The new law on the insolvency of natural persons in the UAE


published on 3 March 2020 | Reading time approx.  2 minutes


The UAE Cabinet has introduced a new law regulating the insolvency of natural persons. The regulation entered into force in January 2020 and aims at improving the UAE's competitiveness within the GCC countries by creating more favorable conditions for people with financial difficulties and thus making investment opportunities within the country more attractive. In 2016, the UAE government adopted a similar bankruptcy law for companies, which was particularly welcomed by companies and financial institutions.



In jurisprudence, the Insolvency Law of Natural Persons is defined as the inability of a debtor to pay their debts due to bankruptcy and debt default. The law on the insolvency of natural persons is linked to a principle called ‘Facilitator’s View’, which can be found in the Civil Transactions Act and has its roots in Islamic jurisprudence. According to the ‘Facilitator’s View’, the debtor is given the right to fulfill his financial obligations within a given period based on the circumstances of his debtor.

The new law is a further step of the government's response towards the needs of many expats living in the UAE. Since January 2020, debtors are allowed to reschedule the repayment of loans which can protect themselves against criminal measures.

Under the new regulations, people who have got into financial difficulties are now supported by one or more experts, which are appointed by the court. These experts are closely working together with debtors and creditors to draw up a three-year repayment plan to settle the financial liabilities and meet all the obligations set out in the plan. The debtor is not able to borrow again until the court, at the request of the expert, debtor or creditor, decides that the fulfillment of the plan have been completed. The new law gives debtors more freedom in shaping and scheduling the repayment and the opportunity to continue to work and care for the family additionally.

These changes are expected to significantly enhance the attractiveness of the UAE in terms of potential investments. In addition, the law which complements the existing financial laws, will contribute to greater transparency in debt repayments and ultimately enhance the UAE's image as a modern nation with transparent and business-friendly legislation.

This is also good news for the local economy: the new law will motivate debtors to repay their debts under fair conditions rather than possibly leaving the country due to insolvency. This will most likely lead to greater economic stability since the new law does create the right balance between the rights of creditors and debtors.

Furthermore, the confidence in banks is growing as borrowers can rely on comfortable repayment arrangements since January 2020 onwards. In the long run, this could accelerate UAE growth and have positive effects at all levels of the economy.

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