Sandeep Bhalothia and Aman Garg of Node.Law talk about the key provisions of the UAE Personal Insolvency Law introduced to address individual financial crisis in a structured manner.

The UAE’s Federal Decree Law No. 19 of 2019 on Insolvency (the “UAE Insolvency Law”) represents a landmark reform, addressing individual financial crises with a structured, empathetic approach. It aims to support those facing insolvency, balancing debtor protection with creditor rights, significantly impacting the nation’s legal and financial systems.

Previously, the UAE’s bankruptcy regime lacked specific provisions for individual insolvency, often leading to punitive measures. The introduction of the UAE Insolvency Law filled this gap, offering a structured framework for personal debt resolution.

Applicability to Natural Persons and the Estate of the Deceased

The UAE Insolvency Law extends its applicability to natural persons, which includes any individual human beings, regardless of their financial acumen or business activities. Unlike corporate insolvency which is designed to manage the debts of legal entities or businesses, this law focuses solely on individuals facing financial hardship.

The UAE Insolvency Law is distinct from the UAE’s Federal Decree - Law No. (9) of 2016 on Bankruptcy, which is tailored for merchants, traders, commercial companies, and other business entities engaged in economic activities. The 2016 Law is designed to address commercial insolvency and allows for the restructuring of a business or the liquidation of its assets. On the other hand, the UAE Insolvency Law extends its applicability to natural persons. The UAE Insolvency Law offers a separate pathway for individuals who do not engage in commercial activities as defined under the 2016 Law.

What Qualifies as Insolvency?

In the context of the UAE Insolvency Law, insolvency is defined as the financial state of an individual who is unable to pay debts due to insufficient funds or assets. This includes both current and anticipated financial difficulties[1] that render the debtor incapable of settling their liabilities as they become due.

Provisions for Insolvent Individuals

The law provides a dual approach for individuals in financial distress: a court-assisted debt settlement process and a liquidation procedure. These provisions aim to protect insolvent individuals from legal persecution, offer them a structured debt settlement plan, and if necessary, a dignified process for asset liquidation.

Settlement of Financial Obligations

This process is initiated when a debtor files an application with the court, seeking help to reorganise their debts. The application must include a detailed list of creditors, assets, financial status and a proposal to settle their financial obligations. The court assesses the debtor’s financial circumstances and determines the most appropriate course of action. This structured approach is aimed at helping debtors clear their debts in a manageable way, without the immediate threat of legal action from creditors.