Bankruptcy laws are for the people whose finances have collapsed and to give a fresh start all over.

We, Xtreme Solutions have got our legal firms to do bankruptcy in GCC countries and in India. To have an idea of bankruptcy, please go throgh the following

What is ‘Bankruptcy’

Bankruptcy is a legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor’s assets are measuring and evaluating, and the assets may be used to repay a portion of outstanding debt.

BREAKING DOWN ‘Bankruptcy’

Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply cannot pay while offering creditors a chance to obtain some measure of repayment based on the individual’s or business’ assets available for liquidation. In theory, the ability to file for bankruptcy can benefit an overall economy by giving persons and businesses a second chance to gain access to consumer credit and by providing creditors with a measure of debt repayment. Upon the successful completion of bankruptcy proceedings, the debtor gets relief from the debt obligations, prior to filing for bankruptcy.

How to File for Bankruptcy

When faced with foreclosure or any such financial insolvency, the final option in this situation should be bankruptcy. Declaring yourself bankrupt is the only legal way to get rid of your financial setbacks.

When you file for bankruptcy, you have to explain to the presiding bankruptcy trustee or judge about how you got into this financial rut. In the meantime, the bankruptcy court will ask you to file the entire list of assets and outstanding debts with them.

Your assets divide into two categories according to their nature. They are:

  • Exempt Assets: These assets cannot realize to pay the debts. Examples include some part of the equity in your home and automobile, personal items, etc.
  • Non-Exempt Assets: As the name suggests, these assets can be seized and sold to repay outstanding accounts. Home property other than the primary residence, recreational vehicles, boats, etc. fall under this category.

Likewise, your outstanding debts are classified into two types. They are:

  • Secured Debts: These include loans in which the creditor has the security interest in the property provided as collateral. The property bought with credit may be your second home, a boat or a car.
  • Non-Secured Debts: These debts, as the name says are in secured debts. For example, credit card debt, medical bills, personal unsecured loans, etc.

Bankruptcy law in UAE

The UAE government has issued a new bankruptcy law. Law 9 of 2016, published in the Official Gazette on 29 September 2016 and came into force on 29 December 2016.

Key points

  • Current insolvency regime repealed
  • The application is wider – not just commercial traders
  • Appointment of a new financial restructuring committee.
  • New balance sheet insolvency test
  • Modernized restructuring and insolvency procedures, although still court-driven “Bankruptcy by default” (also known as the 30-day rule) has been rescinded
  • Proceedings for bounced checks stayed if rescue procedures initiated
  • New minimum threshold (AED100,000) for creditor-initiated insolvency proceedings


Statistics show that insolvencies in the UAE are generally more time-consuming, and result in significantly lower recovery rates than in other jurisdictions. The UAE’s current insolvency regime was containing in Federal Law 18 of 1993 – the commercial code. Its provisions are largely untested and generally regarded as needing modernization. The UAE government has been considering amending the insolvency regime since 2009, and a previous draft insolvency law was published in 2011.

Key changes

Repeal of the current regime: 

Chapter V of the commercial code, which sets out the UAE’s current insolvency regime, will be repealed, together with various bankruptcy-related crimes set out in the penal code.

Wider application:

The new law applies more widely than the current commercial code, covering:

  • Companies governed by the Commercial Companies Law (CCL)
  • Most free zone companies
  • Sole establishments
  • Civil companies conducting professional business
  • Government-owned companies not established under the CCL, such as companies formed by decree, may opt-in to the provisions of the new law
  • Companies in the DIFC and ADGM have their own insolvency provisions

There are no provisions addressing individuals acting in a private capacity.


  • A financial restructuring committee will be formed under the authority of the Ministry of Finance.
  • The committee will maintain a list of insolvency experts and a register of insolvencies.

New insolvency test: 

  • The new law introduces an alternative “balance sheet” test to test if the assets of a business are sufficient to cover its liabilities.

Processes and procedures: 

Three main procedures for a business in financial difficulty:

Protective composition: 

  • A debtor-led, court-sponsored process
  • Designed to facilitate the rescue of a business which is in financial difficulty but not yet insolvent
  • Requires the approval of both a majority in number and two-thirds by the value of the unsecured creditors
  • Must implement within three years of court approval
  • Can extend for a further three years with creditor approval.

Insolvency with restructuring:

  • If a debtor is insolvent but the court determines that the business is capable to rescue, it may approve a restructuring scheme.
  • Similar to the protective composition described above, requiring the same levels of creditor approval
  • A longer period of five years (extendable by a further three years) is allowed for implementation.

Insolvency and liquidation:

  • The court can order the insolvent winding-up of a business if:
  • A protective composition or restructuring scheme is inappropriate, not approved or terminated
  • A debtor is acting in bad faith to evade financial obligations
  • A “trustee”, independent of the debtor, is appointed to manage the process.
  • The law includes strict time limits for making filings and lodging objections.
  • It is expressly provided that the relevant process continues while the court considers any objections.
  • Otherwise, time-consuming proceedings could prove to be a practical obstacle.
  • Procedures are not substantially different from those currently available under the commercial code.
  • The new law does not include provisions for an out-of-court financial restructuring procedure – although this may address by the financial restructuring committee in future.

Removal of bankruptcy by default:

Current regime:

  • A trader unable to pay its debts must apply for bankruptcy within 30 days.
  • Failure to do so is a criminal offense (bankruptcy by default) and may result in fines and potential imprisonment.
  • The risk of imprisonment may have encouraged business owners in financial difficulty to abscond.

The new law decriminalizes this behavior:

  • A debtor who fails to repay due debts for over 30 business days, or who is insolvent on a balance sheet basis should initiate insolvency procedures.
  • Failure to do so may result in a disqualification order against the debtor in certain circumstances – but it is not a criminal offense.

Bounced cheques:

Current law:

  • Non-UAE nationals who sign checks that bounce are potentially subject to criminal charges
  • This is often citing as a reason why traders in financial difficulty ‘skip’.

The new law:

  • Stays proceedings in respect of bounced cheques issued by a debtor:
  • Once a protective composition or restructuring scheme has been initiating.
  • Provided the cheque in question was written prior to the application.
  • The stay continues until the relevant procedure is completed
  • The cheque holder is treated in the same way as the debtor’s other creditors
  • The settlement will be in accordance with the scheme discharging the debt and potentially rectifying the criminal breach.
  • This is a particularly helpful change which is likely to encourage debtors to take proactive steps to address their financial difficulties.


Under the current law:

  • Any creditor regardless of amount may apply to have a trader declared bankrupt
  • The new law introduces specific new requirements:
  • Before filing insolvency proceedings against the debtor, a creditor or group of creditors must:
  • Hold debts of at least AED 100,000
  • First notify the debtor in writing to discharge the debt(s), allowing 30 consecutive business days for repayment.

New financing:

Provisions allow priority to new finance following a protective composition or restructuring scheme, with safe-guards for existing secured creditors

Filing for bankruptcy is a legal process that either reduces, restructures or eliminates your debt.

Sweet and not-so-sweet effects of bankruptcy

Individual and corporate bankruptcies can affect the economy both positively and negatively depending on the scope of the debtor’s influence on society.

In general, bankruptcy has a positive effect on the economy. If a debtor’s debts discharge, the debtor should (in theory) be able to spend and borrow when they weren’t able to before. Over time, you can also rebuild your credit in order to receive loans. These transactions are beneficial for the economy. Someone straddled with debt, on the other hand, cannot contribute to the economy in meaningful ways. The law protects your assets during bankruptcy, so you don’t completely lose your livelihood if you do file.

Individual consumer bankruptcy only has overarching effects if lots and lots of people file. A high number of individual bankruptcies decreases consumer confidence in spending and also decreases the savings rate.

A corporate bankruptcy, which typically involves a large number of people, can also negatively affect the economy. A company that employs a huge workforce, sustains much of the economy in a given geographic area, and has widely distributed corporate debt will have a major impact on the country’s economy if it goes bankrupt. General Motors, which filed for bankruptcy in 2009, is a good example of this. Thousands of people lost their jobs and the bankruptcy contributed to the general economic downturn.

When large-scale bankruptcies like this occur, businesses can’t pay back their creditors, who in turn have to make up for the loss of money and may end up increasing prices. This influences consumers, who end up paying more for products.

Small Business Bankruptcy in the United States

Small business bankruptcy happens. Sometimes small business firms don’t make it. They fail financially for various reasons and find themselves faced with deciding if bankruptcy is necessary. Bankruptcy is a process you go through in federal court that was designed to help your business eliminate or repay its debt under the protection of the bankruptcy court. Business bankruptcies are usually describing as either liquidations or reorganizations depending on the type of bankruptcy you take.

There are three types of bankruptcy that your business may file for depending on its business form. Sole proprietorships are legal extensions of the owner. The owner is responsible for all assets and liabilities of the firm. A sole proprietorship can take bankruptcy by filing for Chapter 7, Chapter 11, or Chapter 13. Corporations and partnerships are legal entities separate from their owners. As such, they can file for bankruptcy protection under Chapter 7 or Chapter 11.

Business Bankruptcy – Chapter 7

Chapter 7 bankruptcy may be the best choice when the business has no future. It usually refers to as liquidation. It is usually used when the debts of the business are so overwhelming that restructuring them is not feasible. Chapter 7 is also appropriate when the business does not have any substantial assets. If a business is really just an extension of a particular owner’s skills, it usually does not pay to reorganize it and Chapter 7 is appropriate. Chapter 7 bankruptcy usually means that the business is over.

In Chapter 7 bankruptcy, a trustee is appointed by the bankruptcy court to take possession of the assets of the business and distribute them among the creditors. After the assets are distributed and the trustee is paid, a sole proprietor receives a “discharge” at the end of the case. A discharge means that the owner of the business is released from any obligation for the debts. Partnerships and corporations do not receive a discharge.

Business Reorganization – Chapter 11

Chapter 11 is a better choice for businesses that may have a future. Chapter 11 is a plan where a company reorganizes and continues in business. It is reorganized under a court-appointed trustee. The owner of the company may actually be the trustee. The company files a plan of reorganization outlining how it will deal with its creditors. Creditors vote on the plan. If the court finds the plan is fair and equitable, they will approve the plan. Reorganization plans provide for payments to creditors over some period of time which may exceed twenty years. Chapter 11 bankruptcies are exceedingly complex and not all succeed. It usually takes over a year to confirm a plan.

Personal Bankruptcy – Chapter 13

Chapter 13 bankruptcy is a reorganization bankruptcy typically for consumers, though it could use for sole proprietorships as well. You file a repayment plan with the bankruptcy court detailing how you are going to repay your debts. The amount you will have to repay depends on how much you earn, how much you owe, and how much property you own.

If your personal assets involve with your business assets, as they are if you own a sole proprietorship, you can avoid calamities such as losing your house if you file Chapter 13 versus Chapter 7.

Consult with a good business bankruptcy attorney before deciding on which type of bankruptcy you will file or whether you will file bankruptcy at all. There may be other options you should explore first.