Insolvency law: The objectives and the mechanisms
Jihene Arfaoui
Insolvency Law No. 9
of 2019 enters into force from January 2020, which is the year of economic and
social betting on development and aspiration for a happier and more stable
country.
What is the role of
the insolvency law in this context?
Contrary to the
federal bankruptcy law, the insolvency law includes civilians who are not
merchants whose financial difficulties have prevented them from paying their
debts and discharging their financial receivables – the insolvency law has set
out clear and easy-to-apply rules for collecting bad debts and rehabilitating
the financial position of the debtor, which increases the credibility of
creditor banks in loaning individuals, and encourages.
According to the third
article of the insolvency law, which requires commencement of procedures, the
debtor shall submit to the court an application without contesting anyone in
it, to settle his/her financial obligations, provided that the required
documents are attached to the application.
Protective and penal measures
Opening insolvency proceedings,
does stop the claims?
The law stipulated
that during the insolvency and liquidation procedures, it is not permissible to
initiate or pursue any lawsuits or take legal or judicial measures against the
debtor, as the issuance of the decision to open the insolvency and liquidation
procedures entails stopping the entitlement of legal or contractual benefits to
the debtor, including the interest due, or compensation due for late payment,
and the cessation of any judicial action against any person who granted a
personal guarantee to the debtor, or transferred his/her money as a
guarantee of the debtor’s obligations, pending the issuance of a judgment to
liquidate the debtor’s money, within the limits of that guarantee.
Penal procedures
If the court decides
to initiate procedures for settling financial obligations, or commences
insolvency and liquidation procedures, it orders, on its own initiative or at
the request of the debtor, to suspend any penal procedures if they arise from
cases of issuing a check without balance for checks issued by the debtor before
requesting the commencement of procedures settlement of financial obligations,
or prior to the request to open insolvency procedures and liquidation of funds.
Measures against the debtor and penalties against the creditor
The law has been
misled by the debtor, with the intent to harm the insolvency and liquidation
procedures, in a way that prevents the secretary appointed by the court from
performing his duties in accordance with the provisions of this law.
In the event that it
becomes apparent to the court after the debtor’s insolvency decision and the
liquidation of his/her funds, that any debtor’s money has not been disclosed,
then it may include that money in the debtor’s liquidated funds, then the court
may take the necessary measures against the debtor if he/she commits any of the
acts or the following actions: fleeing outside the country to avoid or postpone
the payment of any of its debts, avoid, postpone, disable the insolvency
procedures or liquidate his/her funds, dispose of any of his/her funds
with the aim of preventing the Secretary from possessing it or delaying
possession thereof, as well as hiding or destroying any of his/her funds,
documents or other relevant information which creditors can take advantage of,
and transfer any property in his/her possession of more than 5000 AED without
the approval of the Secretary, failure to appear before the court after being
announced to attend, or failure to implement decisions of the court without an
acceptable excuse.
The
law stipulated that the debtor shall be punished with imprisonment for a
period not exceeding two years, and a fine of no less than 20 thousand AED and
no more than 60 thousand AED, or one of these two penalties, whoever
declares insolvency, and has been approved that the insolvency
caused a loss to his/her creditors, as a result of committing one of the
following actions:
- Spending large sums on
speculation that his/her usual business does not entail, or in the
purchase of services, goods, or materials for personal or household use
that are not appropriate to his/her troubled financial situation, or
he/she undertook gambling work, knowing that he could harm his/her
- Paying the debts of one of the
creditors which harmed the other creditors during the period of six months
prior to submitting his/her request to settle his/her obligations or
declare his/her insolvency.
- Disposed of his/her funds in
bad faithless than its market price or resorted to harmful means to harm
his/her creditors with the intention of delaying declaring his/her
insolvency and liquidating his/her funds.
- Paying any debt or disposing of
any funds, knowing that it violates the terms of the plan.
Regarding the
creditor, the law approved the punishment of the creditor by imprisonment and a
fine of no less than 10 thousand AED and not more than 100 thousand AED, or one
of these two penalties, if he/she performs any of the following actions:
- Making a claim related to a
fictitious or mock debt against the debtor.
- Increasing his/her debts to the
debtor illegally.
- Voting in any meetings on
decisions related to the settlement of the financial obligations of the
debtor, knowing that it is legally forbidden to do so.
- If, after the court’s decision,
signs with the debtor to initiate the insolvency and liquidation
procedures, a private agreement grants him/her special benefits knowing
that it would harm other creditors.
The invalidity or the
end of the settlement?
The insolvency law was
exposed to the end and invalidity of the settlement, as it approved two types
of cases that end in the availability of the settlement:
If the court finds
that the debtor’s financial obligations cannot be reached, and if the plan is
impossible to implement due to the debtor ceasing to pay any of its debts on
its due dates for more than 40 consecutive working days as a result of his/her
inability to pay these debts, and if the debtor requests the court to finish
the implementation plan procedures before the completion of the settlement of
financial obligations with creditors, or the specified period for implementing
the plan has ended without being able to complete the settlement of financial
obligations to the debtor, and in the event the debtor fails to implement the
plan.
If all the obligations
stipulated in the plan has been fulfilled.
Either the invalidity
of the settlement or the invalidity of the approved plan, if the court finds
that the debtor is evading, or trying to evade fulfilling his/her obligations,
such as hiding or damaging any part of his/her money, or submitting false
statements about his/her debts, rights, funds, or disposes of any of his/her
rights or funds.
Does the Emirati legislator
exclude money from the debtor’s funds upon liquidation?
The law did not exceed
the rules of justice and fairness upon setting out the articles regulating the
insolvency and liquidation procedures, as it excluded two types of funds,
namely the pension or social benefit provided to the debtor, and the money
decided by the court to meet the needs necessary for the debtor and the
dependents to live. Whereas, it is permissible to object to the court’s
decision, which did not take into account the principles of justice and fairness
within five working days from the date of its issuance, and the court will
decide this within five working days, and its decision will be final.
Therefore, this law
achieves a positive aspect, mainly related to preserving the debtor’s dignity,
and regulates the relationship between the parties without compromising their
rights and this supports the economic environment and encourages natural
persons to civil actions without fear of insolvency that may occur to them
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