Can a Debtor Engage in New Business Activities After Declaring Bankruptcy? ⚖️
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Many believe that the issuance of a decision to open bankruptcy proceedings signifies the absolute end of a debtor's professional career. However, the UAE legislator, in the New Financial Reorganization and Bankruptcy Law (2023), has established a precise balance between protecting creditors and granting the debtor a "second chance" to rise again under specific conditions.
Legal Principle: Restriction and Prohibition As a general rule, a debtor is prohibited from engaging in new trade as soon as the bankruptcy judgment is issued. This is to ensure that all efforts and remaining funds are focused on settling the "bankruptcy estate" debts and to prevent the dissipation of assets.
The Exception: A "Window of Hope" in Article (160) Despite the restrictions, Article (160) of the law grants the debtor the right to re-enter the market, but according to strict regulations that ensure no harm is caused to existing creditors:
Court Permission: No new activity can be initiated without obtaining express approval from the "Bankruptcy Court."
Complete Financial Separation: The new business must be conducted using funds other than those of the bankruptcy estate (e.g., gifted funds or income from personal labor that is not included in the bankruptcy assets).
No Prejudice to Proceedings: It is required that this new trade does not result in any damage to previous creditors or obstruct ongoing bankruptcy procedures.
Priority of Rights: Protecting New Creditors To encourage others to deal with an "industrious" debtor, the law stipulates a significant advantage:
"Creditors whose debts arise from this new trade shall have priority in recovering their rights from the assets of that specific trade."
This means that the profits and assets of the new activity are primarily allocated to settle the obligations of that activity first, providing reassurance to new suppliers and partners.
Conclusion The new UAE law does not seek to punish the debtor but rather to reorganize them financially. If you are a debtor wishing to return to commercial activity, the legal path is open provided there is transparency, separation of assets, and a green light from the judiciary.
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