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Legal view: Laws on bankruptcy

Answer: The UAE Commercial Transactions Law (Fed. Law No. 18 of 1993) covers procedures for bankruptcy of individuals and insolvency of commercial entities. The statute does not define bankruptcy, but what can be inferred from Article 645 of the Commercial Transactions Law are that "a trader who ceases to pay his debts can apply to the Court for his adjudication (declaration) as bankrupt". A trader is defined as "an individual or company that carried out commercial activities" (Article 4). Thus if your debtors fall within the category of traders, you can initiate proceedings to declare them as bankrupt, if you wish.

Before you consider an action for declaring a trader bankrupt, the following conditions must exist, namely

(1) The trader is "unable to settle" his commercial liabilities on the dates they are due, by virtue of his financial instability,
(2) If proof is available that the trader is depending on illegal options to settle his debts, then such trader shall be considered as "unable to settle his commercial debts."

The action can be brought before the Court within whose jurisdiction the trader carried on business, or where the trader is ordinarily resident. The law also states that the Court having jurisdiction over the principal place (registered office) of business or where the trader has ceased paying his debts can exercise jurisdiction and entertain such actions.

A trader (unable to settle his commercial debts) can apply to a competent Court for a declaration of bankruptcy.

This declaration of bankruptcy or rather the application is obligatory after the expiry of 30 days, from the date when he ceased paying his debts. If despite the expiry of 30 days, as above, he has not applied for such a declaration he is deemed to have committed an act of bankruptcy by default, which is also a criminal offence under the UAE Penal Code.

The UAE Penal Code refers to certain situations when a trader will be charged for committing bankruptcy offences that amounts to a culpable and triable offence, namely

(i) Concealment, falsification, mutilation or destruction of books (shredding documents)
(ii) False entries in the books for creating evidence of non-existent debts.
(iii) Expenditure by trader for gambling, speculation.
(iv) Preferred settlement of debts to deprive or delay payment to other creditors.
(v) Inability to make full disclosure statement of the affairs of the business, and the circumstances that led to the stoppage of payments.

The Court may, at any time during the pendency of bankruptcy proceedings, take into account the above situations, and refer the matter to the Public Prosecution for action against the bankrupt.

Please note in addition to the creditors, the public prosecutor and the Court on its own initiative can invoke bankruptcy proceedings against a defaulting trader.

If your list of debtors includes any foreign entities then your action can be initiated, only if the foreign entity has a branch, local agency, or any other representative establishment in UAE.

It is advisable to seek professional assistance for detailed advice on this subject.

Shareholder's visa

Mr Anwar Abdulla, Dubai: Ours is a general trading company (LLC). One of the expatriate partners was outside UAE for more than six months, and his visa is not valid. Please advise on the cancellation formalities, whether he can enter the UAE on a transit visa and whether he can apply for a new resident visa?

Answer: Since the residence visa is currently not valid due to absence of the resident for more than six months, you need to arrange for cancellation of the visa at the Dubai Naturalisation and Residency Department (DNRD).

The name of the expatriate appearing on the Trade License indicates his shareholding in the Company as shareholder/ partner. This is proof of the investor's interest in the Company and the cancellation of the visa does not have any bearing on his shareholding. His entitlements are governed by the Memorandum of Association.

Share transfer

Mr X, Dubai: My son, who died in a car accident in USA, was the holder of 24 per cent shares in a LLC in Dubai. I have obtained the death certificate duly legalised from the US. He was a bachelor and died without any will. I would like his 24 per cent shares to be transferred either to me or to my wife and regularise the transfer. What are the procedures?

Answer: The death certificate issued from the US should be authenticated (consularised) up to the UAE consulate in USA. Further, you will need to have a legal succession (heirship) certificate from the UAE courts, indicating who the legal heirs of the deceased are, according to the personal law of the deceased.

This certificate also needs to be legalised and consularised up to the UAE Consulate in the country of issuance or any consulate of a AGCC country, in the absence of a UAE consulate.

At this stage, you will be legally eligible to speak on behalf of the deceased. Then you have to arrive at an agreement with the current partners (shareholders) either to sell the shares to them or have them registered in the names of the heirs under an addendum to the company's Memorandum of Association.

The heirs have to take the actions together or authorise one of them to stand on their behalf. This can be done under a duly authenticated Power of Attorney to be issued before the Dubai Court's Public Notary.

With these documents you need to approach the Dubai Court for an order that would effectively sell the shares or transfer them to the name(s) of the legal heirs. It would be advisable to seek professional assistance in this regard.

Notice period

Mr R. Ali, Dubai: I have a four-year limited period contract with a financial services company. Now after completion of two years, I intend to resign. Please advise on the notice period, whether the employer can levy any penalties, how long can I retain the company accommodation, and since the furnishing allowance provided by the company is for a period of 48 months (contract period) do I have any right over the furniture?

Answer: Subject to the Employment Contract, you can serve a 30-day notice period on your employer. Since you intend to leave the service, before completing five years of continuous service you will forfeit all your entitlements; as it is stipulated under the provisions of Article 137 of the UAE Federal Labour Law No. 8 of 1980. If the employee bound by a limited-period contract leaves work of his own accord before the expiry of the contract period, he shall not be entitled to the end-of-service payment (gratuity) unless his continuous period of service exceeds five years.

The company accommodation has to be surrendered within 30 days of the cancellation of the visa, but in your case, it would be advisable to surrender the accommodation not later than the last day of employment (end of notice period). The furniture is provided by the employer for your user and you have no right of ownership over the furniture. You need to surrender the furniture to the employer.

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