Many people associate the word “bankruptcy” with fear, but in reality, it is a legal tool designed to help and support financially challenged companies that may be facing far worse outcomes than filing for bankruptcy. It is a legal system that is used practically everywhere in the globe, but many people don’t realize that it helps creditors collect the debtor’s assets rather than protect the debtor or cancel debts.
In the UAE, bankruptcy is a recognized legal procedure that gives creditors legal protection from losing all of their compromised funds while also assisting debtor enterprises in getting a fresh financial start.
How companies can declare bankruptcy?
The UAE Bankruptcy Law, Federal Decree-Law No. 9 of 2016 on Bankruptcy, states that a corporation that has stopped making debt payments for longer than 30 days may apply to start the bankruptcy process.
The debtor is required by law to produce a number of documents, including a summary of all of its assets and properties, an acceptance of all of its debts due, and commercial records and financial accounts for the fiscal year before the filing of the [bankruptcy] application. The court will not recognize the start of its bankruptcy operations without these documents.
These records are essential for figuring out the debtor’s financial status and indicating whether or not the request for bankruptcy declaration is motivated by deceit or fraud in order to avoid paying off owed debts.
These records will be used by the bankruptcy trustee to determine the debtor’s financial situation and whether or not the bankruptcy declaration is valid when writing his report.
Legal action against individuals who may benefit from fraudulent bankruptcy
The law includes provisions for individuals who might suffer if the debtor alters the information in these documents, if a creditor can show that the debtor corporation concealed or embezzled some of its assets, or if the debtor is shown to have accepted false debts with the goal to hurt creditors. The Law allows anyone who was harmed by the debtor’s action to file a complaint against it, and the punishment for doing so can result in a sentence of up to five years in jail.
The court shall give a sentence for a time not exceeding two years in prison, a fine not exceeding Dh60,000, or both of the two punishments if such documents are shown to be valid along with evidence that the bankruptcy was caused by the debtor’s fault.
Who can be convicted?
If a person acts in the position of a “merchant,” the penalty may be applied. According to Article 11 of the Commercial Transactions Law, a “merchant” is any individual who engages in acts of commerce in his or her own name and on his or her own behalf, as well as any company that engages in commercial activity or adopts one of the forms specified in the Commercial Companies Law, even if such activity is a civil activity.
The Higher Court adjudicated in this connection that the Decree promulgated by Federal Law No. (9) of 2016 and amendments thereof on bankruptcy provide that “the debtor must apply to the court for the commencement of the procedures in accordance with the provisions of this Section if he ceases to repay his debts within their due dates for a period exceeding 30 days, attaching to the application names of known creditors and debtors, their addresses, debts and the guarantees provided thereto”. The same Law also provides that such a person “shall be sentenced to a period not exceeding five years in prison under a final judgment, if he perpetrates either of the following acts, among which is the debtor’s acknowledgment of his unpayable debts…”.
According to a judgment by the Court of First Instance and the Appellate Court, which upheld the challenged decision, the appellant had submitted a false acknowledgment of debt with the goal of harming creditors. The evidence supporting the offense against the appellant concluded the decision.
Therefore, in order to avoid being found guilty of either of the offenses under false bankruptcy declaration, every debtor corporation applying for the declaration of bankruptcy should exercise perfect accuracy in the information it gives to the court.
Also Read: UAE employee insurance 2022: When do employers need to provide a bank guarantee?
