Not every business that cannot pay its debts is fundamentally insolvent.
A company may have a viable underlying business but suddenly lose customers, supply routes, financing or access to critical markets because of an event entirely outside its control.
UAE bankruptcy law expressly recognises that distinction.
Following the disruption caused by the Iranian hostilities, the UAE Cabinet has activated the Emergency Financial Crisis provisions contained in the Financial Restructuring and Bankruptcy Law. The special regime applies to relevant preventive settlement, financial restructuring and bankruptcy proceedings where the debtor’s financial difficulties are attributable to the emergency, including applications submitted from 28 February 2026.
The purpose is not to cancel debts or prevent creditors from being paid.
It is to give businesses facing genuine crisis-driven distress additional breathing space to restructure before temporary economic disruption becomes permanent insolvency.
What Is an Emergency Financial Crisis?
Federal Decree-Law No. 51 of 2023 defines a Financial Emergency as an event affecting a debtor’s financial position as a result of a wider situation affecting trade or investment in the UAE.
Examples recognised by the legislation include:
- war;
- epidemics;
- natural disasters;
- environmental disasters; and
- other comparable events.
The special rules do not operate automatically whenever one of these events occurs.
The Cabinet must formally determine that an Emergency Financial Crisis exists and identify its cause and duration. That mechanism has now been activated in connection with the Iranian hostilities.
This distinction is important because the Bankruptcy Law effectively contains a permanent emergency toolkit that can be activated when extraordinary economic circumstances justify different treatment of distressed businesses.
The Protection Is Not Automatic
A business cannot simply refer to the regional conflict and claim protection from its creditors.
The debtor must demonstrate a genuine connection between the Emergency Financial Crisis and its financial instability or inability to meet its obligations.
Relevant circumstances might include serious disruption to:
- supply chains;
- trade routes;
- customer demand;
- imports or exports;
- financing;
- transport or logistics;
- key contracts; or
- other aspects of the company’s operations.
A business that was already commercially unviable before the emergency may therefore face a much more difficult argument than a previously stable company whose financial position deteriorated directly because of the crisis.
The special regime is designed to protect crisis-affected businesses, not to provide a general escape from ordinary debt obligations.
Greater Flexibility for Businesses Seeking Court Protection
Where the debtor proves that its financial instability arose because of the Emergency Financial Crisis, the Bankruptcy Court has broader flexibility when considering preventive settlement or bankruptcy proceedings.
One notable feature is that the Court may allow the proceedings to continue without immediately appointing a trustee.
That can permit management to retain a greater degree of control while attempting to stabilise the business and negotiate with creditors.
The Court continues to exercise oversight, but the emergency framework recognises that immediate displacement of management or movement towards liquidation may be counterproductive where the financial problem is temporary.
The objective is business preservation where a workable solution remains possible.
Creditor Bankruptcy Applications Can Be Restricted
The regime also changes the position of creditors.
During an ordinary financial deterioration, a creditor meeting the statutory requirements may seek to commence bankruptcy proceedings against a debtor.
During an Emergency Financial Crisis, the law provides additional protection against creditor-led proceedings so that a business is not forced rapidly into insolvency because of short-term disruption arising from the declared emergency.
This is a significant protection.
Without it, several creditors responding simultaneously to an external crisis could accelerate the collapse of an otherwise viable company.
The emergency rules instead give the Court greater ability to preserve the debtor while the financial consequences of the crisis are assessed and a restructuring solution explored.
That does not extinguish the creditors’ claims.
Their rights remain relevant, but the timing and manner in which those rights are enforced may be affected.
Negotiating With Creditors Becomes Central
The Bankruptcy Law allows a debtor operating under the emergency framework to receive a defined period in which to negotiate with creditors.
The intention is to encourage an agreed restructuring rather than an immediate race towards enforcement.
Potential solutions might include:
- extending repayment dates;
- rescheduling instalments;
- restructuring financing;
- compromising particular liabilities;
- agreeing temporary payment arrangements; or
- introducing new funding.
The Court can therefore provide space in which creditors and the debtor attempt to reach a commercially workable outcome.
This reflects an important principle of modern insolvency law: preserving a viable business can sometimes produce a better outcome for creditors than forcing the company into liquidation.
Essential Business Assets Receive Additional Protection
A distressed company needs assets to continue operating.
Removing essential machinery, vehicles, stock or other operational property during a temporary crisis can destroy the very business from which creditors ultimately expect repayment.
The emergency framework therefore restricts precautionary measures against assets necessary for the continuation of the debtor’s business where the relevant proceedings have been accepted under the special regime.
Again, this is not permanent immunity from enforcement.
The purpose is to prevent immediate enforcement from undermining the restructuring process before the company has had an opportunity to recover or negotiate with creditors.
Directors Receive Specific Protection When Prioritising Wages
Financial crises place directors in a difficult position.
A company may have insufficient liquidity to meet every obligation simultaneously, forcing management to decide which payments are essential to keeping the business alive.
The Emergency Financial Crisis provisions expressly address this problem.
Where the company has stopped paying debts because of the emergency, directors and managers are protected from liability in specified circumstances where company assets are used to pay ordinary unpaid wages and salaries necessary for the continuation of the business.
The protection does not extend indiscriminately to bonuses, allowances or other incidental payments.
Directors must also continue to:
- update the company’s financial information;
- account properly for crisis-related losses;
- act cautiously;
- act in good faith; and
- protect the company’s objectives and financial assets.
The emergency regime therefore provides flexibility, not permission to disregard directors’ duties.
New Financing May Be Available
A company attempting to restructure often faces an obvious problem: it needs money to survive the restructuring itself.
The Bankruptcy Law therefore permits a debtor operating under the emergency provisions to seek new financing.
In appropriate circumstances, new financing may receive priority treatment, allowing lenders to provide rescue funding with greater confidence that their position will be recognised within the restructuring process.
This can be crucial for businesses that remain commercially viable but temporarily lack liquidity.
Without access to new capital, even a successful restructuring proposal may fail before it can be implemented.
This Is Not a Debt Moratorium for Every Business
The emergency provisions should not be misunderstood as a general suspension of commercial obligations throughout the UAE.
Businesses remain responsible for their debts.
Contracts remain relevant.
Creditors retain legal rights.
What changes is the bankruptcy framework available where a debtor can demonstrate that its financial distress arose because of the declared Emergency Financial Crisis.
A business should therefore not unilaterally stop paying creditors on the assumption that the law automatically protects it.
That could worsen its position considerably.
The correct approach is to assess whether the statutory conditions are satisfied and, where appropriate, seek protection through the procedures established under the Bankruptcy Law.
Creditors Still Need to Protect Their Position
The emergency regime is debtor-protective, but it is not intended to disregard creditors.
Creditors should continue to:
- document outstanding liabilities;
- preserve contractual rights;
- monitor the debtor’s financial position;
- participate in restructuring negotiations;
- assess proposed repayment arrangements;
- review security and guarantees; and
- take advice before commencing enforcement.
A temporary restriction on bankruptcy proceedings does not necessarily prevent every form of creditor action.
The applicable remedy will depend on the debt, security arrangements, stage of proceedings and particular operation of the emergency provisions.
Creditors should therefore avoid assuming either that all enforcement is prohibited or that ordinary remedies continue unchanged.
What Should Crisis-Affected Businesses Do Now?
Businesses facing genuine financial pressure linked to the conflict should document the connection between the emergency and their financial deterioration.
That evidence may include:
- cancelled contracts;
- interrupted shipping routes;
- supplier correspondence;
- lost orders;
- financing withdrawals;
- changes in customer demand;
- insurance correspondence;
- cash-flow forecasts; and
- management accounts showing when the deterioration occurred.
This evidence may become central to establishing eligibility for the emergency regime.
Management should also prepare a realistic restructuring plan.
Court protection is most valuable when it gives the company time to implement an identifiable solution. It is far less useful where the business simply postpones addressing an unsustainable financial position.
Why the Emergency Regime Matters
The activation of the Emergency Financial Crisis provisions demonstrates an important feature of modern UAE bankruptcy policy.
Insolvency law is no longer concerned only with deciding how to divide the remaining assets of a failed business.
It can also be used to prevent viable companies from failing unnecessarily.
War, pandemics and major economic disruptions can create financial problems that have little to do with the quality of the underlying business.
Treating every resulting payment default as ordinary insolvency could destroy companies that might otherwise recover once conditions stabilise.
The Emergency Financial Crisis framework gives the Bankruptcy Court additional tools to distinguish temporary external distress from fundamental commercial failure.
Conclusion
The UAE’s activation of emergency bankruptcy protections provides an important restructuring mechanism for businesses financially affected by the Iranian hostilities.
It does not cancel debts or provide businesses with unrestricted protection from creditors.
Instead, it creates additional flexibility within the Bankruptcy Law for companies able to demonstrate that their financial distress arose because of the declared crisis.
Affected businesses may benefit from greater time to negotiate, restrictions on creditor-led bankruptcy proceedings, protection of assets necessary for continued operations and access to restructuring finance.
Directors also receive specific safeguards when making certain payments necessary to keep the business operating, while remaining subject to their broader duties of good faith and responsible management.
The central principle is straightforward:
A viable business temporarily destabilised by an extraordinary crisis should be given an opportunity to restructure before it is forced into failure.
Al Kabban & Associates
For businesses seeking guidance, Al Kabban & Associates, with over 30 years of experience in UAE law and recognition by Legal 500, stands ready to help corporations build resilience against legal risks while ensuring compliance with local and international standards. For more information or to schedule a consultation, contact us at +971 4 453 9090 or visit www.alkabban.com. You can also follow us on social media for more updates on everything law related in the UAE: @Alkabban_Law
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