Legal Regulation on Bankruptcy According to the UAE Federal Commercial Transactions Law

130 Pages·2012·0.88 MB·English

LEGISLATION SERIES
IN ENGLISH
Legal Regulation on Bankruptcy
According to the UAE Federal
Commercial Transactions Law
ISBN
978-9948-492-96-2
First Edition 2012
All Rights Reserved at Judicial Department – Abu Dhabi

- 4 -
Preface
Since the establishment of Abu Dhabi Judicial Department
(ADJD) pursuant to Law no. 23 of 2006, ADJD has promptly
sought the independence of an excellent and effective system
that provides world class judicial and legal services. To
“safeguard the rule of law by ensuring justice, freedom and
peace in society” has been adopted as the governing framework
of this system.
Realizing its virtuous vision and mission statements,
ADJD decided to print all the legislations which may be required
during the life cycle of litigation before the Department courts.
Derived by the fact that ADJD is a local government department,
it is comprehendible that the focus would be primarily projected
on the local laws issued by the local legislator of Abu Dhabi. In
addition, as per Article 121 of the Constitution which empowers
the federal legislator with the legislative authority pertaining
to certain issues in a way that commits both federal and local
judicial authorities to apply the local laws issued in accordance
with this article, it was found necessary to print these legislations.
Moreover, since international agreements, when adopted, are
apprehended as regional governing laws for all competent
authorities, it was found appropriate to print the international
agreements and conventions signed or approved by the State.
Accordingly, ADJD commenced the publication of a set
of federal and local legislations and international agreements
which are considered indispensable in the adjudication process
before the Department courts. Nevertheless, the Department
is keen on facilitating and expediting the delivery of publication
to the target audience, the printouts will be published in three
different series with different designs and branding colors.
Due to the importance of court judgments for interpreting
and construing the provisions of law, the department procedures
- 5 -
a fourth series in a different color, which highlights the principles
of cassation for each and every topic.
To promote awareness of the legislations that govern
sport games, ADJD is in the process of printing and publishing
a fifth series under the title of “Sport Legislations Series”, which
contains a range of sport-related international and national
legislations.
To highlight the attention paid by the UAE to safeguard
the human rights prescribed under international conventions and
charts, ADJD has decided to allocate a special series for human
rights, which collect and publish all international conventions
ratified by the UAE in the field of human rights.
Besides, out of our desire to emphasize the legal system
of government-owned companies, the ADJD has allocated a
series for public companies, categorized according to their
type of business including, oil and energy, insurance, tourism,
agriculture,so on and so forth.
Finally, we hope that our efforts meet the expectations of
our readers; and serve and satisfy the needs of judges, litigants,
law professionals, and all concerned parties.
Abu Dhabi Judicial Department
- 6 -
Introduction
Bankruptcy is a legal system involving traders, whereby a
debtor trader suspends payment of his due commercial debts.
In other words, the bankruptcy provisions becomes applicable
when a trader is incapable of settling his trade obligations. This
insolvency gives a sign of the loss of creditors’ rights; and triggers
a competition among them- each according to his capacity- to
confiscate the debtor’s assets, hence a keen cautious creditor
may take all his rights while others may just loose them. A debtor
may also conceal his assets or dispose of them to be apparently
out of his pledge, which represents the general guarantee for
his creditors. He may also distinguish among his creditors,
by granting some creditors in-kind guarantees on his assets,
which make them in a better situation than the other ordinary
unsecured debtors.
Against this conflict of interests, the legislator seeks,
based on bankruptcy provisions, to establish an accurate
balance, in a way, that guarantees equality among creditors and
prevents a debtor from defrauding or damaging his creditors.
There are multiple legal instruments to achieve these purposes,
including without limitation, depriving a debtor from managing
his own money immediately after the issuance of bankruptcy
adjudication; and supervising and administrating debtor’s money
and properties through a trustee and controller of bankruptcy,
who both work for the benefit of the debtor and creditor, under
the court supervision represented by the judge of bankruptcy.
- 7 -
Consequently, when the debtor is discharged from managing
his own money, creditors save any further manipulation in their
interests. On the other hand, to achieve equality among creditors
and to prevent any competition among them, the legislator,
upon the declaration of bankruptcy, deprives ordinary creditors
from initiating individual cases and proceedings. Hence, the
trustee in bankruptcy will have, in principle, the sole capacity
and power to take actions and initiate proceedings to protect the
interests of creditors, who congregate by law, to form the body
of creditors. This body is an independent legal entity, where no
individual interests of creditors exist, and it is represented by
the trustee, whose actions shall always observe the interests
of the members of this body equally. The provisions of the law
regulate the process of liquidating debtor’s assets and repay his
debts collectively, without distinction among ordinary creditors.
As for the secured creditors, who gain in-kind rights by no fraud
or complicity, these rights remain standing with all other priority
rights guaranteed by the general rules.
To guarantee the desired balance between conflicted
interests, the legislator provides for having the bankruptcy
provisions be implemented, from the very beginning, under the
court supervision; hence the trustee administers bankruptcy
under the supervision of the judge of bankruptcy, to whom he
shall refer in all cases.
There is no doubt that achieving the desired goals of the
bankruptcy system is subject to the unlikely agreement upon
- 8 -
contraventions to the law provisions, which do not protect a
special interest of a particular creditor, rather they aim, generally,
to safeguard the “Body of Creditors”, to eventually ensure and
promote confidence and credibility. Anyone deals with a trader
knows that, when a trader suspends his payments, there
would be a collective liquidation system, which guarantees the
recovering of at least some of his rights without the need to enter
into competition with the remaining creditors. Therefore, the last
resort would be the bankruptcy funds, exclusively administered
by the trustee, who is the sole person authorized to initiate
proceedings and litigate for and against the debtor. Based on
this, it is not permissible to prevent a creditor from claiming the
declaration of bankruptcy, or to have an agreement between him
and the trustee on non-compliance with the nullity of the debtor’s
actions which are or may not be implemented by law….etc. Even
any arrangement with the debtor after declaration of bankruptcy
shall be made under the court’s supervision and approval.
The only way out permitted to a trader, by law, is to apply for
preventive composition, i.e. before meeting the requirements of
bankruptcy adjudication. Even when submitting this application,
all terms and procedures of composition shall be made under
the judge’s supervision.
At this point, it should be noted that the modern philosophy
on dealing with insolvent enterprises is not limited to a report
on bankruptcy declaration. Rather, the bankruptcy declaration
system should be limited to the enterprises which are desperately
incapable of recovery, despite remedy efforts. To this end, the
- 9 -
legislator has approved the provisions of preventive composition.
On the other hand, it is established in modern judiciary systems
that, when a judge issues his judgment, it is no more within his
jurisdiction and the judge may not take it back, even if he later
finds mistakes therein. However, as an exception to the rule,
the commercial legislator has decided that “If a debtor, before
the judgment of bankruptcy is decisively rendered, becomes
capable of settling all debts due upon him, the court must nullify
its judgment, provided that the debtor shall bear all expenses
of the case”. Besides, the legislator has allowed the court, on
its own initiative or at the request of the company, to postpone
the declaration of bankruptcy for a period not exceeding one
year, if the company is likely to improve its financial position,
or if the national economy interest requires so. This procedure
apparently confirms that the legislator is keen to consider the
bankruptcy declaration system as a final resort, to which a trader
refers only if the enterprise failure or incapability to recover is an
utter truth.
The UAE legislator has regulated provisions of bankruptcy
and preventive composition in Volume Five of the Federal
Commercial Transactions Law No. 18 of 1993. Due to the
importance of bankruptcy system and the preventive composition
scheme, the Judicial Department has decided to exclude and
highlight these provisions in a separate book, dealing only with
the provisions of Volume Five of the aforementioned federal law.
Judicial Department – Abu Dhabi
- 10 -