Like many other jurisdictions these days, the UAE has become a pro-restructuring jurisdiction. Earlier in the days, UAE insolvency law was seen as draconian with jail terms for defaulted debtor. Compared to the previous 1993 provisions on bankruptcy in the Federal Commercial Code -which included no less than 255 articles dedicated to insolvency and bankruptcy procedures- the UAE insolvency law of 2016 and then that of 2020 is ground-breaking in many aspects. The law introduced a new regime “agreement for settlement procedure” which can be helpful in rejuvenating businesses. The law created major provisions on creditors’ committees and debtor-in-possession financing, something the old law did not provide.
如今，与许多其他司法管辖区一样，阿联酋已成为支持重组的司法管辖区。 如今，阿联酋破产法被视为具有拖欠债务人监禁条件的严厉法令。与1993年以前的《联邦商业法》中有关破产的规定（其中包括不少于255条专门用于破产和破产程序的条款）相比，阿联酋2016年和2020年的破产法在许多方面都堪称是开创性的。譬如，该法律引入了新的制度“协商解决的程序机制”，这可能有助于复兴企业。 该法律对债权人委员会和拥有债务人的债务融资制定了主要规定，但是旧法律并未对此作出规定。
Those changes are timely considering the current COVID-19 global health pandemic and the fact that small and medium size enterprises (SMEs) account for more than 94% of the total businesses and employ more than 86% of the private sector’s labor force. In Dubai, for example, SMEs represent nearly 95% of all businesses in the city; provide jobs for 42% of the labor force, and contribute about 40% of the city’s GDP. SMEs are key players in the UAE economy. SMEs encourage both innovation and economic sustainability. Governments worldwide have adopted the decision to support SMEs. The UAE Central Bank announced a plan to provide aid in the short and medium term for SMEs, which includes support to the tune of DH100 billion.
The Legislative Guide on Insolvency Law was prepared by the United Nations Commission on International Trade Law (UNCITRAL) provides for the key elements that ought to be included in any insolvency regime. Thus, an effective insolvency law must have the following key provisions. It should clearly outline its applicability and commencement standards. In addition, the law should prescribe the treatment of assets of the debtor entity upon commencement of the proceedings. The law should also indentify and provide for the rights and obligations of the key participants in any proceedings such as debtors, insolvency representatives, and creditors including secured creditors. There should be procedures for the management of the proceedings e.g. procedure for processing creditors’ claims priority of creditors’ claims, liquidation waterfall. Ideally, the process ends with a reorganization plan. The UAE bankruptcy law checks all the boxes.
In reality, however, the annual number of the corporate bankruptcy cases handled by UAE courts remains limited. After few years in existence, one can envisage some scenarios for this state of affair and lack of effective use of the law. Many businesses maybe hesitant to use the system out of lack of understanding of its provisions which revolutionized the culture of bankruptcy from selling defaulted party assets, as the norm, to focusing on reorganization. Other explanation is that courts are used to fair distribution, the pari passu principle, in judgment execution in lieu of bankruptcy proceedings. The execution order by courts gives the right to seize and sell any assets of the debtor. Moreover, culture factors could help explains the limited number of court cases. Stigma, among peers, associated with default and bankruptcy can play a factor in the UAE and for that matter in Arab countries.
Many issues remain to be addressed to have a holistic bankruptcy regime. For example, there are no specialized insolvency judges who are trained and appointed to apply the law. The same applies for bankruptcy office-holders. In terms of coverage, the law does not apply to non-profit entities such as educational or religious or scientific institutions. The law also lacks early warning mechanisms which aim at a prompt detection of the financial distress of an enterprise, as well as a quick adoption of the more suitable remedies. These mechanisms can be activated by the control bodies such as statutory auditors, supervisory board, internal control committee or external auditors. Directors should have due regard to the need to take steps to avoid insolvency. Furthermore, the UAE law does not provide for a possibility of a cross-class cram-down, the power to impose the plan on any dissenting creditors considered fair, equitable and in the interests of creditors.
The UAE insolvency regime serves as prototypical jurisdiction for other developing countries to follow. The UAE regime requires over time adopting substantive legal, practical, and cultural changes. It must be borne in mind that an insolvency regime should be designed not to punish businesses and their management. Rather the task of an insolvency regime is to revitalize the distressed business by the restructuring its debt. In general, insolvency is not a moral failure but rather an economic failure.
Bashar Malkawi, Global Professor of Practice in Law, University of Arizona. He holds LLM from University of Arizonaand SJD from American University, Washington College of Law.
 See Aurelio Gurrea-Martínez, Singapore’s New Insolvency Restructuring and Dissolution Act (23 July 2020) (https://cebcla.smu.edu.sg/sgri/blog/2020/07/23/singapores-new-insolvency-restructuring-and-dissolution-act), available at <> (last visited July 31, 2020).
 See Financial Times, UAE bankruptcy no longer leads (March 22, 2017).
 See Federal UAE Law by Decree No. (9) of 2016 on Bankruptcy, art. 5.
 Id. art. 104.
 See The United Arab Emirates Government Portal, The Impact of SMEs on the UAE’s Economy, available at at < https://u.ae/en/information-and-services/business/crowdfunding/the-impact-of-smes-on-the-uae-economy > (last visited July 29, 2020).
 See Waheed Abbas, UAE Central Bank Willing to Extent Stimulus Package: Governor, Khaleej Times (March 16, 2020).
 See UNCITRAL Legislative Guide on Insolvency Law, available at < https://uncitral.un.org/en/texts/insolvency/legislativeguides/insolvency_law > (last visited July 31, 2020).
 See UNCITRAL Legislative Guide on Insolvency Law (2005), Part Two: I (B) Commencement of Proceedings.
 Id. Part Two: II Treatment of Assets on Commencement of Insolvency Proceedings.
 Id. Part Two: II Participants.
 Id. Part Two: III (C) Creditors.
 Id. Part Two: IV Reorganization.
 See Ehab Ata, Five Bankruptcy Cases before Dubai Courts since Issuance of the New Law, Khaleej Times (April 20, 2017), available at < http://www.alkhaleej.ae/economics/page/315b8d9f-76d3-4f8b-80f2-e0c1f8c5e5ba> (last visited July 28, 2020).
 See David A. Skeel Jr., The Empty Idea of “Equality of Creditors”, 166 University of Pennsylvania Law Review 699, 739 (2017).
 See Aurelio Gurrea-Martínez, The Low Usage of Bankruptcy Procedures: A Cultural Problem? Lessons from Spain, 27 U. Miami Int’l & Comp. L. Rev. 272, 279 (2020).
 See Hawkameh/World Bank/OEC/INSOL International, Survey on Insolvency Systems in the Middle East and North Africa p.16 (2017), available at < https://www.oecd.org/daf/ca/corporategovernanceprinciples/44375185.pdf> (last visited July 16, 2020).
 See UNCITRAL Legislative Guide on Insolvency Law, Part Four: Directors’ Obligations in the Period Approaching Insolvency (2013), available at < https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/leg-guide-insol-part4-ebook-e.pdf > (last visited July 18, 2020).
 See COVID-19 Changes Announced to UK Insolvency Law and for AGMs, available at < https://www.shearman.com/perspectives/2020/03/covid-19-changes-announced-to-uk-insolvency-law-and-on-agms > (last visited July 21, 2020)