Civil Law and UAE: Restructuring and Preventive Composition Procedures

1. Introduction

The UAE insolvency framework has moved from a predominantly liquidation-oriented approach toward a business-rescue and restructuring model.

The principal current legislation is Federal Decree-Law No. 51 of 2023 Promulgating the Financial and Bankruptcy Law, which replaced the earlier Federal Decree-Law No. 9 of 2016 for the matters governed by the new regime. The 2023 law entered into force on 1 May 2024. It provides mechanisms intended to help financially distressed debtors continue their businesses and satisfy creditors through preventive settlement and restructuring, while retaining bankruptcy and liquidation as possible outcomes where rescue is not viable.

The current law defines financial restructuring as measures designed to help the debtor continue its business and pay its debts through a preventive settlement or restructuring plan. Preventive settlement allows the debtor, subject to the statutory framework, to continue managing its business while implementing a court-supervised settlement proposal. Restructuring provides a more intensive process involving a restructuring plan and a trustee, with the court having powers concerning management of the debtor's assets and business.

2. Objectives of the UAE Restructuring Framework

The principal objectives are:

Preservation of viable businesses

Avoidance of unnecessary liquidation

Maximisation of creditor recovery

Orderly collective treatment of creditors

Protection of the debtor's continuing business

Prevention of individual enforcement actions from destroying the debtor's assets

Transparency in the debtor's financial position

Supervision by the Bankruptcy Court

Independent involvement of trustees and experts

Conversion to bankruptcy where rescue becomes impossible

Thus, restructuring is not simply a method of delaying payment.

Its fundamental objective is to determine whether the debtor can realistically continue operating while addressing its financial obligations.

3. Current Legal Framework

The principal sources are:

A. Federal Decree-Law No. 51 of 2023

This is the principal current Financial and Bankruptcy Law.

B. Cabinet Resolution No. 94 of 2024

This provides the Executive Regulations of the 2023 Financial and Bankruptcy Law. It became effective in 2024 and contains procedural and administrative details for implementation.

C. Civil Procedure legislation

The 2023 law expressly provides that the Civil Procedure Law applies to matters not specifically regulated by the Financial and Bankruptcy Law.

D. Evidence legislation

The Evidence Law also applies where the bankruptcy legislation does not provide a specific rule.

4. Meaning of Preventive Settlement

Under the current 2023 law, preventive settlement is a formal insolvency-rescue procedure.

Its purpose is to help the debtor:

continue its commercial activity;

negotiate with creditors;

restructure payment obligations;

obtain appropriate concessions or extensions;

preserve assets;

avoid unnecessary liquidation.

Article 56 allows the debtor to apply where its business is capable of continuing and, among other circumstances, where it has stopped paying or reasonably expects or fears an inability to pay debts when due.

This represents an important shift from the idea that financial distress necessarily means immediate liquidation.

5. Preventive Settlement vs Restructuring

The two procedures should not be confused.

The current legislation expressly distinguishes the two procedures. Preventive settlement is addressed principally in Articles 56–86, while restructuring is dealt with in the subsequent provisions, including Articles 88 onwards.

6. Eligibility for Preventive Settlement

Under Article 56, the debtor may seek preventive settlement where its business is capable of continuation and specified financial-distress conditions exist.

The legislation contemplates circumstances including:

existing payment default;

anticipated inability to pay debts;

earlier rejection of a preventive settlement proposal;

earlier rejection of a restructuring plan;

earlier termination of proceedings;

certain circumstances following bankruptcy and rehabilitation.

The application must contain information enabling the court and creditors to assess the debtor's position and the proposed settlement.

7. Application Requirements

The debtor must provide appropriate financial and commercial information.

Depending on the circumstances, the application and proposal may address:

financial condition;

assets;

liabilities;

creditors;

proposed repayment arrangements;

guarantees;

business continuation;

contracts;

implementation timetable;

creditor voting arrangements;

proposed treatment of different creditor groups.

The objective is to prevent creditors from being asked to vote on a plan without sufficient information.

8. Continuation of Business During Preventive Settlement

One of the central features of the current regime is debtor-in-possession management.

Article 58 provides that, after initiation of preventive settlement proceedings, the debtor generally continues managing its business and assets in the ordinary course, provided that its activities do not prejudice creditors.

Extraordinary activities outside normal business generally require court approval.

This is important because the purpose is not merely to freeze the company.

The company must remain economically active if continuation is realistically possible.

9. Suspension of Claims

The opening of preventive settlement proceedings produces a statutory stay/suspension of claims.

Under Article 59:

claims are suspended for an initial period of three months;

the court may extend the suspension;

the total period cannot exceed six months.

The purpose is to provide the debtor with a protected period to negotiate and obtain creditor approval without individual enforcement destroying the restructuring effort.

This is sometimes described as a breathing space.

10. Effect on Contracts

The current law also protects the continuity of the debtor's contractual relationships.

Initiation of preventive settlement does not automatically mature debts or stop interest, and contractual provisions attempting to produce contrary consequences may be ineffective under Article 61.

Valid contracts are not automatically suspended or terminated merely because preventive settlement has commenced.

This protects the possibility that the business can continue generating revenue during the rescue process.

11. Preventive Settlement Proposal

The proposal is the central commercial document.

It can address:

repayment schedules;

reductions;

extensions;

asset transfers;

payment in kind;

partial discharge;

restructuring of liabilities;

guarantees;

sale of assets;

conversion of debt into equity where appropriate;

operational restructuring;

implementation periods.

Article 68 expressly permits settlement proposals based upon assignment of part of the debtor's property in settlement of debts, either fully or partially, and can provide for deferred payment arrangements.

12. Creditor Participation

The UAE system gives creditors an important role.

Creditors receive information concerning the proposal and participate in voting in accordance with the statutory rules.

Voting rights are not identical for every creditor.

The current law primarily gives ordinary creditors whose debts have been finally accepted the right to vote, subject to statutory provisions concerning temporarily accepted and secured claims.

This reflects the principle that creditors affected by the proposed settlement should have an opportunity to participate in determining its approval.

13. Court Ratification

Creditor approval alone is not the final stage.

The Bankruptcy Court must examine the proposal.

Article 75 requires the court to consider, among other matters:

whether the required majority approved the proposal;

whether creditors received sufficient information;

whether creditors had adequate time to consider the proposal;

whether voting procedures were respected;

whether existing security and priority rights have been appropriately considered;

whether creditors of equivalent legal status receive appropriate treatment.

Therefore, the UAE model combines:

creditor decision-making + judicial supervision.

14. Fairness Principle

A major feature is the protection of creditor equality.

The proposal should respect:

secured creditor rights;

preferential rights;

equal-ranking creditors;

appropriate distribution of losses;

the statutory voting process.

The court is therefore not simply a registration authority.

It performs a substantive supervisory function.

15. New Financing

A financially distressed company may require fresh money to survive.

The current law allows the Bankruptcy Court, in appropriate circumstances, to authorize new financing during preventive settlement.

Such financing can receive priority over existing ordinary debts where the statutory requirements are satisfied.

Security may also be permitted in accordance with the legislation.

This is commercially significant because a company may be impossible to rescue without working capital.

16. Restructuring Proceedings

Restructuring is a more intensive process.

Its purpose is to help the debtor continue business through a formal restructuring plan.

The debtor generally continues management under the supervision of the restructuring trustee, unless the court decides otherwise. Article 89 provides for continuing management subject to trustee supervision.

17. Role of the Restructuring Trustee

The trustee performs a central supervisory function.

Typical responsibilities include:

examining financial information;

verifying debts;

examining assets;

monitoring management;

communicating with creditors;

evaluating restructuring proposals;

reporting to the court;

assisting with creditor meetings;

supervising implementation;

protecting the collective interests of creditors.

The trustee therefore acts as an important bridge between the debtor, creditors and Bankruptcy Court.

18. Court's Power to Remove Management Control

Article 90 gives the Bankruptcy Court power, in appropriate circumstances, to prevent the debtor, board of directors or managers from managing the debtor's assets and business.

The court may entrust management to the trustee.

This is an important distinction between preventive settlement and more intensive restructuring.

It also reflects the principle that management control is not absolute when continuing management threatens creditor interests.

19. Claim Suspension During Restructuring

Article 92 of the current law provides for suspension of claims following the commencement of restructuring.

The suspension runs from the day following the decision to initiate restructuring until the restructuring plan is ratified, subject to the statutory framework.

Article 93 identifies circumstances in which the suspension ends, including:

ratification of the restructuring plan; or

termination of restructuring proceedings.

This issue was directly examined by the Dubai Court of Cassation in T.M.H. v K.B.P.O. International Healthcare M.H.Z. LLC, Appeal No. 258 of 2025, judgment dated 21 July 2025. The Court held that ratification of the restructuring plan was legally significant for the duration of the claim suspension and criticized the lower court for conflating restructuring with bankruptcy proceedings.

20. Failure of Restructuring

Restructuring is not guaranteed to succeed.

If the evidence establishes that restructuring is impossible or inappropriate, the legislation provides mechanisms for moving toward bankruptcy.

The earlier 2016 regime contained explicit provisions requiring bankruptcy in specified circumstances, including where restructuring was impossible or inappropriate, where the restructuring plan was rejected, or where the plan was invalidated or terminated.

The current 2023 law maintains the basic policy that an unsuccessful rescue procedure can lead to bankruptcy proceedings.

21. Preventive Settlement as an Early-Intervention Mechanism

Preventive settlement is particularly important because it is designed to intervene before complete commercial collapse.

A company may still have:

valuable contracts;

employees;

customers;

intellectual property;

receivables;

operational assets;

profitable divisions;

future projects.

Immediate liquidation may destroy these values.

Preventive settlement attempts to preserve them while dealing collectively with creditor claims.

22. Relationship with Civil Law

Although the Financial and Bankruptcy Law is a specialised statute, civil-law concepts remain important.

They include:

contractual obligations;

good faith;

abuse of rights;

security interests;

guarantees;

ownership;

agency;

liability;

evidence;

invalid transactions;

priority rights.

However, the bankruptcy legislation operates as the special statutory regime for matters specifically regulated by it.

The 2023 law expressly provides that civil procedure and evidence legislation apply to matters not specifically regulated by the Financial and Bankruptcy Law.

23. Principle of Collective Creditor Treatment

One of the central principles of restructuring is collective treatment.

Without a collective process:

Creditor A may execute first;

Creditor B may seize another asset;

Creditor C may commence separate proceedings;

secured creditors may act independently;

the business may lose its operating assets.

The collective process seeks to prevent a race among creditors that destroys the overall value of the debtor.

24. Principle of Business Continuity

The legislation is based substantially upon the concept that a viable business can sometimes produce more value as a going concern than through immediate liquidation.

For example:

A company has:

assets worth AED 20 million on liquidation;

a functioning business capable of generating AED 35 million over a restructuring period.

A restructuring plan may preserve greater overall value.

This does not mean that every financially distressed business should be rescued.

The statutory process requires examination of whether continuation is genuinely feasible.

25. Principle of Transparency

The debtor must provide accurate information.

Important information includes:

assets;

liabilities;

creditors;

financial statements;

cash flows;

contracts;

guarantees;

business operations.

A debtor cannot legitimately use restructuring as a mechanism for concealing assets or misleading creditors.

Bad faith may affect access to relief and can lead to serious consequences under the bankruptcy legislation.

26. Role of Experts

Financial experts are important in determining:

solvency;

liquidity;

asset values;

liabilities;

projected cash flow;

viability of the business;

feasibility of restructuring;

possible creditor recovery.

Courts are entitled to consider expert reports in determining whether restructuring is realistically possible.

This principle was particularly important in ANC Contracting LLC v China State Construction Engineering Corporation (Middle East) LLC, Dubai Court of Cassation Appeal No. 186 of 2023. The court examined expert evidence concerning the company's financial position and the possibility of restructuring.

27. Case Law 1 — ANC Contracting LLC v China State Construction Engineering Corporation (Middle East) LLC, Dubai Court of Cassation Appeal No. 186 of 2023

This case arose under the 2016 Bankruptcy Law, before the current 2023 law took effect.

The company challenged the bankruptcy decision and argued that it had assets and receivables that could potentially support restructuring.

The Court considered the expert evidence and accepted that the factual assessment of financial condition and restructuring feasibility was primarily a matter for the lower court where supported by the evidence.

The case demonstrates the importance of:

expert financial analysis;

proof of continuing business;

evidence concerning assets and liabilities;

realistic restructuring prospects.

Principle

A restructuring argument must be supported by credible financial evidence; a merely theoretical possibility of restructuring is insufficient.

28. Case Law 2 — Company Restructuring Proceedings, Dubai Court of Cassation Appeal No. 14 of 2023

This case concerned a company whose restructuring proceedings had been opened but which failed to provide a required supplementary deposit.

The lower courts rejected the restructuring application and terminated the proceedings.

The Dubai Court of Cassation considered the statutory consequences of an unsuccessful restructuring process.

It held that where restructuring becomes impossible or inappropriate, the bankruptcy legislation provides specific consequences, including bankruptcy where the statutory conditions are satisfied.

The Court emphasized that a court should not simply terminate restructuring without applying the statutory framework concerning what follows when restructuring cannot succeed.

Principle

Failure of restructuring does not create an unregulated legal vacuum; the bankruptcy legislation determines the appropriate next procedural stage.

29. Case Law 3 — Khudair Brothers General Trading LLC v Bank Saderat Iran, Dubai Court of Cassation Appeal No. 103 of 2023

This case involved insolvency proceedings in which the debtor's business had effectively ceased.

Evidence showed:

no meaningful operating activity;

absence of an operating premises;

lack of sufficient assets;

long-term cessation of business.

The court examined whether restructuring was realistically possible.

The decision also dealt with the restricted appeal rights under the 2016 Bankruptcy Law.

Principle

Where a debtor has no meaningful operating business or realistic restructuring capacity, the court may conclude that restructuring is not feasible. The case also demonstrates the importance of statutory finality rules concerning bankruptcy orders under the legislation applicable at the time.

30. Case Law 4 — Dubai Court of Cassation Appeal No. 8 of 2023

This case concerned companies affected by the COVID-19 emergency financial crisis and the special insolvency provisions introduced during that period.

The applicants argued that their financial difficulties were caused by the emergency crisis and that the purpose of their application was to obtain temporary protection while negotiating with creditors and restructuring their businesses.

The Court considered the special statutory regime for emergency financial crises.

It emphasized the distinction between:

ordinary bankruptcy;

emergency financial-crisis procedures;

restructuring;

temporary suspension of payment obligations.

Principle

The court must identify the true legal purpose and statutory basis of the debtor's application rather than automatically treating every insolvency application as an ordinary liquidation-oriented bankruptcy request.

31. Case Law 5 — R.A.A.L.A. v A.A.F.M.A.D., Dubai Court of Cassation General Assembly, Appeal No. 3 of 2025

This is particularly important under the current 2023 Financial and Bankruptcy Law.

The General Assembly of the Dubai Court of Cassation addressed the jurisdiction of the Bankruptcy Court.

It held that the specialised Bankruptcy Court has exclusive jurisdiction over bankruptcy-related applications and procedures, including company debt disputes once bankruptcy proceedings have been initiated, subject to the statutory exceptions.

The decision emphasized the principle of unity of the insolvency estate/proceedings.

The court explained that the specialised bankruptcy jurisdiction exists to bring disputes concerning the debtor's financial position and creditors together within the bankruptcy process.

Principle

Once the statutory bankruptcy proceedings are opened, disputes sufficiently connected with the bankruptcy estate may fall within the specialised Bankruptcy Court's jurisdiction rather than ordinary civil/commercial jurisdiction.

This is highly relevant to restructuring because restructuring disputes must be understood within the specialised insolvency framework.

32. Case Law 6 — T.M.H. v K.B.P.O. International Healthcare M.H.Z. LLC, Dubai Court of Cassation Appeal No. 258 of 2025

This is one of the most directly relevant recent cases under the 2023 law.

The dispute concerned the effect of restructuring proceedings on another court action.

The appellant argued that the suspension of claims had ended because the Bankruptcy Court had already approved the restructuring plan.

The Court relied upon Articles 92 and 93 of Federal Decree-Law No. 51 of 2023.

It held that the lower court had failed properly to consider the effect of the ratification of the restructuring plan and had confused restructuring proceedings with bankruptcy proceedings.

The decision was therefore quashed and remanded.

Principle

The legal consequences of a restructuring proceeding depend upon the precise procedural stage reached; commencement, plan approval and termination are not interchangeable events.

33. Case Law 7 — Dubai Court of Cassation Appeal No. 681 of 2025

This case concerned a company undergoing restructuring and a dispute about whether its management could continue representing it in litigation.

The Court considered Article 89 of Federal Decree-Law No. 51 of 2023.

The provision generally allows the debtor to continue managing its assets and business under trustee supervision unless the Bankruptcy Court orders otherwise.

The Court found no evidence that management had been removed or that its powers had been transferred to the restructuring trustee.

Principle

Opening restructuring proceedings does not automatically eliminate the debtor's management authority. The court must actually impose a restriction or transfer of management powers before the ordinary management structure is displaced.

34. Case Law 8 — Dubai Court of Cassation Appeal No. 39 of 2026

This recent decision illustrates the operation of the new specialised bankruptcy jurisdiction.

The dispute involved claims concerning transactions allegedly prejudicial to a debtor's creditors.

The Dubai Court of Cassation relied upon the General Assembly's 2025 decision concerning Bankruptcy Court jurisdiction.

The Court held that once bankruptcy proceedings had been opened, a dispute seeking recovery of assets for enforcement against the debtor could fall within the exclusive jurisdiction of the Bankruptcy Court.

The decision reinforces the principle that insolvency-related disputes should ordinarily be concentrated within the specialised bankruptcy process.

Principle

The specialised bankruptcy jurisdiction is intended to prevent parallel proceedings from undermining collective insolvency administration.

35. Important Case-Law Development

The cases show an evolution:

Under the 2016 regime

Courts frequently dealt with:

restructuring feasibility;

expert reports;

bankruptcy conversion;

emergency COVID-19 measures;

procedural finality;

inability to restructure.

Under the 2023 regime

Recent jurisprudence increasingly concerns:

specialised Bankruptcy Court jurisdiction;

claim suspension;

restructuring plan approval;

management powers;

interaction between ordinary litigation and restructuring;

separation of restructuring and bankruptcy proceedings.

This distinction is important because older cases remain useful for understanding principles, but they must not be presented as direct interpretations of every provision of the 2023 law.

36. Restructuring and Creditor Protection

Restructuring attempts to balance two competing interests:

Debtor interest

The debtor needs:

time;

protection from enforcement;

working capital;

continued contracts;

operational stability.

Creditor interest

Creditors need:

accurate information;

fair treatment;

protection of security;

preservation of assets;

proper voting rights;

maximum realistic recovery.

The UAE legislation attempts to balance these interests through court supervision and trustee involvement.

37. Secured Creditors

Secured creditors occupy a special position.

A restructuring plan cannot simply ignore:

mortgages;

pledges;

liens;

preferential rights;

other legally recognized security interests.

The preventive settlement provisions expressly require consideration of existing security and priority rights when assessing fairness.

This means that restructuring does not necessarily destroy security rights.

38. Unsecured Creditors

Unsecured creditors are generally more exposed to restructuring compromises.

Their treatment may include:

extended repayment periods;

reduced payment amounts;

instalments;

partial discharge;

conversion arrangements where legally permissible.

However, statutory voting and fairness requirements remain important.

39. Employees and Labour Claims

Insolvency proceedings also interact with employment obligations.

The current law expressly identifies certain labour claims as exceptions to the general claim-suspension concept in the statutory definition of "suspension of claims."

Therefore, restructuring does not mean that all employment-related claims automatically disappear or become unenforceable.

The applicable labour and insolvency rules must be considered together.

40. Directors and Managers

Management has significant responsibilities during financial distress.

Potential problems include:

concealment of assets;

preferential treatment of selected creditors;

fraudulent transactions;

inaccurate financial information;

continuing operations without reasonable prospects;

misuse of restructuring proceedings;

failure to cooperate with trustees.

The insolvency framework therefore combines rescue mechanisms with accountability mechanisms.

41. Bad Faith

Restructuring is intended for genuine financial reorganisation.

It should not be used simply to:

delay creditors;

frustrate enforcement;

conceal assets;

avoid legitimate debts;

obtain artificial protection.

The legislation expressly allows rejection or termination of proceedings in circumstances involving bad faith and other statutory grounds.

42. Restructuring and Abuse of Process

There is a close connection between restructuring law and the civil-law principle against abuse of rights.

A debtor should not invoke a statutory restructuring procedure for a purpose inconsistent with the legislation.

Similarly, creditors should not use individual enforcement actions in a way that defeats a lawful collective restructuring process.

The court therefore has to maintain the balance between:

debtor protection + creditor protection + integrity of the insolvency process.

43. Conversion from Preventive Settlement to Bankruptcy

Preventive settlement may fail.

Possible reasons include:

proposal rejection;

inability to implement the proposal;

criminal proceedings or statutory misconduct;

failure to satisfy statutory requirements;

worsening financial circumstances;

inability to continue the business.

The court may then terminate the preventive settlement and, where legally appropriate, initiate restructuring or bankruptcy proceedings. Articles 81–84 address termination and possible transition to other procedures.

44. Conversion from Restructuring to Bankruptcy

Similarly, restructuring is not an absolute shield.

Where the business cannot realistically be reorganised, bankruptcy and liquidation may become appropriate.

This principle was strongly illustrated by the older Appeal No. 14 of 2023, where the Court considered the statutory consequences of restructuring becoming impossible or inappropriate.

The current 2023 framework preserves the basic policy that rescue should continue only where legally and commercially feasible.

45. Small Debtors

The current law contains special procedures for small debtors.

The Executive Regulations provide thresholds under which simplified procedures can apply. The Executive Regulations identify, for example, asset-value thresholds of AED 1 million for natural persons and AED 2 million for legal persons for the relevant small-debtor mechanism.

The law can reduce procedural complexity by:

shortening statutory periods;

dispensing with a trustee unless the court considers one necessary;

dispensing with a creditors' committee unless required;

simplifying approval requirements.

This reflects proportionality in insolvency administration.

46. Role of the Bankruptcy Court

The Bankruptcy Court is not merely a passive forum.

Its functions may include:

opening proceedings;

appointing trustees;

protecting assets;

supervising management;

supervising creditors' meetings;

approving settlement plans;

approving restructuring plans;

deciding disputes;

protecting creditor interests;

authorising certain transactions;

terminating unsuccessful procedures;

moving proceedings toward bankruptcy where required.

The creation of specialised bankruptcy courts is a major feature of the current system.

47. Restructuring Plan

A restructuring plan should normally demonstrate how the debtor intends to return to financial stability.

It may involve:

debt rescheduling;

asset sales;

business-unit restructuring;

new financing;

changes in operations;

creditor compromises;

security arrangements;

disposal of non-core assets;

changes in ownership or capital where permitted;

projected cash flows.

A plan without credible financial assumptions is unlikely to provide a sustainable solution.

48. Importance of Cash-Flow Analysis

A company may technically own valuable assets but still be unable to pay debts when due.

Therefore, restructuring analysis should examine:

cash inflows;

cash outflows;

working capital;

debt maturities;

receivables;

inventory;

operating costs;

financing requirements.

This is why expert evidence frequently becomes decisive.

49. Going-Concern Value

A fundamental restructuring concept is going-concern value.

Example:

A company owns assets worth AED 30 million if sold individually.

But its functioning business may be worth AED 50 million because it has:

contracts;

licences;

customer relationships;

trained employees;

intellectual property;

operational infrastructure.

Immediate liquidation may destroy the additional value.

Restructuring attempts to preserve that going-concern value where possible.

50. Prevention of a Race to Enforcement

The suspension of claims serves a collective purpose.

Without a stay:

one creditor may seize cash;

another may enforce security;

another may obtain judgment;

another may attach receivables.

The remaining business may then become impossible to rescue.

The statutory suspension therefore protects the restructuring process itself.

The current law's provisions concerning suspension were central to Appeal No. 258 of 2025.

51. Relationship Between Restructuring and Arbitration

Arbitration clauses do not automatically disappear merely because a debtor experiences financial distress.

However, once insolvency proceedings are formally opened, the specialised insolvency jurisdiction and statutory stay may affect:

commencement of proceedings;

continuation of claims;

enforcement;

treatment of arbitral awards;

claims against the insolvency estate.

The precise effect depends on the nature of the claim and the applicable insolvency provisions.

52. Relationship with Enforcement

Restructuring is designed to prevent individual enforcement from defeating the collective process.

Consequently, creditors must distinguish between:

establishing a debt;

obtaining a judgment;

enforcing a judgment;

submitting a claim in restructuring;

enforcing security;

participating in distribution.

The 2025 and 2026 Dubai decisions demonstrate the increasing importance of determining whether a dispute belongs in ordinary litigation or within the specialised Bankruptcy Court.

53. Transition from the 2016 Law to the 2023 Law

This is an important examination point.

The 2016 Bankruptcy Law generated substantial case law concerning:

preventive composition;

restructuring;

emergency financial crises;

bankruptcy;

expert reports;

conversion.

The 2023 law introduced a new statutory architecture.

Accordingly:

2016 cases remain useful as historical and interpretative guidance, but they must be checked against the wording and transitional provisions of Federal Decree-Law No. 51 of 2023 before being applied to a current dispute.

The new legislation itself addresses the treatment and transfer of proceedings arising under the previous law.

54. Difference Between Preventive Settlement and Liquidation

Preventive settlement

Purpose:

Save the business.

Restructuring

Purpose:

Reorganise the business and its debts so that it can continue.

Bankruptcy/liquidation

Purpose:

Collectively administer and realise assets where continued business rescue is not feasible.

Thus:

Preventive settlement and restructuring are primarily rescue mechanisms, whereas liquidation is principally an exit mechanism.

55. Practical Example

Suppose UAE Company A has:

AED 100 million assets;

AED 120 million liabilities;

valuable contracts;

substantial future receivables;

temporary cash-flow problems.

The company may seek preventive settlement or restructuring rather than immediate liquidation.

A possible plan might provide:

AED 20 million immediate payment;

AED 40 million over three years;

AED 20 million from asset sales;

AED 10 million through new financing;

negotiated treatment of the remaining debt.

If the plan is approved and legally ratified, the business may continue.

If the plan becomes impossible and the company cannot continue, the court may move toward bankruptcy.

56. Key Legal Principles from the Cases

The cases discussed establish several useful principles:

Principle 1

Restructuring must be based on genuine financial evidence.

Principle 2

Expert reports can be important in determining restructuring feasibility.

Principle 3

A restructuring application does not guarantee restructuring.

Principle 4

If restructuring becomes impossible, the statutory bankruptcy consequences must be considered.

Principle 5

The court must distinguish restructuring from bankruptcy.

Principle 6

Opening restructuring does not automatically remove management powers.

Principle 7

Management remains in control unless the Bankruptcy Court orders otherwise under the statutory framework.

Principle 8

Claim suspension has a defined statutory duration and can end upon specified events.

Principle 9

Ratification of a restructuring plan has legal consequences distinct from the opening of bankruptcy proceedings.

Principle 10

Specialised Bankruptcy Courts have extensive jurisdiction over insolvency-related disputes.

57. Case-Law Revision Table

The first four decisions principally arose under the former 2016 regime, while the latter four illustrate the developing jurisprudence under the current 2023 framework.

58. Examination-Oriented Answer

If asked:

"Explain restructuring and preventive composition procedures under UAE civil/business law."

A concise answer can be structured as follows:

The UAE has adopted a rescue-oriented insolvency framework.

The current principal statute is Federal Decree-Law No. 51 of 2023.

Preventive settlement is designed to assist a viable debtor in continuing business while negotiating a settlement with creditors.

Restructuring provides a more intensive court-supervised process involving a restructuring trustee and restructuring plan.

Claim suspension protects the debtor from certain individual enforcement actions.

The debtor generally continues management unless the court orders otherwise.

Creditors receive information and participate in voting according to statutory rules.

The Bankruptcy Court reviews and ratifies qualifying proposals.

Secured and preferential rights must be considered.

New financing may be authorised where necessary for business continuation.

If rescue becomes impossible, proceedings may move toward bankruptcy and liquidation.

Recent Dubai Court of Cassation decisions emphasize specialised Bankruptcy Court jurisdiction and the distinct procedural consequences of restructuring and bankruptcy.

59. Conclusion

The UAE's modern insolvency framework treats financial distress increasingly as a problem that may require reorganisation rather than immediate liquidation.

The two principal rescue mechanisms are:

Preventive Settlement

An earlier and comparatively flexible mechanism designed to allow a financially distressed but viable debtor to negotiate a settlement with creditors while continuing its business.

Restructuring

A more intensive procedure involving a restructuring plan, trustee supervision and stronger judicial oversight.

The central legal philosophy can be expressed as:

Preserve viable economic value, protect the collective interests of creditors, and liquidate only where restructuring is no longer legally or commercially workable.

The current Federal Decree-Law No. 51 of 2023, together with its Executive Regulations, provides the statutory architecture. Recent Dubai Court of Cassation decisions such as Appeal No. 258/2025, Appeal No. 681/2025, General Assembly Appeal No. 3/2025 and Appeal No. 39/2026 show that contemporary UAE jurisprudence is increasingly focused on the specialised Bankruptcy Court, claim suspension, management authority and the procedural distinction between restructuring and bankruptcy.

Final Revision Formula

Financial distress → Preventive Settlement → Restructuring → Successful rehabilitation

or, where rescue is not feasible:

Financial distress → Restructuring/Preventive Settlement → Failure → Bankruptcy → Liquidation

The essential principle is:

UAE restructuring law seeks to rescue the viable business while preserving the collective and legally protected interests of creditors.