Insolvency in the Context of COVID-19 – Considerations for Businesses in Difficulty

The number of confirmed cases of COVID-19 in the United Arab Emirates (UAE) has risen rapidly, prompting local authorities to put in place stricter containment measures, including a full lockdown which commenced on 4 April 2020. Outside of businesses in vital sectors, all other businesses were directed to apply a work from home policy or to close down. Although certain restrictions have recently been eased, and while the government has rolled out a number of initiatives to support businesses in difficulty, it is generally anticipated that many companies will face financial difficulties as a result of the COVID-19 business disruption.

Unlike some jurisdictions, such as Australia, the Czech Republic, France and Poland, the UAE has not amended its bankruptcy laws nor enacted new laws which materially impact them. The obligations of companies arising out of the bankruptcy laws continue to apply. Although the measures announced and implemented offer some financial relief to companies in difficulty, some companies may still technically be in “cessation of payments” or be unable to pay their debts as they fall due and, as such, fall within the scope of the bankruptcy laws. In addition, various decrees issued at the federal and Emirate levels have created a general prohibition against enforcement action in civil cases (presumably under orders issued prior to 22 March 2020), which have had the effect of suspending certain rights of creditors.

Now more than ever, it is important for businesses to be aware of the legal requirements applicable in this case and the personal liability that managers may face in the event that they do not comply with their obligations under local laws.