• While the payment behavior of large domestic companies is generally good, dealing with small- and medium-sized businesses may represent a significant risk of non-payment. Since insolvent debtors may be sentenced to a prison term, their tendency to disappear when things go wrong is significant.
  • The legal framework is complex and the courts tend to lack independence and reliability, while procedural delays and costs may be prohibitive.
  • Insolvency law does not provide much support when it comes to debt recovery: A debt-renegotiation mechanism has been put in place but in practice it remains largely untested, allowing liquidation to prevail and leaving no chance of recovery for the creditors.

  • Notable

  • High

  • Very high

  • Severe

  • Payments

  • Court proceedings

  • Insolvency proceedings

  • Payments

  • Court proceedings

  • Insolvency proceedings

In general, access to reliable financial information is a challenge that is faced across the GCC (Gulf Corporation Council) region as a whole and obtaining such data in the UAE is very difficult as there is no legal requirement for companies to publish financials. An exception to this would be for publicly listed companies.

As a result, financial information on potential business partners is not readily available from independent sources, while documents provided by unofficial sources may not be completely reliable.

Allianz Trade collects financial information mainly through direct calls and buyer visits conducted by credit analysts, and allocates each company a grade reflecting its financial health and how it conducts business. Grades represent a core of our knowledge and analyses, and help clients identify and avoid risk. Data is continuously monitored to offer the most up-to-date information to support management decisions.

Liability for business debts is determined by legal structures, which are described as follows:

  • Sole Proprietorship is available for small businesses managed by an individual. However, given that the proprietorship is not a corporate entity with limited liability, the owner is liable for all business debts.
  • Different types of partnerships are also available. A General Partnership is formed by two or more partners who will be jointly liable to the extent of all the assets of the partnership. Each partner shall be considered a merchant and the partnership’s bankruptcy shall mean the bankruptcy of all partners. A Limited Partnership rather consists of one or more general partners jointly liable to the full extent of their assets for the partnership’s debts, and one or more limited partners whose responsibility for the partnership’s liabilities does not exceed the value of his share in the capital.
  • There are several types of companies in the UAE. Limited Liability Companies (LLC) are the most common corporate vehicle used by foreign companies doing business in the UAE. A company must have a capital that is sufficient to achieve its purpose and shall be fixed by the partner. Before 2020, at least 51% of the shares of an LLC incorporated in the UAE had to be held by a UAE national or a company 100% owned by UAE nationals (or nationals of the countries of the GCC i.e. UAE, Saudi Arabia, Bahrain, Kuwait, Qatar, Oman). Since 2020, the foreign shareholders could own up to 100% shares unless a special exemption applies to restrict them. Liability is limited to the shareholders’ contribution to the LLC.
  • A Public Joint Stock Company is a company with a capital consisting of transferable shares of equal value. Each partner is only liable to the extent of his share in the capital. The company’s capital must be sufficient to carry out the objectives for which the company has been established but such capital cannot be less than AED 10 million (approx. EUR 2,3M). A Private Joint Stock Company is a company which does not offer its share for public subscription, but its capital cannot be less than AED 2 million (approx. EUR 500,000).
  • Foreign companies may also set up Branches in the UAE, although these have no separate corporate entity and their liability is not limited to their assets, meaning that recourse can be extended to assets of the parent company. Finally, Joint Ventures may be set up through a contract by two or more partners willing to share the profits or losses incurred from one or more commercial enterprise undertaken by one of the partners in their own name. Third parties can only make claims against the partner with whom they conduct business.


The UAE has a legal system based on Civil Law and Sharīah Law. It is a federation of seven Emirates sharing a common federal judicial system (with the exception of Dubai and Ras Al Kaimah). The judiciary is organized through courts of general jurisdiction, Appeal Courts and Cassation Courts. There are no specialist courts, which mean that all commercial disputes are heard by non-specialized judges.


In addition, it is necessary to distinguish local courts competent for all civil matters raised by companies registered in the UAE, from Freezones’ Authorities (such as the Dubai International Financial Center) which apply different (Common Law based) rules and are competent for cases filed by companies registered in these Freezones only.


Payment terms in the UAE have long been 30 days, though they increasingly tend to extend up to 60 days. The average DSO for listed companies is 62 days and varies greatly from one sector to another. Large oil & gas, construction or service entities, in particular, are likely to stretch their payment terms but would normally pay their dues. Smaller businesses (e.g. general trading) are likely to default on their debt, leaving their creditors without recourse, since there is no efficient administration, insolvency or bankruptcy law in the UAE. In addition, most companies registered in the UAE are de facto ruled by foreigners who would tend to disappear when problems arise (sponsors are rarely involved in the business’ administration and are not liable for the debts).

As per Article 76 of the UAE Code of Commercial Practice, “A creditor shall be entitled to charge interest on a commercial loan according to the rate provided in the contract. If the rate of interest is not specified in the contract, it shall be reckoned according to the market rate prevailing at the time of the transaction, but in this case shall not exceed 12% until payment is made.”
Collection costs are not charged to the debtor.

Insolvency Law in the UAE recognizes the validity of Retention of Title agreements aiming at preserving the seller’s ownership over goods until the related invoice has been paid in full by the debtor. In certain circumstances, in addition, the law also recognizes the possibility of maintaining ownership despite the sale of the goods by the debtor to a third party (Articles 118 to 119 of the Commercial Code).

In practice, however, enforcing such clauses remains extremely difficult and, by the time proceedings have taken place (if any), there is no guarantee that the goods will still be there once time comes for repossession.

The most common payment methods are as follows:

Bank transfers are among the most popular payment means for international transactions as they are fast, secured, and supported by an increasingly developed banking network internationally and domestically. Export transactions are usually guaranteed through an Export Credit Insurance policy, which helps minimize the risk of sudden or unexpected customer insolvency. Allianz Trade’ worldwide network of risk offices monitors the financial well-being of customers and grants them a specific credit limit up to which clients may trade and claim should something go wrong. Alternatively, Standby Letters of Credit (a bank guarantees the debtor’s credit quality and repayment abilities) are often used in relation to export shipment transactions because they constitute reliable guarantees which can be triggered as a ‘payment of last resort’ if the client fails to fulfil a contractual commitment. Also, irrevocable and confirmed Documentary Letters of Credit (a debtor guarantees that a certain amount of money is made available to a beneficiary through a bank once certain terms, specifically agreed by the parties, have been met) are increasingly relied upon.

Local bank guarantees are available but the process can take up to one week.

Checks are commonly used as payment instruments since they constitute reliable debt recognition titles which, if left unpaid, may be enforced directly with the court especially under the payment order application which allow creditors to fast track the court process. In addition, with effect from 2 January 2022, the UAE has amended its Commercial Transactions Law (Federal Law No. 18 of 1993). With the changes, the bank is obliged to make partial payment up to the amount available in the drawer’s account. Moreover, the bounced cheque is now an executive instrument which means that the litigation process is accelerated. Instead of starting substantive civil proceedings, you can directly file an execution case for an executive order, which may include seizing the assets of the drawer. A noteworthy trend is the usage of Post-Dated Checks, which are thus used as a guarantee for payment.

Despite that  the possibility of bouncing checks is still high in the region and the criminal proceedings can no longer be used as the main route to recoup the value of a bounced cheque, the new provisions are expected to provide a quicker alternative in the overall recovery process.

Letters of Credit, although decreasing in popularity, are still an attractive means of payment for businesses because they are a source of short-term financing by means of discounting or transfer. In particular, they are appropriate for payments in instalments.

Payment in advance and down payments are frequent.


Despite obvious improvements over the past few years and a clear intention to speed up business-related queries, the judiciary of the UAE has significant margin for improvement. Although the principle of the independence of the judiciary and the rule of law being recognized in the Constitution of 1971, domestic courts lack reliability and independence in practice, so obtaining favorable court decisions remains an uncertain exercise. In fact, it is often not advisable to commence legal action before domestic courts, unless the claim is significant and the chances to succeed are good. As a result, amicable settlement opportunities should always be considered as a serious alternative to formal legal proceedings.


Before starting legal proceedings against a debtor, assessment of assets is important as it allows verification as to whether the company is still active and whether recovery chances are at best. In addition, it is essential to be aware of the debtor’s solvency status: if insolvency proceedings have been initiated, it indeed becomes impossible to enforce a debt.

An expedited form of obtaining judgment for payment of money in a straightforward, confirmed and undisputed, debts. To qualify for Payment Order claim, the creditor must be able to establish the debts by submitting debt instruments, for example, contractual documents, written debts confirmation, cheques, etc, and evidence of payment demand. If the payment order is granted, the creditor must notify the debtor within three months, in case the payment order is denied, the creditor has an option to pursue Ordinary proceedings.

Legal dunning ought to start with a registered Demand Letter recalling the debtor of their obligation to pay the principal together with late payment interest.

Often, business disputes may be settled before a Reconciliation and Settlement Committee (in Dubai, every dispute below AED 50,000, i.e. approx. EUR 11,500, must be brought before the Centre for Amicable Settlement of Disputes).

If the amicable negotiation phase fails, the Civil Procedure Code considers a summary judgment procedure, provided that the debt is for a specific or liquidated sum and that it is certain and undisputed (i.e. confirmed in writing through a commercial document). In this case, the debtor is served and must pay (or bring a defense) within 15 days. If a defense is filed, the dispute must be resolved through an ordinary lawsuit before the court of first instance.

Ordinary legal action should be avoided, but if undertaken, proceedings would usually commence when amicable collection has failed. The creditor would file a plaint with the court, which would then serve summons to the debtor. The latter would be required to file a response and written arguments would then be exchanged by the parties: all court proceedings in the UAE are in writing, there is virtually no oral hearing in civil cases. Of course, all proceedings are conducted in Arabic and all documents must be translated.

The courts would normally issue remedies in the form of specific performances and compensatory damages, but injunctive relief is generally unavailable in the UAE while attachment orders are difficult to obtain; there must be a prima facie case against the defendant and a real risk that the requesting party may not be able to enforce the judgment. In practice, it is difficult to obtain such an attachment against the assets of a UAE national or a UAE company as it is difficult to establish the risk of dissipation of such assets. Only in rare cases would a litigant be able to recover consequential losses and/or punitive damages in the UAE.


A Power of Attorney authorizing a lawyer to act on behalf of the client must be duly notarized. If notarized in the UAE, it must be bilingual and therefore drafted in English and Arabic. If originated outside the UAE, it must be notarized by a competent authority in the customer’s home country and later legalized and authenticated by the UAE Embassy and the Ministry of Foreign Affairs in the UAE. This document must be forwarded to the lawyer before or at the time of filing the case.

Furthermore, all evidentiary and supporting documents must be translated in Arabic by a certified legal translator and submitted with the originals.

In Civil Law matters, Article 473 Civil Code sets the standard timeframe at 15 years. However, in many cases the applicable timeframe will be a lot shorter. For instance, contract breaches would need to be brought within 15 years, while bounced checks would need to be brought within one to three years.
There is no concept of interim or injunctive relief available from the UAE courts for an attachment of assets but, assuming that a case has been filed with the court, the judge can grant a provisional attachment of assets if there is a risk that the defendant will not make payment or a risk of dissipation of assets. In practice, however, these proceedings are rarely awarded and the claimant would be required to demonstrate that the claim has a good chance to succeed and that damages alone would not suffice in the absence of precautionary measures. In emergency situations, the court may make its decision ex parte (i.e. without the debtor being present) on a same-day basis, but the court would usually request that the claimant provides security on costs in order to protect the respondent from irresponsible action.

Decisions rendered in first instance by civil courts may be brought to the Court of Appeal within 30 days, where the decision will be reviewed considering questions of both fact and law.

The Court of Appeal may either confirm or reverse the judgment of the Court of First Instance and substitute the judgment with its own determination of the matter. In some instances, the Court of Appeal may refer the matter back to the Court of First Instance.

Except in Ras Al Kaimah, the decision rendered in second instance may be appealed to the Court of Cassation, which only reviews legal issues (improper interpretation of the law, failure to state reasons, failure to abide by procedural requirements, etc). It is not until several weeks and sometimes months later that the oral hearing will be scheduled, however appeal proceedings before the Court of Cassation do not normally prevent the enforcement or execution of the judgment delivered by the Court of Appeal.

A judgment is enforceable as soon as it becomes final (i.e. when all appeal venues have been exhausted). If the debtor fails to satisfy the judgment within 15 days, and as long as the debtor’s assets may be located, it is possible to obtain an attachment order from the Execution Court and, in extreme circumstances, imprisonment of the debtor.

The execution procedure may seem straightforward but it can become time consuming and complicated depending upon the existence of the assets of the debtor.

Due to the lack of specific regulatory framework, arbitral awards may prove difficult to enforce.

Obtaining a decision in first instance could take between nine months and two years, depending on the complexity of the case. In addition, it is frequent for a defendant to file for appeal proceedings in order to delay enforcement. Enforcement may then be difficult, especially if the debtor has taken the ‘escape’ route, as previously explained.
As a general rule, the successful party may only expect to receive compensation for part of its legal costs (AED 2,000, approx. EUR 500 on average), but court fees (4% to 7.5% of the claim, capped at AED 40,000, i.e. approx. EUR 10,000) may be fully recovered. Court fees would vary depending on the resolution requested and on the court where the resolution is being sought.
Arbitration constitutes an increasingly popular Alternative Dispute Resolution method, even though reaching an acceptable compromise may be culturally challenging. Having said this, the practice lacks a definite legal framework. Enforcing awards may also prove difficult.
It must be emphasized that, although the law allows business partners to solve their disputes in a foreign forum (i.e. under a foreign law or before a foreign court), courts in the UAE are reluctant to apply foreign law and would typically ignore foreign jurisdiction provisions if they find themselves competent to deal with a dispute. In addition, even though domestic courts might agree to apply foreign law, they might interpret it without taking into account the case law applied in the jurisdiction of origin. Finally, UAE courts would most generally retain exclusive jurisdiction over various areas of law (such as government contracts, transportation by sea, insurance law, employment law, property law, etc.) and over any other matters deemed of public order in the UAE.

Enforcement of foreign awards by domestic courts issued against nationals tends to be difficult. In order to be considered enforceable, foreign judgments must first be recognized as domestic judgments. When bilateral or multilateral reciprocal recognition and enforcement treaties exist (such as the Riyadh Convention), this requirement is normally a formality.

However, in the absence of such agreements, exequatur proceedings aim to ensure that the enforcing tribunal did not have exclusive jurisdiction to decide on the claim, verify that the decision was rendered by a competent court and that it is final and enforceable in the issuing country, and that the parties both benefited from a due process of law. The courts, finally, would also ensure that the foreign decision does not contradict previous decisions rendered by UAE courts and that enforcement does not contradict public morality and public order in the UAE.

The UAE became a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 in 2006; therefore, foreign arbitral awards that are strictly applied the New York Convention ought to be enforced by domestic courts.

However, there are some instances where the local court refused the enforcement of the foreign awards, especially when one of the five instances set out in Article V of the New York Convention is triggered.

A UAE bankruptcy law (Federal Law No. 9 of 2016) – the Bankruptcy Law – came into effect on 29 December 2016. This was a welcome development for the UAE legal and business landscape, in particular for creditors.

The Bankruptcy Law repealed and replaced the very limited bankruptcy and restructuring provisions previously set out in the UAE Commercial Code (Federal Law No. 18 of 1993) bringing a number of material changes from the previous law. Since its enactment there have been various amendments to the Bankruptcy Law which, in the main, add certainty and improvements to elements of the bankruptcy procedures and introduced protective measures that can be implemented by the Federal Cabinet in times of financial crisis.

A debtor may itself apply to the court for a Preventive Composition Proceeding “if they encounter financial hardship that requires assistance to reach a settlement with their creditors” and if they are not in default of their payment duties for more than 30 consecutive days.

According to Article 5 of the Bankruptcy Law, “the purpose of the preventive composition procedure is to assist the debtor to reach settlements with their creditors under a preventive composition scheme, under supervision of the court” and by the assistance of a court-appointed trustee.

Preventive Composition Proceedings are handled by a trustee with the assistance of the debtor and the supervision of the court. Such proceedings shall conclude with the elaboration of a Preventive Composition Scheme that shall contain the terms and conditions of the debt settlement, which the creditors shall approve (if not approved both by the creditors and the court the scheme will not be implemented).

Where the aim of this procedure is to protect the debtor’s business from bankruptcy and potential liquidation, and enable it to continue trading for the benefit of creditors as a whole, the debtor is prevented from disposing of their assets and the creditors shall see their proceedings against the debtor suspended (i.e. a moratorium is imposed) until such time as a scheme is approved or after the lapse of 10 months from the initiation of the Proceeding, unless otherwise decided by the court.

As per Article 3.1 of the Bankruptcy Law, provides for the formation of a Financial Restructuring Committee.

The Committee’s role is to deal mainly with overseeing the management of financial restructuring procedures of banks and significant commercial organisations (i.e. those whose financial difficulty may have a wide impact on the UAE economy) with the assistance of experts in order to facilitate consensual agreements between creditors and the debtor. This is a procedure that takes place prior to any formal bankruptcy proceeding being commenced in relation to the debtor. The potential bankruptcy of most ordinary companies will not however be likely to engage the Committee procedures.

In addition to that, the Committee is also responsible to establish and regulate a registry for disqualified persons and directors against whom judgments have been issued imposing bankruptcy restrictions and orders. This kind of registry has been long requested by companies operating in the UAE that were unable to discover the financial health of the companies they were financing through credit terms in the supply of goods or services.

The Bankruptcy Proceeding may be filed by: (a) the debtor, if they either (i) cease repayment of their debts on maturity dates for over 30 consecutive business days or (ii) it is balance sheet insolvent (the debtor is in fact under an obligation to file for bankruptcy in either circumstance, i.e. it “shall” make the necessary application); (b) a creditor holding an ordinary debt of at least AED 100,000 (approx. EUR 23,000), if the debtor fails to repay the due debt within 30 consecutive business days from the date of being notified with a demand for payment; or (c) the court, upon request from the Public Prosecutor proving that the debtor is in the condition of account receivable. During a first stage of bankruptcy proceedings the court will, with the assistance of a trustee, conduct an initial phase of evaluation of the debtor’s financial position and whether they are, in fact, insolvent.
The Bankruptcy Law regulates two second-stage scenarios if the debtor is adjudged (at the conclusion of an initial phase of evaluation of the debtor’s position by a court-appointed trustee) to be bankrupt, depending on the financial status of the company: (i) the debtor’s financial restructuring, if possible, thus avoiding liquidation; and (ii) where the debtor’s restructuring is deemed by the court not to be possible, or any approved restructuring fails, the  declaration of debtor’s bankruptcy, and proceeding with liquidation of the debtor’s assets to discharge their obligations as far as possible according to the order of priorities under the law. Both scenarios are administered and supervised by the court and a trustee(s) in the interests of the creditors as a whole. A moratorium on legal claims against the debtor will be applied during this second-stage procedure, subject to any application of a secured creditor for permission to enforce his security
The debtor’s restructuring procedure is handled by a trustee with the assistance of the debtor and the supervision of the court, and in consultation with creditors. Such proceedings shall conclude with the presentation of a Restructuring Scheme within three months, which shall contain the terms and conditions of the debt settlement, to be voted by the creditors. The trustee shall advise the court if he considers restructuring is not possible, in which case the court will order the company into liquidation under the supervision of a liquidator (who will typically be the same trustee).
The debtor’s declaration of bankruptcy and liquidation shall take place via judgment when settlement of the debts could not be reached, regardless of the reason, and there is no viable restructuring possibility. Upon issuance of the judgment for bankruptcy, the creditors shall file their claim within ten business days or otherwise be discarded from the bankruptcy procedure. The bankruptcy proceeding will also be handled by a trustee appointed by court, who will audit and liquidate the debtor’s assets.
Having liquidated the assets, the trustee shall distribute the liquidation proceeds based on priorities among creditors as per the provision of the Bankruptcy Law. Secured creditors take priority over other preferential creditors and ordinary creditors to the extent of their security. The order of priority payments to preferred creditors shall be as follows: (i) the court costs or fees, including the trustee’s fees and expenses in the process of handling the liquidation; (ii) outstanding salaries and end-of-service gratuities of the debtor’s staff; (iii) debts of maintenance paid by the debtor as per a competent court’s judgment (iv) amounts payable to government authorities; (v) any other fees agreed by the filing creditor with the trustee for commencing the procedures.
Clawbacks and Shareholders: (i) the trustee may conclude that past dividend payments were made from fictitious profits – indefinite retroactive exposure under Article 30 of the Commercial Companies Law; (ii) the trustee will call back any loans made by the debtor company to shareholders.
Clawbacks and Banks: Wide-ranging clawback provisions in the Bankruptcy Law, Article 168 168 and 169 include dispositions during the period 2 years prior to the initiation of bankruptcy procedures which are (i) donations/gifts; (b) prepayment of debt; and (c) fresh guarantees over debtor’s assets for past debts can be reversed if the creditor had knowledge of the negative financial situation.
Banks will often be exposed because they have knowledge of their customer’s difficulties, therefore: (i) loan facility agreements mandate notification to the company’s bank; (ii) loan facility agreements usually permit banks to call facilities immediately if informal insolvency process initiated; and (iii) UAE banks in time, will likely establish monitoring systems to keep track of bankruptcy procedures initiated in the courts.
The Bankruptcy Law sets out (Article 144) limited scenarios in which personal liability for a company’s debts can be imposed on directors and managers where the company is adjudged to be bankrupt. There are also criminal sanctions that may be imposed personally on managers and directors for certain deliberate acts or omissions in relation to the company’s assets or their conduct during insolvency proceedings. It is not expected such sanctions will be widely applied in practice as the conduct would need to be particularly egregious, and the individuals would have the right of appeal.
One of the key changes implemented by the 2020 amendments to the Bankruptcy Law was a power given to the UAE Cabinet to declare a state of ‘Emergency Financial Crisis’ (“EFC”), which is defined as:
"A general situation that affects trade or investment in the country, such as a pandemic, natural or environmental disaster, war, etc."
In summary, during an EFC:
DEBTORS are not under the obligation to file for bankruptcy if they have failed to pay their debts within 30 days due to the EFC.
DEBTORS can still file for bankruptcy and the court may elect not to appoint a trustee in the proceedings if the debtor proves the disruption to his business was caused by the EFC. Moreover, the court shall not take any precautionary measures against the debtor's assets which are essential for the operation of the debtor's business during the EFC.
CREDITORS cannot file for a debtor’s bankruptcy and the court will not accept bankruptcy applications against any debtors during the EFC.
SETTLEMENT WITH CREDITORS (only applies to debtor filing for bankruptcy): If the bankruptcy is accepted by court, the debtor may request 40 business days to negotiate settlement with his creditors. If approved by the court, this shall be published and include an invitation to creditors to negotiate settlement within 20 business days. The settlement period offered to creditors shall not exceed 12 months. If settlement is reached with creditors with 2/3rds of the debt, this settlement shall be binding on all creditors (even those who did not participate). Settlement negotiations must be in writing and approved by the Court.
EXISTING BANKRUPTCY PROCEEDINGS filed prior to the declaration of the EFC will continue, although the court can double the time periods set under the Bankruptcy Law for these proceedings.
DIRECTORS' LIABILITY will not arise where those directors pay unpaid salaries of employees (excluding allowances pay rises and other contingent payments) out of company funds.
NEW MONEY will be available to debtors during an EFC. Debtors may obtain new financing (secured and unsecured) with court approval, which will have priority over existing debts.
Relatively straightforward bankruptcy proceedings could take 6 months to reach a final judgment for liquidation, followed by the period for concluding the liquidation and any distribution to creditors. However, more complex proceedings with multiple creditor layers, especially those involving banks or syndicated loans and securities may take 12-24 months. The courts have had a tendency in many of the early cases (since the enactment of the Bankruptcy Law) to permit debtors to contest a creditor filing for bankruptcy in an adversarial process, thereby protracting the initial stage of the proceedings (and causing increased legal costs to be incurred by the creditor) before the bankruptcy is adjudged and the case moves into the second stage.