Key features of bankruptcy frameworks in the UAE, KSA, and Bahrain

United Arab EmiratesEnglish Scheme of ArrangementEnglish Restructuring PlanUS Chapter 11
Who can propose a plan (or similar)?Debtors only may apply for a Preventive SettlementDebtor or any of its creditors may open Restructuring or Liquidation proceedingsDebtor onlyDebtor onlyDebtor or unsecured creditors may propose a plan
Court’s roleAppoints a bankruptcy trustee for Restructuring, supervises and ratifies the Restructuring plan or LiquidationAble to approve a Restructuring plan if it has not been approved by the required majority - this is not the case for a Preventative Settlement processConfirmation of schemeConfirmation of planApproval of the sale of debtor’s assets free from encumbrances (subject to certain requirements)Approve the provision of DIP financingApproval for all actions outside the ordinary course of business
Who remains in control of the business?Under both a Preventive Settlement or a Restructuring, debtor retains control of the business but under court supervisionDebtor remains in controlDebtor remains in controlDebtor remains in control but must seek court approval for all decisions outside of the ordinary course of business (see above)
Plan approval levelsQuorum to approve a plan requires creditors holding at least 50% of the approved claims for voting purposes to attend (Required Amount)Creditors holding at least 662/3% of the Required Amount must vote for the plan75% per class of claims plus majority in number per class of claims present / acting by proxy75% per class of claims present / acting by proxyOver 50% in number of allowed claims and at least 2/3 in amount of allowed claims voting
Which creditors are affected by the plan?Secured creditors cannot be subject to Preventive Settlement or RestructuringBinding on all affected creditorsBinding on all affected creditorsBinding on all affected creditors
Cross-class cramdown?NoNoYes - Plan may be confirmed by the court even where one or more dissenting classes, provided:Court is satisfied none of the dissenting class would be any worse off than they would be in the event of the “relevant alternative”; andat least one class of creditors or shareholders that would receive a payment, or have a genuine economic interest in the company, in the event of a relevant alternative, have voted in favour of the planThe court may decline to exercise its discretion to sanction the plan if it does not consider it “just and equitable”Yes - Plan can be confirmed even if certain classes of creditors (including secured creditors) or interest holders vote to reject planAt least one “impaired” class of claims vote to accept the plan (not including the votes of any insider creditors)Plan can be confirmed over rejecting class of secured creditors or unsecured creditors in certain circumstances
Super Priority DIP financing?Yes - court has the authority to approve new financings which:Rank above other unsecured debt;are secured against unencumbered assets (if any);are secured against encumbered assets (and therefore are second ranking security); and/orare secured as first ranking security over encumbered assets (with the consent of the beneficiary of the existing first ranking security)There are no formal provisions for DIP financing. New funding must comply with permissions under existing debt documentation, unless approval for new funding is granted under the scheme itselfThere are no formal provisions for DIP financing. New funding must comply with permissions under existing debt documentation, unless approval for new funding is granted under the scheme itselfYes – Subject to court approval, DIP financing can provide extraordinary protections to lenders as an incentive to provide liquidity to distressed companies, including priming liens that take priority over existing liens on debtor’s assets.
Moratorium?Preventive Settlement includes an automatic 3-month stay on creditor claims (starting on the date proceedings are opened) - further extensions are available to the debtor (with the permission of the court), provided the total moratorium period does not exceed 6 monthsNo time limit on moratorium under RestructuringNote: under a Preventive Settlement and Restructuring, the debtor must deal with employee claims outside of the moratoriumNoNoAutomatically triggered on filing of bankruptcy petition
Sample Caption
Processes
Who can propose a plan (or similar)?
Court’s role
Who remains in control of the business?
Approval levels
Which creditors are affected by the plan?
Cross-class cramdown?
DIP financing?
Moratorium?
Precedent Transaction(s)
Additional items of note

Bahrain

  • Reorganization Plan
  • Liquidation
  • Before submission of a Reorganization Plan, a bankruptcy filing is required3
  • Reorganization Plan presented by Bankruptcy Trustee. Creditors may present only if there is inaction by the Bankruptcy Trustee
  • Appoints Bankruptcy Trustee for Reorganization Plan
  • Appoints liquidator for Liquidation
  • Approval of Reorganization Plan subject to standards of fairness
  • While management remains in place, an independent Bankruptcy Trustee will perform various functions
  • Bankruptcy Trustee’s functions include help preparing the Reorganization Plan

Reorganization Plan will be approved if it is accepted by at least 51% of creditors in each category, provided those creditors account for at least 2/3 of the total debts in the category

Binding on all affected creditors

No

Yes — court has the authority to approve new financings that

  • are deemed fair and reasonable and necessary for the Reorganization Plan;
  • are unsecured; and/or
  • secured on assets already encumbered either (a) on a second-ranking basis or (b) on first-priority basis if (i) the existing secured parties agree to be subordinated or (ii) certain criteria are met  (e.g., the court is satisfied the debtor cannot obtain alternative financing)
  • Automatic for Reorganization Plan for initially, 120 days
  • Automatic for Liquidation until termination

Gulf Aluminum Rolling Mill’s restructuring in 2023

  • Incorporates provisions consistent with UNCITRAL Model Law
  • Court must decide on an application for a Reorganization Plan before hearing an application for Liquidation
  • Court is empowered to convert a Liquidation to a Reorganization Plan (and vice versa) if it is in the best interests of the creditors
  • Court can cram through the Reorganization Plan even if it is not approved by a class of creditors, provided that the Bankruptcy Trustee confirms that the Reorganization Plan will give any creditor that has not voted in favor at least the same return as it would get in liquidation and that creditors will be compensated for damages that occur from the delay

Kingdom of Saudi Arabia

  • Protective Settlement
  • Financial Restructuring
  • Liquidation
  • Only debtors may apply for Protective Settlement
  • Debtors, creditors, or competent government authorities (on behalf of debtors) may apply for Financial Restructuring or Liquidation
  • Appoints Officeholder for Financial Restructuring and Liquidation
  • Ratifies Protective Settlement and Financial Restructuring
  • Approval of Protective Settlement and Financial Restructuring subject to standards of fairness
  • Debtor retains control under Protective Settlement
  • While debtor retains control under Financial Restructuring, it is under the supervision of an Officeholder

Protective Settlement requires approval from each “category of creditors”6

Financial Restructuring will be binding if either

  • all “categories of creditors” and its shareholders approve; or
  • (a) at least one class of creditors approves; (b) the proposal is approved by the creditors whose claims represent at least 50% of the total value of the claims of the creditors voting in all classes; and (c) the court considers ratification of the proposal is in the interests of the majority of creditors

Binding on all affected creditors

Yes

Yes — court has authority to approve

  • secured financing after the commencement of any bankruptcy procedure; and/or
  • unsecured financing after the commencement of a Liquidation9
  • Not automatic for Protective Settlement — debtor may request a moratorium if, in an officeholder’s opinion, the proposal (a) will likely be approved its creditors, and (b) is capable of being implemented
  • Automatic for Financial Restructuring — court may grant a suspension for a period not exceeding 180 days and, at its own discretion or at the request of a debtor or the Officeholder, extend the moratorium for a further period of no more than 180 days (i.e., in total, the moratorium should not exceed 360 days)
  • Azmeel Contracting’s c.US$2 billion restructuring in 2023
  • Arkad Engineering & Construction’s c.US$800 million restructuring in 2023
  • Ahmad Hamad Algosaibi & Brothers’ US$7.5 billion restructuring in 2021

‍

  • Incorporates rules based on UNCITRAL Model Law

United Arab Emirates

  • Preventive Settlement
  • Restructuring
  • Liquidation
  • Only debtors may apply for a Preventive Settlement
  • Debtor or any of its creditors may open Restructuring or Liquidation proceedings
  • Appoints a trustee for Restructuring and Liquidation
  • Supervises and ratifies Preventive Settlement, Restructuring and Liquidation
  • Approval of Preventive Settlement and Restructuring subject to standards of fairness

Under both a Preventive Settlement and a Restructuring, debtor retains control of the business but under court supervision

  • Quorum to approve a Preventive Settlement or Restructuring requires creditors holding at least 50% of the approved claims for voting purposes to attend (Required Amount)
  • Creditors holding at least 2/3 of the Required Amount must vote for the Preventive Settlement or Restructuring
  • Shareholder approval of the debtor is required for Restructuring5

Secured creditors can be subject to Preventive Settlement or Restructuring in certain circumstances7

No8

Yes — court has the authority to approve new financings that

  • rank above other unsecured debt;
  • are secured against unencumbered assets (if any);
  • are secured against encumbered assets (and therefore are second-ranking security); and/or
  • are secured as first-ranking security over encumbered assets (provided the beneficiary of the existing first-ranking security consents)
  • Preventive Settlement includes an automatic three-month stay on creditor claims (starting on the date proceedings are opened) — further extensions are available to the debtor (with the permission of the court), provided the total moratorium period does not exceed six months
  • No time limit on moratorium under Restructuring (however, plan for Restructuring must be submitted within six months of proceedings’ beginning — this can be extended by the court if creditors consent)
  • Emirates Hospital Group’s US$950 million restructuring in November 2024
  • JBF Group’s US$1 billion restructuring in October 2024
  • Drake & Scull’s US$1.1 billion restructuring in June 2024
  • Does not incorporate the UNCITRAL Model Law on Cross-Border Insolvency (UNCITRAL Model Law)11
  • Court able to approve a Restructuring plan if it has not been approved by the required majority — this is not the case for a Preventative Settlement process‍
  • Under a Preventive Settlement and Restructuring, the debtor must deal with employee claims outside of the moratorium