Comparative Gulf Bankruptcy Guide What You Need to Know about the UAE, Saudi Arabia, and Bahrain

Since the United Arab Emirates (UAE) was the first Gulf state to introduce a comprehensive bankruptcy framework in 2016 (UAE 2016 Bankruptcy Law), other major regional jurisdictions have enacted their own, including in 2018 (i) the Kingdom of Saudi Arabia (KSA) (KSA Bankruptcy Law) and (ii) the Kingdom of Bahrain (Bahrain) (Bahrain Bankruptcy Law). Further, in May 2024, the UAE updated its 2016 bankruptcy framework (UAE 2024 Bankruptcy Law). These new laws, as well as some others we see in the Gulf Cooperation Council (GCC) region, reflect a desire by these states to modernize their bankruptcy frameworks as well as their realization that a workable and functionable insolvency/bankruptcy framework will improve their general commercial environment.

The UAE, KSA, and Bahrain have, to some degree, adopted best practices from England and the U.S. as well as sought to innovate (e.g., it is possible in the UAE for debtors to “cram down” creditors even if not one single creditor has approved of the restructuring plan). Via the buttons at the bottom of this page, it is possible to compare the frameworks from the (a) UAE, KSA, or Bahrain against (b) (i) an English Scheme of Arrangement, (ii) English Restructuring Plan, and (iii) U.S. Chapter 11.

UAE
While maintaining much of the UAE 2016 Bankruptcy Law’s structure, the UAE 2024 Bankruptcy Law replaced the “Preventive Composition” process, which had proven difficult to implement (as detailed below), with the more user-friendly “Preventive Settlement Process.” Further, the UAE 2024 Bankruptcy Law allows for the potential of a “company cram-down” and introduced specialised bankruptcy courts, which intend to streamline restructuring processes and provide predictability.

Note that as with the previous law, the UAE 2024 Bankruptcy Law does not apply to the UAE’s “free zones” (which have their own insolvency regimes¹).

Since its introduction, three significant transactions (each under the “Restructuring” process, as described below) under the UAE’s onshore bankruptcy law include (i) Emirates Hospital Group’s US$950 million restructuring in November 2024, (ii) JBF Group’s US$1 billion restructuring in October 2024 (thought to be the first debt-for-equity completed under the UAE’s onshore bankruptcy laws), and (iii) Drake & Scull’s US$1.1 billion restructuring in June 2024.

There are three processes under the UAE 2024 Bankruptcy Law:

1) Preventive Settlement
Under court supervision, a debtor prepares a proposal to be approved by two-thirds in value of those creditors present at the meeting (provided that creditors holding over at least 50% of the company’s debts subject to the settlement are in attendance).

Unlike the “Preventive Composition” process under the UAE 2016 Bankruptcy Law, the Preventive Settlement process does not automatically impose the appointment of a trustee in respect of the relevant debtor or require them to file for commencement of the process within a certain time period. Under Preventive Composition, a debtor was required to file within 30 days of ceasing to make payments, and if no application for Preventive Composition had been made within 30 days, the debtor was required to file for Bankruptcy/Liquidation.

2) Restructuring
Similar to Preventive Settlement (described above) except that (a) there is a moratorium valid until the plan is ratified (or the proceeding is terminated), (b) a court-appointed trustee supervises management in the running of the company, the restructuring process, and its implementation, and (c) the court can ratify a plan that has been rejected by the creditors provided that the creditors are not worse off regarding their rights than they would be in the event of a bankruptcy.

3) Bankruptcy/Liquidation
A court-appointed trustee takes control of the management of the business and its eventual liquidation.

KSA
The KSA Bankruptcy Law, adopted in 2018, is part of the KSA’s efforts to create a more commercially friendly environment and provide distressed corporations an opportunity to reorganize and rescue their business(es).

Three significant restructurings in the KSA (each under the “Financial Restructuring” process, as described below) include (i) Azmeel Contracting’s c.US$2 billion restructuring in 2023, (ii) Arkad Engineering & Construction’s c.US$800 million restructuring in 2023, and (iii) Ahmad Hamad Algosaibi & Brothers’ US$7.5 billion restructuring in 2021.

Under the KSA Bankruptcy Law, there are three processes:

1) Protective Settlement
Debtor prepares a settlement proposal to be approved by each category of creditors representing two-thirds of the value of the debts voting in that category, and an overall majority of one-half of the value of total debts owed to unrelated parties. If approved by each creditor category, the settlement proposal will be given to court for ratification.

2) Financial Restructuring
Following a request from the debtor, a competent authority, or a creditor, the court will appoint an “Officeholder²” who will supervise management and assist in preparing the proposal for Financial Restructuring.

3) Liquidation
Officeholder aims to account for creditors’ claims via the sale of bankruptcy assets and the distribution of the sale proceeds. Officeholder sells the debtor’s assets, and proceeds of the sale are paid to creditors (in accordance with the ranking of the creditors).

Bahrain
The Bahrain Bankruptcy Law, adopted in 2018, aims to incorporate best practice from other jurisdictions, in particular the U.S.’ Chapter 11 process.

Gulf Aluminium Rolling Mill’s restructuring (under the “Reorganization Plan” process, as described below) in 2023 was a significant restructuring under the Bahrain Bankruptcy Law.

Under the Bahrain Bankruptcy Law, there are two processes:

1) Reorganization Plan
Under the supervision of a “Bankruptcy Trustee” (who will owe a fiduciary duty to act in the best interests of the estate), a debtor and its creditors are to engage in an effort to agree a Reorganization Plan.

2) Liquidation
Court-appointed liquidator responsible for selling debtor’s assets, with the proceeds applied under a statutory order of priority outlined in the Bahrain Bankruptcy Law.

Comparison of (a) UAE, KSA, or Bahrain bankruptcy processes, and (b) (i) an English Scheme of Arrangement, (ii) English Restructuring Plan, and (iii) U.S. Chapter 11

Use the buttons below to select a table which compares the UAE, KSA, or Bahrain bankruptcy processes, and (a) an English Scheme of Arrangement, (b) English Restructuring Plan, and (c) U.S. Chapter 11.

Key takeaways

• The bankruptcy frameworks in the UAE, KSA, and Bahrain are still relatively early in their enactment, and notwithstanding recent successful precedents, it is too early to assess the success of these regimes.

• The success of these new frameworks will depend on how the judiciaries in each jurisdiction choose to apply and implement the new rules (including some that are novel in comparison to other, established jurisdictions) and will require the support of key players and skilled practitioners across the region.

¹ Although the UAE has over 40 free-zone areas, the most prominent are the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Markets (ADGM). The ADGM and DIFC regimes are both modeled on English common law, with the ADGM expressly incorporating English common law and also borrowing from Australia and the U.S.

² The role of Officeholder includes (among other things) (i) enabling bankruptcy procedures, and (ii) maximizing the value of the bankrupt debtor’s assets. Officeholders are regulated by the KSA Bankruptcy Commission, appointed by the court, and must hold the relevant qualifications and experience.

³ Bankruptcy filing can be presented by debtor or creditor.

⁴ UAE 2024 Bankruptcy Law provides for one class of creditors for voting purposes to comprise “privileged creditors” (e.g., amounts due to the UAE government), unsecured creditors (including unsecured portion of a secured debt), and secured creditors if authorized by the court (e.g., if the rights of those secured creditors are affected by the plan).

⁵ It is yet to be seen how the UAE courts will deal with a Restructuring that does not also have shareholder approval.

⁶ A category of creditors is deemed to have approved the settlement proposal if creditors whose claims represent at least two-thirds of the total value of the claims of creditors voting in all categories, including creditors whose claims represent more than half of the nonrelated party’s debt (if any).

⁷ Dissenting secured creditors can be bound to a restructuring subject to certain safeguards — e.g., the replacement security offered under the restructuring is of equivalent value (i.e., they are no worse off under the terms of the restructuring than they would be in a liquidation).

⁸ However, under the UAE 2024 Bankruptcy Law, the court is able to ratify a restructuring plan even where not a single creditor has approved the proposal and thus allowing for the possibility of a company to “cram down” its creditors. This power is subject to safeguards; for example, a creditor can be no worse off under the restructuring than they would be in a liquidation.

⁹ No secured or unsecured financing may be obtained during an Administrative Liquidation (which is a type of Liquidation under the KSA Bankruptcy Law).

¹⁰ Moratorium can be extended at the Reorganization Trustee’s request, provided consent is obtained from the secured creditors or the court deems the extension as essential to maximizing the estate’s value.

¹¹ UNCITRAL Model Law attempts to encouraging cooperation and coordination between jurisdictions.