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New DIFC Insolvency Law No.1 of 2019 – 28 August 2019

  • UAE


    The new insolvency law (the “New Law”) of the Dubai International Financial Centre (“DIFC”) compliments the DIFC’s commitment to international best practice and is the result of substantial research and global benchmarking, as well as thorough public consultation. His Excellency Essa Kazim, Governor of DIFC, said: “Ensuring that businesses and investors can operate across the region with confidence is crucial to our role in connecting the economies of East and West. We are committed to continuously enhancing our legislative infrastructure in order to give leading global institutions the certainty and access they need to capture the opportunities within the MEASA region, through Dubai.”

    The New Law aims to balance the needs of all stakeholders in the context of distressed and bankruptcy related situations in the DIFC, facilitating a more effective and efficient restructuring regime, by introducing a new debtor in possession bankruptcy regime and providing for a new administration process in situations where there is evidence of mismanagement or misconduct. In essence, the managers of a distressed business will have a moratorium during which they retain control and have the right to secure protection from their creditors, to maximize the chances of returning to financial health. Separately, the New Law enhances the rules governing winding up, giving a more clear and detailed view on the regulations and restrictions regarding (amongst other things), the appointment rules and powers of involved parties, relevant expenses and the effect and consequences of the insolvency, in order to maximize creditor returns.

    Furthermore, the New Law intends to promote the rescuing of viable businesses, while improving the DIFC’s standing as an international financial centre, by incorporating the UNCITRAL Model Law in order to recognize cross-border insolvencies in complex multi-jurisdictional cases. It is worth noting, however, that the UNCITRAL Model Law neither prevents the court from refusing to take an action governed by this law if the action is contrary to the public policy of the DIFC, nor limits the power of a court or a DIFC insolvency office-holder to provide additional assistance to a foreign representative under other laws of the DIFC. In the case of conflict with an obligation of the DIFC arising out of any treaty or other form of agreement, the requirements of the treaty or agreement prevail.

    The New Law will come into effect on 28 August 2019 and, as with any new law, the success of the New Law will be assessed by its frequency of use and its effectiveness.

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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