Ross Barfoot, Partner and Dr Katharina Schaub, Counsel, of Dentons UAE, discuss how Cabinet Decision No. 94/2026, and how this will affect director duties going forward in an Emergency Financial Crisis.
Background
Cabinet Decision No. 94/2026 On the Implementation of the Provisions of Title Five of the Financial Restructuring and Bankruptcy Law has been issued. It applies to preventive settlement procedures, financial reorganisation or bankruptcy where the debtor's business has been affected by the Iranian hostilities occurring in the country in respect of bankruptcy applications submitted from 28 February 2026.
What is the specific law provision in the legislation that covers the Emergency Financial Crisis (EFC)?
“Part Five of the UAE Bankruptcy Law, Federal Decree-Law No. 51/2023, covers the rules applicable during an Emergency Financial Crisis (EFC,) which is dealt with in Article 251-257 of Federal-Decree Law No. 51/2023,” states Ross Barfoot of Dentons.
What does it mean in practice on director’s duties?
“Directors profit from certain benefits and protections during an EFC period, which include the possibility to initiate preventive settlement or bankruptcy proceedings without involving a trustee and to negotiate a settlement with the creditors that allows for cramdowns,” states Dr Katharina Schaub of Dentons.
“Directors may pay unpaid salaries of employees without worrying about preference issues and liabilities related to this. The Declaration generally reduces the risk that directors will be criticised for continuing to trade during an EFC, provided they act responsibly and in good faith,” adds Barfoot.
“However, directors still have to act in line with the company’s MoA and other applicable legislation if they want to avoid civil or criminal liability. The temporary applicable rules do not protect them from liability for breaches of fiduciary or statutory duties, fraud, intentional misconduct, gross negligence, misuse, dissipation of company assets or transactions entered into in bad faith,” continues Schaub.
Which sort of directors might be impacted and how?
“The temporary rules apply to the management of debtors that are subject to the UAE Bankruptcy Law, Federal Decree-Law No. 51/2023, namely companies established under the UAE Commercial Companies Law, Federal Decree-Law No. 32/2021, traders and licensed civil companies of professional nature. Hence, the provisions might, among others, impact managers of LLCs, members of the board of directors of PJSCs, directors or managers of private joint stock companies, traders and de facto or shadow managers,” states Barfoot.
What should they be doing now?
“Directors should still: continuously monitor the company's financial position; maintain complete and accurate accounting records; seek professional financial or legal advice where appropriate; treat creditors equally; and document key decisions and their rationale to demonstrate that decisions were informed and made in good faith,” states Schaub. “They might also want to consider restructuring options to make use of the temporary debtor-friendly regime and especially the possibilities outlined under the certain benefits and protections during the period of an EFC”.
Does the law work in a similar way in other GCC states?
“No, to our knowledge, no other GCC country has an emergency regime embedded in their legislation framework that can be activated by a Cabinet decision. They would instead need to introduced temporary relief through separate legislation or executive measures,” states Barfoot.
Has this sort of declaration been made in any other GCC jurisdiction?
“No, to our knowledge, the UAE appears to be the only GCC jurisdiction to implement a temporary special insolvency regime following the Iran-Israel conflict. Other GCC states have generally relied on economic support measures, central bank interventions or sector-specific regulatory relief,” states Schaub.
Are there any other significant impacts of this status being declared in the UAE?
"Yes, during the period of a declared EFC, certain "special" features apply. Creditors are temporarily prevented from initiating bankruptcy proceedings and debtors are not required to file for bankruptcy,” states Barfoot.
“If a debtor decides to file an application to initiate bankruptcy proceedings, the court may accept such application without appointing a trustee (if the debtor can prove that its financial distress is a result of the Iranian hostilities). The Bankruptcy Court shall not take any precautionary measures on any of the debtor's assets necessary for the continuation of its business.”
“If the court admits the debtor's bankruptcy application, the debtor may ask the court to grant it a 40 business days period to negotiate a settlement with its creditors. If creditors representing 2/3 of the value of the debt, who got involved in the negotiations with the debtor, vote in favour, the agreement is binding on all creditors (cram-down); and the court can approve new (priority) financing on a secured or unsecured basis.”