Assets and Properties After Bankruptcy in the UAE: What is Sold and What is Exempted? ⚖️

When a bankruptcy judgment is issued, "Liquidation" begins as the legal path to settle the debtor’s debts collectively. This is achieved by selling their assets and businesses and distributing the proceeds to creditors, in accordance with Federal Decree-Law No. (51) of 2023 on Financial Reorganization and Bankruptcy and its Executive Regulations issued by Cabinet Decision No. (94) of 2024. At this stage, the management's question shifts from “How do we continue?” to “How do we preserve the highest possible value of assets and ensure a fair distribution?” This highlights the importance of seeking the expertise of Dr. Alaa Nasr, Legal Consultant, to manage the file with precise legal language and a clear plan that aligns UAE bankruptcy laws with market requirements.

First: The General Rule… What is included in the "Bankruptcy Estate"?

The general rule is that everything owned by the company or the debtor, including assets and rights capable of financial evaluation, enters the bankruptcy pool and becomes subject to the management of the Bankruptcy Trustee and the supervision of the Bankruptcy Court. This includes:

• Cash and Bank Accounts: Balances held in banks and accounts receivable from third parties.

• Inventory: Raw materials, finished goods, and rights to recover payments from customers.

• Fixed Assets: Equipment, machinery, vehicles, furniture, and operating tools.

• Real Estate: Land, buildings, and usufruct rights registered in the debtor's name.

• Intangible Rights: Trademarks, domain names, patents, software rights, and databases (if owned).

• Investments: Shares and stakes in other companies, bonds, or owned financial instruments.

• Lawsuits and Contractual Rights: Compensation claims, amounts due under supply contracts, or construction contracts.

• Guarantees/Insurance: Any insurance policies covering a realized loss, provided the right to compensation is established.

This practical framework helps creditors understand that bankruptcy in the UAE is not limited to selling "physical assets" but extends to every financial right that can be converted into value.

Second: How are Assets Sold After Bankruptcy? The Path from Inventory to Cash

1. Inventory and Verification: The trustee identifies assets, matches accounting records with reality, and verifies ownership and encumbrances.

2. Valuation for "Fair Value": Successful liquidation relies on professional valuation (real estate, equipment, and intangibles) to ensure the best price and protect companies from claims of negligence.

3. Method of Sale: Usually conducted via auctions or competitive bids to ensure transparency. Direct sales may occur with court permission for perishable items or exceptional purchase opportunities.

4. Sale as a "Going Concern": Sometimes a company is worth more functioning than dismantled. The court may allow the sale of the business as a whole (contracts, customers, employees, and licenses).

Third: What About Mortgaged Assets and Secured Debts?

The existence of a mortgage or collateral does not remove the asset from the bankruptcy estate, but it changes how it is handled.

• The mortgaged asset is inventoried, and the secured creditor has priority over the proceeds of that specific asset after deducting approved sale expenses.

• Any surplus goes into the general pool for other creditors.

• If the proceeds are less than the debt, the remaining balance is treated as an unsecured debt.

Fourth: What is Exempted from Sale? Key Practical Exceptions

The most common question: What cannot be sold?

• (A) Third-Party Property: Goods held on consignment or assets belonging to others for operation are returned to their owners upon proof of ownership.

• (B) Leased or Financed Assets: In financial leasing (Lease-to-Own), legal ownership may remain with the financier until full payment.

• (C) "Retention of Title" Goods: If a supplier stipulates ownership remains theirs until payment, and the goods are still identifiable, they may be recovered.

• (D) Non-Transferable Rights: Personal licenses or specific regulatory approvals that cannot be legally transferred.

• (E) Assets Held for "Higher Value": The court may temporarily halt the sale of an asset if delaying it will yield a significantly higher price.

Fifth: Protecting Creditors from Asset Dissipation

The law allows the voiding of prior transactions (clawback) if they harmed creditors before the bankruptcy—such as transferring assets to related parties at a low price or preferential payments to a specific creditor.

Sixth: The Role of the Trustee… Why Can’t a Creditor Act Alone?

Recent rulings (including from the Dubai Court of Cassation) emphasize the stay of individual proceedings. Asset liquidation must happen through the trustee to ensure unity and fair distribution among all creditors.

Summary: A Checklist for Action

• Prepare an updated asset register (serial numbers, invoices, locations).

• Review ownership encumbrances (mortgages, leases).

• Collect customer contracts for accounts receivable.

• Monitor intellectual property (domains, trademarks).

• Document third-party assets to avoid confusion.

Conclusion: In the UAE context, this system protects companies legally through an organized path and protects creditors through fair distribution based on transparency.

For more information or to book a legal consultation: WhatsApp: 0585373400 Website: https://www.dralaanasr.com

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