the Supervisory Entity / body, setting out the guidelines related to the Bankruptcy Registry, and providing for the minimum liability thresholds.
The remaining implementation rules associated with the voting process under the Preventive Settlement Scheme and the auction process fill out some important procedural gaps that existed under the FRBC.
Don’t miss out on this crucial update. Get in touch with Ali Dakhlallah to schedule a consultation and discuss how these new regulations can help your business.
