What You Should Know About Director’s Role in Case of Bankruptcy in UAE?

Posted by Awatif Mohammad Shoqi Advocates & Legal Consultancy on May 12th, 2022

The new UAE Bankruptcy Law (Federal Decree Law No. 9 of 2016) came into force as a response to the 2008 global financial crisis. The new law was designed to encourage the development of a “rescue culture”, and replaces Volume 5 of Federal Law No. 18 of 1993 on the Commercial Transactions Law. It is more important than ever that those in managerial roles of companies registered in the UAE clearly understand their duties and potential liabilities. As a result of the Covid-19 pandemic, many businesses are currently facing significant challenges to cash flow and revenue.

Duties of a director

In UAE law words manager and director are used interchangeably but to avoid any confusion we are but the proper term that’d be appropriate in this article would be director. It is an offence for a company to fail to petition for bankruptcy within 30 days of the date of suspension of payment of its debts and it’s the director’s duty to make sure that proper procedure is being followed. If failed to do so, a director could have civil and criminal liabilities. When a company is in financial distress, the duties owed by its directors extend to all relevant stakeholders, including its creditors. Under Article 144 of the Bankruptcy Law, a competent court may obligate the directors and general managers, all or part of them, jointly or not, to pay all or part of the company’s debts in cases where they are held responsible for the company’s losses according to the Commercial Companies Law and Bankruptcy Law also implements further penalties against directors and general managers. Article 198 of the Law states that directors and general managers shall be sentenced to a period not exceeding five years and shall be fined an amount not exceeding AED 1,000,000. The aforementioned penalty could be enforced on a director if he does or doesn’t perform following acts:

-when one fails to provide adequate details in the financial books

-deliberately supplying false information or no information at all to court or trustee

-obtaining funds illegally or by procedure not in accordance with the rules to delay the suspension of payment of debts

– restructure for the company through deception

– provides security or special benefits to any of the creditors in preference to others.

The directors may be required to pay a contribution to all or part of the company’s debts, by court order.

End note

Directors and managers should ensure they are clear on their responsibilities under the applicable insolvency regimes in order to avoid claims of mismanagement and liability. If you believe that the financial distress is caused by the Covid-19 crisis then seek all immediately available financial help from the government, and ensure all details are sufficiently documented, that’s all the advice one can get off of internet but its always a smart move to consult a legal consultant having expertise in Insolvency and Bankruptcy law of the UAE in order to plan ahead their response to any financial decline.