Debt Collection Agency United Arab Emirates
Amicable Debt Collections United Arab Emirates
1. General information
We recognise that every client has different needs, and therefore our services are tailored to the clients’ specific requirements. We follow proven principles of negotiations.
Keeping close contact with debtors, we are able to evaluate genuine cash flow problems and stalling excuses for nonpayment and persuade debtors to pay the debts in an amicable manner.
Field visits and face-to-face meetings with the debtors are an integral part of our collection initiatives.
1.2. Local agents
We have a physical presence in the UAE. We offer field services in certain emirates and visit debtors regularly when the need arises. In order to commence legal action in the UAE, a claim will have to be filed at the court of first instance.
1.3. Debt Collection Interests UAE
Though the chief justice of the Supreme Court in a suit filed by a bank for recovery ruled that ordering the borrower to pay interest for late payments can be considered a sort of damages, which is compliant with both UAE law and Sharia’s, from a cultural point of view and in practice, debtors in the UAE do not pay interest on delayed payments.
1.4. Debt collection costs
From a cultural point of view and in practice, debtors in the UAE do not pay collection costs.
2. Legal Debt Collections UAE
2.1. General information
There is a three-tier legal system, including the court of first instance, court of appeal and court of cassation.
The civil court (or court of first instance) hears all claims ranging from commercial matters (including debt recovery cases) to maritime disputes. After a judgment has been delivered, the parties have the right to appeal to the civil court on factual and/or legal grounds within 30 days since the date of judgment.
Thereafter, parties may appeal on points of law alone to the court of cassation, which is usually composed of five judges. All decisions of the court of cassation are final and are not subject to appeal.
2.2. Required documents
Litigation in the Middle East tends to be almost completely document-focused. There is little oral advocacy, and it is vital that a case can be proved on paper. In order to substantiate any claim, each stage of the contract must be evidenced (i.e. with purchase orders, sales confirmations, packing lists, bills of lading, delivery notes, invoices, sales contracts and correspondence).
In addition, documents must be original, as copies carry far less weight with the court and, if denied by the defendant, can be ignored by the court.
Any document submitted to the court will need to be translated into Arabic by a court-approved translator, for which there will be translation costs. Those costs are generally not recoverable in the proceedings.
2.3. Debt Collection Lawsuit in UAE
In order to commence legal action in the UAE, a claim will have to be filed at the relevant court (i.e. the court that has the jurisdiction to hear the dispute).
The claim needs to set out the basis of the dispute and the remedies sought. A court fee will also need to be paid, which is between 7.5% to 10% of the value of the claim, varying from emirate to emirate and being capped at a maximum of AED 40,000.
All documents filed at court and the claim itself will need to be in Arabic or translated into Arabic by an official translator. The court bailiff’s office will then serve the claim on the debtor and the first hearing date will be set.
2.4. Debt Collection Costs in UAE
The legal costs depend on many factors; therefore, it is not feasible to give an estimate of legal costs without examining the facts of each case individually.
It is important to consider that legal costs in the UAE represent a relevant percentage of the debt.
A cost estimation will be provided case by case should legal action becomes necessary.
2.5. Expected time frame
The average duration of legal action before the court of first instance is between 12 and 16 months, depending on the complexity of the case and the availability of the judge and the lawyers on both sides.
2.6. Interest and costs in the legal phase
The court awards interest and costs to the party in whose favour the court passes the final judgment.
However, the amounts awarded are generally fairly nominal, covering only court fees, experts’ fees and a nominal fee for advocacy.
3. Insolvency Proceedings UAE
3.1. General information
The UAE’s federal laws provide a framework for the reorganisation, liquidation and bankruptcy of insolvent companies and individuals. The UAE bankruptcy regime is set out in Book Five of the Commercial Transaction Law (Federal Law No. 18 of 1993).
The UAE government have issued Federal Decree Law No. 9 of 2016 on Bankruptcy (the New Law). The New Law was published in the Official Gazette with the publication date of 29th September 2016 and came into force on 29th December 2016.
The creditors of a company acting on their own initiative may seek a declaration of bankruptcy in respect of the company. In order for a creditor’s petition to succeed, the court must be satisfied that the company has ceased to pay their debts as a result of financial difficulties.
After a bankruptcy application is submitted, the court must take steps to preserve the company’s assets.
The court will conduct investigations into the financial affairs of the company and the reasons behind their failure to pay the debts.
After concluding their investigations and resolving any preliminary disputes, the court will fix a date of bankruptcy hearing. The court will order that all creditors must notify the court of any debts prior to the hearing.
At the hearing, the court may declare the company bankrupt and it may appoint a trustee to assume control of the company’s assets for distribution amongst their approved creditors.
Creditors are prohibited from pursuing claims against the company after the declaration of bankruptcy, with the exception of secured creditors who may be permitted to enforce their security interests, notwithstanding a declaration of bankruptcy.
3.3. Required documents
While initiating a bankruptcy proceeding, the following original documents are required: invoices, contracts, purchase orders, bills of lading and a statement of account, plus a power of attorney in favour of the lawyer.
Further, all correspondence exchanged between the debtor and the creditor through email or letter is to be filed.
It is important to note that the documents are to be translated into Arabic before they can be filed before the court.
3.4. Expected time frame and outcome
The average duration of bankruptcy proceedings is between two and three years and varies on a case-by-case basis.
Key changes under the New Bankruptcy Law Repeal of current regime – Chapter V of the Commercial Code, which sets out the UAE’s current insolvency regime, will be expressly repealed, together with various bankruptcy-related crimes set out in the Penal Code.
- The New Law applies more widely than the current Commercial Code provisions, covering companies governed by the UAE’s Commercial Companies Law (CCL), most free-zone companies, sole establishments and civil companies conducting professional business, not just commercial traders. Government-owned companies not established under the CCL, for example, companies formed by the Emiri decree, may opt in to the provisions of the New Law by express provision in their constitutional documents.
There are still some carve-outs, in particular for companies in the financial free zones (DIFC and ADGM), which have their own insolvency provisions.
In contrast to the 2011 Draft, there are no provisions addressing individuals acting in a private capacity.
- A Financial Restructuring Committee is to be formed a by cabinet resolution under the authority of the Ministry of Finance. The committee will maintain an approved list of insolvency experts and a register of insolvencies.
New insolvency test
- The Commercial Code provisions apply to businesses that cannot pay their debts (essentially, a cash flow test). The New Law introduces an alternative balance sheet test to assess if the assets of a business are insufficient to cover their liabilities.
Processes and procedures
- The New Law sets out three main procedures for a business in financial difficulty:
1. Protective composition
- This is a debtor-led, courtsponsored process, designed to facilitate the rescue of a business that is in financial difficulty but not yet insolvent. The scheme requires the approval of both a majority in number and two-thirds by value of the unsecured creditors.
The scheme must be implemented within three years since court approval, which may be extended for another three years with creditor approval.
2. Insolvency with reorganisation
– When a debtor is insolvent but the court determines that the business is capable of rescue, they may approve a reorganisation scheme. Such a scheme is similar to the protective composition described above, requiring the same levels of creditor approval, but a longer period of five years (extendable by another three years) is allowed for implementation.
3. Insolvency and liquidation
– When a protective composition or reorganisation scheme is not appropriate or approved or is terminated, or the debtor is acting in bad faith to evade their financial obligations, the court will order the insolvent winding up of the business.
In each case, a trustee, who must be independent of the debtor, is appointed to manage the process. The New Law includes strict time limits for making filings and lodging objections, and it is expressly provided that the relevant process continues while the court considers any objections.
This is important, as time-consuming proceedings may otherwise prove to be a practical obstacle to using the procedures under the New Law.
Although the drafting is more modern and streamlined, the procedures under the New Law are not substantially different from those currently available under the Commercial Code.
In particular, unlike the 2011 Draft, the New Law does not include provisions for an out-of-court financial restructuring procedure. It is possible that this may be addressed by the Financial Restructuring Committee in the future.
Removal of offence of bankruptcy by default
– Under the current regime, a trader who is unable to pay their debts must apply to be declared bankrupt within 30 days. Failure to do so constitutes the criminal offence of bankruptcy by default and may result in fines and potential imprisonment. Although not actively prosecuted, the risk of imprisonment may encourage a business owner in financial difficulty to abscond (or even expedite bankruptcy) rather than attempt to restructure the business.
One of the key changes under the New Law is to decriminalise this behaviour. A debtor who fails to pay due debts for over 30 business days, or who is insolvent on a balance sheet basis, is required to initiate insolvency procedures.
Failure to do so may result in a disqualification order against the debtor in certain circumstances but it is not a criminal offence.
– Potential criminal liability for signing a bounced cheque applies in respect of non-UAE nationals under the Penal Code. This feature of UAE law is often cited as another key reason why so many traders in financial difficulty flee the country. The New Law provides for proceedings in respect of bounced cheques issued by the debtor to be stayed once a protective composition or reorganisation scheme has been initiated, provided that the cheque in question was written prior to the application.
The stay continues until the relevant procedure is completed and the holder of the cheque is treated in the same way as the debtor’s other creditors, with settlement in accordance with the scheme discharging the debt and potentially rectifying the criminal breach.
This is a particularly helpful change, which is likely to encourage debtors to take proactive steps to address their financial difficulties.
– Under the Commercial Code, any creditor regardless of amount may apply to have a trader declared bankrupt.
The New Law introduces some specific new requirements in this regard. Before filing insolvency proceedings against the debtor, a creditor or group of creditors must now hold debt(s) of at least AED 100,000 and must first notify the debtor in writing to discharge the debt(s), allowing 30 consecutive business days for repayment.
– Provisions are included allowing priority to new finance following the commencement of a protective composition or reorganisation scheme, with safeguards for existing secured creditors.