Currently in the UAE, laws related to insolvency are unclear. Companies face harsh penalties in a bankruptcy scenario, and individuals can face criminal sanctions and penal sentences. However, a new bankruptcy law drawing from international best practice is expected to come into force in early 2017, in the wake of low oil prices since 2015. With the implementation of the new law, the UAE government seeks to create a robust legal insolvency framework, within which all businesses can operate and parties can be sufficiently protected.

Under the proposed new law, a number of options (including financial restructuring) will be available to insolvent companies with the aim of identifying ways to prevent bankruptcy. According to local news reporting, the law will apply to companies established under the commercial companies law, companies that are partly or fully owned by the federal or the local government, and also companies and institutions established in free zones that are not governed by existing bankruptcy laws. The proposed new law will not apply to companies in the UAE already governed by bankruptcy provisions, which include, for example, companies in the Dubai International Finance Centre (DIFC) and the Abu Dhabi Global Market (ADGM). These are two free zones which have their own insolvency regime.

It is believed that the law will particularly assist owners of small and medium sized companies in the UAE, who have recently faced challenging economic conditions. More generally, it should also provide comfort to those doing business in the UAE, as well as prospective investors. The law is expected to be published in the official gazette in the coming weeks.