Emergency Financial Crisis Declared: What the UAE's Emergency Bankruptcy Regime Means for Creditors and Debtors

A recent Cabinet Decision (the Decision) has triggered the 'Emergency Financial Crisis' provisions set out in Chapter Five of the UAE's federal Bankruptcy Law, Federal Decree-Law No. 51 of 2023 (the Bankruptcy Law).

Issued on 1 June 2026, the Decision applies the Emergency Financial Crisis regime to preventive settlement, restructuring and bankruptcy procedures "resulting from the Iranian acts of aggression against the State". It covers the period from 28 February 2026 until a further date is specified by a subsequent Cabinet decision.

 

Prohibition on creditor applications

Arguably the most significant change is that it appears that the Bankruptcy Court must postpone consideration of any creditor application while the Emergency Financial Crisis is ongoing. The wording is not definitive as to whether the postponement applies to all creditor-initiated applications, or only those in respect of a debtor whose financial position results from the Emergency Financial Crisis. On balance, our view is that all creditor-initiated applications are postponed. The Court appears to have no discretion here: creditor-side applications "shall" be postponed during the Emergency Financial Crisis.

The Decision also restricts the Court from granting precautionary measures over debtor assets needed for business continuity, unless the Court considers them unrelated to the debtor's operations.

 

Faster and more flexible route for debtors

Chapter Five allows the Court to accept debtor-side applications and gives it flexibility to adopt the procedures it deems appropriate (expressly including commencing proceedings without appointing a Trustee), provided the debtor can demonstrate that the crisis caused its cash flow or balance sheet insolvency.

Debtors also have access to a shortform settlement route. If the Court accepts a debtor's application, it may grant up to forty days for creditor negotiations, aimed at reaching a debt settlement period of up to twelve months. Approval is required from creditors holding two-thirds of the debt value who participate in negotiations. A cram-down mechanism binds all creditors once the voting threshold is met.

 

Impact on ongoing cases

The Decision may also impact cases (whether creditor or debtor-initiated) accepted before 1 June 2026. The Court has discretion (though it is not obliged) to extend time periods and deadlines by up to twice the standard statutory period. This power exists to address the "direct consequences" of the Emergency Financial Crisis.

 

Director actions

Where insolvency is caused by the Emergency Financial Crisis, a debtor's board and managers escape liability for disposing of assets to pay wages and salaries, provided those payments are necessary for business continuity.

However, the Bankruptcy Law reaffirms that directors and managers must maintain up-to-date accounts, act with caution and in good faith, and in the best interests of the company. It is therefore clear that an Emergency Financial Crisis does not excuse management from these core obligations.

 

Rescue financing

With Bankruptcy Court consent, a debtor company can obtain new financing that takes statutory priority over pre-existing ordinary debt. Chapter Five also permits new financing secured by mortgage over previously unencumbered assets, or by a second mortgage on already-mortgaged assets. Where the secured creditor is a licensed financing entity, the Court may allow security up to 30% of the asset's value.

 

Practical implications

The Decision creates an asymmetry: debtors gain more flexibility in initiating insolvency proceedings, while creditors face an effective moratorium on commencing their own processes. Parties in insolvency proceedings pre-dating the Decision are not immune from its ramifications, as the Court retains discretion to vary the Bankruptcy Law's statutory timeframes.

It remains unclear how cases commenced between 28 February 2026 and 1 June 2026 that fall within the Decision's scope will proceed. This is a particularly pertinent question for creditor-initiated actions. The duration of the Emergency Financial Crisis declaration is a further unknown. Importantly, neither the Bankruptcy Court nor the parties can determine when it begins or ends. Only the Council of Ministers, on a proposal from the Minister of Justice, holds that power.

Beyond the standard documentary requirements, debtors seeking the Decision's additional flexibility must prove a causal link between their financial position and the Emergency Financial Crisis. Neither the Decision nor the Bankruptcy Law specifies the evidential threshold. However, wording in Article 255 of the Bankruptcy Law, which refers to "direct consequences imposed by the circumstances of the financial emergency crisis" in the context of deadline variations, suggests the Court may take a broad view of the required causal connection.