Abu Dhabi Court of Cassation, Commercial Appeal No. 1328 of 2021, judgment of 22 March 2022
Opening bankruptcy proceedings does not oblige the court to order a restructuring plan. A plan may be ordered only if the debtor can continue trading and is likely to return to profit within a reasonable period suited to its business and debts (Article 98(4) of the Bankruptcy Law). Otherwise the court may reject the restructuring route and declare the debtor bankrupt and liquidate its assets. Bankruptcy is not adversarial litigation; it establishes whether a trader has ceased payments because of financial disorder, which the trial court infers from the evidence, including expert and trustee reports.
A subcontractor owed about AED 2.23 million for completed works, retention and guarantee amounts petitioned the Abu Dhabi bankruptcy court to open proceedings against the main contractor. The court appointed an expert, opened proceedings, appointed a trustee and approved a list of admitted creditors; the trustee then reported on the debtor's business. The bankruptcy court nevertheless refused to declare bankruptcy. After a first cassation judgment annulled the appeal judgment and sent the case back, the Court of Appeal again dismissed the creditor's appeal.
The Court of Cassation allowed the creditor's second appeal. It reviewed Articles 69(1), 77(1), 82, 98(3) and (4) and 124 of Federal Decree-Law No. 9 of 2016. Taken together, they leave it to the trial court to decide whether to begin restructuring or to declare bankruptcy, based on the file and the expert and trustee reports. Opening proceedings does not necessarily lead to a restructuring plan; that requires a finding that the debtor can continue and is likely to return to profit. Where that is not shown, Article 98(3)(b) allows the court to reject the restructuring route and declare bankruptcy and liquidation, and Article 124 is a supplementary rule, not a mandatory list. Bankruptcy proceedings establish a state of affairs, namely cessation of payments caused by disturbed finances. The expert found the debtor's activity had stopped, its licence had expired in May 2020, it had lost its classification, mismanagement had left it unable to pay its debts, and its liabilities exceeded its assets with no prospect of restructuring; the trustee reported accumulated losses of over AED 85 million and admitted claims of about AED 5.4 million. The Court quashed the judgment, reversed the first-instance decision and sent the case back to the bankruptcy court to proceed on the basis of its reasons, that is, toward a declaration of bankruptcy and liquidation.
Creditors of a dormant, insolvent company can obtain a bankruptcy and liquidation order where the expert and trustee reports show that restructuring is futile. Courts are not required to try restructuring first. The case was decided under the 2016 Bankruptcy Law; the procedure is now governed by Federal Decree-Law No. 51 of 2023.
| Articles 69, 77, 82, 98, 124 of Federal Decree-Law No. 9 of 2016 on Bankruptcy, as amended Decided under this law; it has been replaced by Bankruptcy Law. |
“أن تقرير افتتاح الإجراءات ليس من باب اللزوم الحتمي ان يستتبع ذلك تقرير المحكمة إعداد خطة إعادة هيكلة اعمال المدين”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
A debtor who claims insolvency must prove it; the court must rule on the claim as framed and as characterised on cassation
Insolvency (الإعسار) exists where a debtor's debts equal or exceed his assets; once established, the court may place him under interdiction under Articles 401 and 402 of …
An individual seeking insolvency relief must prove how he lost his assets; unexplained default is not insolvency
Insolvency means that a debtor's debts equal or exceed his assets (Article 401 of the Civil Transactions Law). A debtor in that position may apply under Articles 3 and 7 …
Opening bankruptcy proceedings stays creditors' lawsuits and enforcement against the debtor, including against jointly liable co-debtors
A basic rule of bankruptcy, which is of public order, is that creditors may not take individual action against the debtor. Under Article 162(1) of the Bankruptcy Law (Fed…
Bankruptcy is not a debt collection tool: a judgment creditor's petition failed without proof of cessation of payments
A creditor owed at least AED 100,000 may petition to open bankruptcy proceedings after a written demand and thirty working days without payment, but the petition must inc…
Whether you are establishing a new venture, restructuring an existing enterprise, or exploring residency pathways — we are here to advise.
Arrange a Consultation →