By: Salma Abdussalam
On 30th May 2019, His His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE, enacted a new DIFC Insolvency Law, Law No. 1 of 2019 for the DIFC introducing procedures that are in line with global best practices. The new law aims to balance the needs of all stakeholders in the context of bankruptcy related situations in DIFC to facilitate a more efficient and effective bankruptcy restructuring regime. The new law focuses on restructuring and rescue instead of liquidation and serves as a step towards increasing transparency and predictability in the governing framework of the free zone and boost confidence in its regime.
There are several key provisions and regimes introduced by the new law, such as:
A New Debtor in Possession Procedure: The new law introduces a regime known as rehabilitation which allows creditors to vote on a rehabilitation plan promoted by the debtor with a view to restructuring the business. The proposed process is quite sophisticated and includes enhancements in the form of the automatic stay, contractual termination protections and the ability to bind creditors across classes.
Facilitates Rescue Finance: The court will be able to permit new financing during the rehabilitation process, whilst ensuring that existing secured creditors are protected.
A New Administration Process: An independent administrator will be appointed by the court where there has been evidence of mismanagement or misconduct to oversee the insolvency proceedings.
Enhances The Rules Governing Winding Up Procedures: Procedures have now been modernised with clarity enforced into the pertinent processes of the proceedings.
Incorporates The UNCITRAL Model Law On Cross Border Insolvency Proceedings With Certain Modifications For Application In The Centre: The new law adopts the UNCITRAL Model Law on Cross Border Insolvency in order to provide a more favourable environment encouraging cross-border trade and investment.
The law is intended to provide more confidence to institutions and corporations vying the opportunities available in Dubai and cements the DIFC’s position as a premier business-friendly jurisdiction. It is intended to enhance legislation to give global institutions the certainty they need and denotes a positive step forward placing DIFC at the forefront of complicated debt restructurings.
For the full text of the law, click here.