UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

Archive for March 4, 2010

UAE Bankruptcy Series Part IV: Distribution

The process of distribution of assets commences with the court closing and sealing all the offices and books of accounts of the bankrupt. 

Article 736 of the Law states:

1-    “Immediately upon the issuing of the judgment declaring the bankruptcy, the judge of the bankruptcy shall seal the bankrupt’s place of business, offices, safes, books, papers, and moveable properties; and he shall deputize any of the court’s employees thereof, and shall inform the president of each court in whose circuit of jurisdiction the bankrupt has properties in order to seal such property;

2-    If it appears to the judge of the bankruptcy that an inventory of the bankrupt’s property can be made in one day, he may forthwith proceed with such inventory without need for sealing.”

The judge exempts the bankrupt’s necessities from sealing and may also exempt other items including those necessary for the continued operation of the bankrupt’s business should the judge decide to allow the business to continue.

Article 737 of the Law states:

“No seals may be put on the clothes and moveable property needed by the bankrupt and by those supported by him and such things shall be determined by the judge of the bankruptcy; however, a list thereof shall be handed over to the bankrupt and shall be signed by him and the judge of the bankruptcy.”

Article 738 of the Law states:

1-    “The judge of the bankruptcy may, of his own accord or at the request of the trustee in the bankruptcy, order that seals should not be imposed or that they should be removed from the following things:

a.)  commercial books.

b.)  commercial papers, and other papers that are due for payment in a short time, or those which require procedures to protect the rights established therein.

c.)   funds required for spending on urgent affairs of the bankruptcy.

d.)  items that are prone to quick damage or items whose maintenance requires excessive expenses.

e.)   items needed for keeping the commercial house operational, if it is decided that it will continue with its operation.”

Next, the Receiver commences an inventory within five days from the bankruptcy judgment in which the Receiver prepares a list of the bankrupt’s assets and liabilities.  This list of the bankrupts assets and liabilities is signed by the bankruptcy judge, the trustee, and the court clerk and kept by the Receiver with a copy filed with the court. No sale of property or land is made during the preliminary proceedings except for perishable items.

Article 739 of the Law states:

  1. “The judge of the bankruptcy shall at the request of the trustee of the bankruptcy remove the seals to make inventory of the bankrupt’s properties.
  2. The removal of seals and the inventory shall be commenced within five days from the date the judgment declaring the bankruptcy.”

 

Article 740 of the Law states:

  1. “Inventory shall take place in the presence of the judge of the bankruptcy or whoever is delegated by him for such purpose, as well as the trustee of the bankruptcy and the court clerk.  The bankrupt shall be notified thereof and shall be permitted to attend.
  2. The list of inventory shall be made in duplicate and signed by the judge of the bankruptcy or whoever is delegated by him, as well as the trustee in the bankruptcy and the court clerk; one copy shall be deposited with the court and the other shall remain with the trustee.
  3. Properties that have not been sealed or those from which the seals have been removed must be shown in the list.
  4. The assistance of an expert may be sought for making the inventory and evaluation of the properties.”

 

The judge can then make an order for distribution among creditors whose debts have been ascertained.  This order for distribution can be challenged.

Article 751 of the Law states:

  1. “The judge of the bankruptcy may, if necessary, and after taking the opinion of the controller, order the making of distributions among the creditors whose debts have been ascertained; and such distribution shall be made in accordance with a list prepared by the trustee of the bankruptcy, and signed by the judge of the bankruptcy in order for the distribution to be made.
  2. The bankrupt and anyone having interest may challenge the decision of the judge of the bankruptcy on the making of distributions among creditors.” 

 

After the issuance of the bankruptcy judgment, all creditors shall hand over to the trustee proof and a signed statement of their debts and securities. 

Article 752 of the Law states: 

  1. “All creditors, even if their debts are guaranteed by special securities, or established by definitive judgments, shall hand over to the trustee of the bankruptcy, after the issuing of the judgment declaring the bankruptcy, documents of their debts accompanied by a statement showing such debts and their securities, if any, further to their amounts evaluated in the national currency according to the rate of exchange prevailing on the day when the judgment declaring the bankruptcy has been issued, and the statement shall be signed by the creditor or his agent; and the trustee of the bankruptcy shall issue a receipt confirming his taking delivery of the statement and the debt documents.
  2. The statement and the documents may be sent to the trustee of the bankruptcy.
  3. The trustee of the bankruptcy shall return the documents to the creditors after the closure of the bankruptcy; and shall be responsible for it for a period of one year from the date of its closure.”

 

Within ten days of publication of the bankruptcy judgment in the local newspapers, the creditors living within the UAE shown in the balance sheet are required to submit documentation of their debts.  Creditors living outside of the UAE have thirty days to submit the required documentation. 

Article 753 of the Law states:

  1. “If all creditors whose names are shown in the balance sheet, fail to submit the documentation of their debts within the ten days following the publishing of the judgment declaring the bankruptcy in the local newspapers, the trustee of the bankruptcy shall immediately publish in a daily newspaper designated by the judge of the bankruptcy, a notice inviting creditors to present their documents accompanied by the statement referred to in the preceding Article, and to notify the creditors whose addresses are known.
  2. The creditors shall submit the documents of their debts accompanied by the statement, within ten days from the date of publication in the newspapers, and the period with regard to the creditors living outside the State shall be one month.” 

 

The Receiver then ascertains the debts and conducts an investigation to prove or disprove the debts claimed.  If the Receiver objects to any debt or its value and any security  the Receiver notifies the creditor.  The creditor then has ten days from the date of receipt of the notification to provide written or verbal explanations in regards to the notification.  If the creditor lives outside the UAE, then he or she has thirty days to provide the explanation. 

Article 754 of the Law states:

  1. “The trustee of the bankruptcy shall ascertain the debts with the assistance of the controller and in the presence of the bankrupt or after notifying him to attend.
  2. If the trustee of the bankruptcy or the controller or the bankrupt objects to any of the debts, its amount or securities, the trustee in the bankruptcy shall immediately notify the creditor of that.
  3. The creditor must provide written or verbal explanations within ten days from the date of receiving the notification; and the period shall be thirty days if the creditor is residing outside the country.
  4. Debts owed by the government for the different kinds of taxes shall not be subject to verification procedures.”

 

After verifying the debts, the Receiver submits to the court a list of the debts and their details as well as a list of the names of the creditors who claim to have securities on the properties of the bankrupt and details of the debts and the securities.  The lists have to be deposited within sixty days from the bankruptcy judgment issuance.  Within five days of the lodgment of the lists with the court, the trustee must publish a notification in the daily newspaper and send the lists to the bankrupt and all the creditors with an indication of the sums in his or her opinion should be accepted in respect of each debt. 

Article 755 of the Law states:

  1. “The trustee of the bankruptcy shall, after completion of verification of debts, deposit with the court a list of the debts including details of their documents, the reasons for objection to them and his views on acceptance or rejection thereof; and he shall also deposit a list of the names of creditors who claim to have particular securities on the properties of the bankrupt, showing the amount of such debts and the kind of their securities as well as the funds allocated thereto;
  2. Such deposit shall be made within sixty days at most from the date of adjudicating the declaration of bankruptcy and when necessary the period may be made longer by a decision from the judge of the bankruptcy.
  3. The bankruptcy trustee shall within five days of the date of lodgment, publish a statement announcing its occurrence in a daily newspaper which shall be nominated by the bankruptcy judge, and shall send a copy of the schedule and the list to the bankrupt and to each creditor with an indication of the sums which in his opinion should be accepted in respect of each debt.
  4. Any person having an interest shall be entitled to examine the schedule and the list lodged with the court.”

 

Any person appearing on the list of debts has the right to object within ten days of publication of the notification of the local newspapers.  If the person is located outside the UAE, he or she shall have thirty days to object. 

Article 756 of the Law states:

“The bankrupt and any creditor whose name appears in the list of debts shall have the right to objects shown therein within ten days from the date of publication of the occurrence of deposit in newspapers; and the period shall be thirty days if the creditor is residing outside the State.  The objection shall be brought before the judge of the bankruptcy, and may be sent by a registered letter or telegraph.”

Creditors must submit their applications for debt recovery within the time stipulated by law or forfeit their right to partake in the distribution process.  However, they retain the right to object until the distribution of money is completed. 

Article 759 of the Law states:

  1. “Creditors who fail to submit their applications within the legal period, shall not take part in the distributions in progress; however, they shall be permitted to object at any time until the distribution of the money is completed and shall bear the expenses of such objection.
  2. The objection shall not cause a stay of the execution of the distributions ordered by the judge of the bankruptcy; however, the said creditors may take part in new distributions in the amounts temporarily estimated by the judge of the bankruptcy; and their shares shall be preserved until a decision is issued on the objection.
  3. If their debts are proved thereafter, they shall not be permitted to claim shares in the distributions that have already been made; however, they may take from the remaining amounts, without distribution, the proportion of their debts which would have passed to them had they taken part in the previous distributions.” 

 

After all debts are satisfied, at the request of the bankrupt the court passes an order declaring the termination of the bankruptcy.  Prior to declaring the termination of the bankruptcy, the bankruptcy judge  receives a final report from the Receiver. Before issuing the judgment, the bankruptcy judge must examine this report with diligence.   

Article 762 of the Law states:

“After preparing a list of the debts referred to in Article 757, the court may at any time at the request of the bankrupt order conclusion of the bankruptcy, if he provides evidence that he has honored all debts of the creditors who have been admitted in the bankruptcy or that he has deposited with the trustee of the bankruptcy, the necessary amount for honoring such debts including the principal amount, the interest and expenses of the bankruptcy.”

After the termination of the bankruptcy is issued by the court, the bankrupt redeems all his or her personal and financial rights which were restricted during the bankruptcy proceedings. 

Article 763 of the Law states:

  1. “The court may not decide termination of the bankruptcy due to cessation of the interest of the creditors, except after reviewing the report prepared by the judge of the bankruptcy showing fulfillment of one of the two conditions indicated in the preceding Article.
  2. The bankruptcy shall terminate upon the issuing of the decision and the bankrupt shall restore all of his rights except that which requires, for its restoration, an order for re-habilitation.”

UAE Bankruptcy Series Part III

 

After the bankruptcy judgment is passed, all legal claims by or against the bankrupt shall cease with the exception of the following claims:

Article 691 of the Law states:

“No claim maybe filed or against a bankrupt nor may it be proceeded with, after the issuing of the judgment declaring bankruptcy, with exception of the following claims:

1-    Claims related to properties, rights and transactions which are not restricted under the prevention of the bankrupt from management and disposal

2-    Claims related to the works of the bankruptcy which the law authorizes the bankrupt to carry out

3-    Criminal actions

4-    Claims made ready for adjudication by suspension of proceedings therein.”

The purpose of ceasing claims is to protect creditors from any possible activities by the bankrupt with a third party to defraud his or her creditors.  With permission from the bankruptcy judge, the bankrupt can engage in new trade with money  and assets that are not part of the bankruptcy assets.

Article 695 of the Law states:

“A bankrupt may by permission from the judge of the bankruptcy, engage in new trade with money other than that of the bankruptcy and creditors whose debts arise from such trade shall have priority to receive their dues there from.”

A bankrupt can carry out the following transactions if between the time of suspension of payment and before the judgment declaring bankruptcy.  If the following transactions are carried outside this allotted time period, the creditors have recourse to several remedies.

Article 696 of the Law states:

“The following transactions may not be invoked in confronting the group of creditors, if such transactions are carried out by the debtor after suspension of payment and before the judgment declaring bankruptcy:

1-    All donations, except for the customary small gifts.

2-    Payment of debt before the date of maturity in whatsoever manner such payment is made.

3-    Payment of mature debts with something other than that agreed upon; and payment by a commercial paper or a bank transfer shall be deemed equivalent to payment in cash.

4-    Any mortgage or other conventional security prescribed on the properties of the debtor as guarantee for a previous debt.”

Article 697 of the Law states:

“All transactions by the bankrupt other than those mentioned in the preceding Article during the indicated period, may be adjudged in executable vis-à-vis the group of creditors, if such transactions are injurious to them and the transactor is aware, at the time of its occurrence that the bankrupt has suspended payment.”

Article 698 of the Law states:

“In all cases referred to in the two foregoing Articles, the group of creditors may file a claim for reinstitution; however, if the subject of payment is a bill of exchange or cheque, the said claim shall be filed against the person giving the bill of exchange or the cheque exclusively; but if the subject of payment is a bill to order, the claim may only be filed against the first endorser; and in both cases, an evidence should be  established that the person from whom reinstitution is required was aware at the time when the commercial paper was issued, of the debtor’s suspension of payment.”

Article 699 of the Law states:

1-    “The rights of a mortgage or lien imposed on a debtor’s property may be adjudged null and void vis -a -vis the group of creditors, if a record thereof has been made after the date of suspension of payment.

2-    A creditor who is the holder of a mortgage subsequent to a mortgage adjudged as null and void vis-à-vis creditors shall not be given from the proceeds of the sale of the property placed under mortgage or lien, except what he would have obtained by enforcing the precedent mortgage; and the difference shall pass to the group of creditors.”

Article 701 of the Law states:

“The trustee of the bankruptcy shall solely have the right to request invalidation of the debtor’s transactions with regard to the group of creditors, if the transaction has occurred before the issuing of the bankruptcy judgment, in accordance with the provisions prescribed in the Civil Transaction Law.”

The judgment of invalidity of the transaction shall be unreliable against all creditors whether their rights have accrued before or after the transaction.

On Ordinary Creditors:

Once a trader is declared bankrupt than all his ordinary creditors are treated as one body by the Receiver.  This body of creditors does not include preferred creditors who have secured their debts by mortgages or liens over the property of the bankrupt.  All legal claims and proceedings initiated by ordinary creditors before the bankruptcy judgment are stayed.  This includes proceedings or executions against the bankrupt in his personal capacity or against the Receiver without prior permission of the bankruptcy judge.  An exception to this rule is that creditors who have secured their debts by mortgages or liens may file or continue their actions against the Receiver and they may execute their securities over the property which have been mortgaged or are subject to a lien. (Al Tamimi)

On Creditors Who Have Debts Secured by Moveable Properties:

In the first instance, the Receiver must prepare a list of creditors who have pledges or liens over moveable property.  Under the CPL, moveable property may only be effectively pledged by creating a possessory pledge by which the creditor has the right to retain the property with him as a security for his debt.  The Receiver, on the court’s permission may always pay the debt and redeem the secured property but should the property be sold for more than the debt, then the balance must be remitted to the court or to the Receiver.  At the same time, a creditor who realizes his security for less than the debt may apply with other unsecured creditors for the balance due to him. (Al Tamimi)

The Group of Creditors is formed from the creditors who registered valid claims prior to the issuing of the bankruptcy judgment.  The Group of Creditors has legal personality and is represented by the Receiver.  Upon bankruptcy, all legal rights and obligations vest in the Receiver who represents the bankrupt and the body of creditors in all legal proceedings.  The Group of Creditors does not consist of Creditors with security debts.

Article 703 of the Law states:

“Upon issuing a judgment of bankruptcy, a group of creditors whose rights towards the bankrupt have resulted from a valid cause prior to the issuing of the judgment declaring bankruptcy, shall be formed by force of law.  Such group shall have a legal personality and shall be represented by the administrator of bankruptcy.  According to the preceding paragraph, owners of debts secured by mortgage or by special liens shall not be included in the group of creditors, except in the cases where they enter the bankruptcy as ordinary creditors according to the provisions hereof .”

The bankruptcy judgment shall result in the suspension of all claims brought against the bankrupt by the ordinary creditors and the creditors holding general rights of lien.  However, if a date has been fixed for selling real estate prior to the issuance of the judgment, then with permission of the judge, the sale can be executed. Other claims filed previous to the bankruptcy judgment may be continued only with the permission of the bankruptcy judge except claims by the loan and special lien holders.

Article 704 of the Law states:

1-    “The issuing of the judgment declaring bankruptcy shall result in suspension of all individual proceedings and claims brought against the bankrupt by ordinary creditors or by creditors holding general rights of lien.

2-    The creditors referred to in the preceding paragraph, shall not be permitted to effect execution procedures upon the properties of the bankrupt not to complete the procedures that have started prior to the judgment declaring bankruptcy.  However, if a day has been fixed for selling the real estate of the bankrupt, the procedures of execution may be continued by permission from the judge of the bankruptcy, and the value shall pass to the bankruptcy.

3-    No claims previously filed or claims against the bankruptcy or other legal proceedings taken against the bankruptcy may be continued after the judgment declaring bankruptcy has been issued, unless the judge of the bankruptcy gives permission to that under the conditions prescribed by him; save for the loan holders and the special lien holders, who shall be permitted to institute claims or proceed with them vis-à-vis the trustee of the bankruptcy, and they shall be permitted to effect execution or proceed therewith on the properties where their securities are placed.”

Creditors with Priority Rights:

The CPL defines a priority right as a specific right over property conferring upon the creditor priority status in realizing his or her debt over others. 

The Law identifies the following debts as priority debts:

a.)  Sums payable to employees, servants or laborers for their unpaid salaries or wages which are due before the declaration of bankruptcy;

b.)  Sums payable to the lessor of any premises, leased to the bankrupt for a period not exceeding one year prior to the declaration of bankruptcy;

c.)   Government taxes and fees;

d.)  Any other creditor who enjoys a priority right over moveable property of the debtor. (Al Tamimi)

With respect to holders of debts secured by a mortgage or lien on a moveable property, their names shall be included in the list of creditors.  The trustee can with the permission of the bankruptcy judge satisfy the creditors who have debts secured by a mortgage at anytime.  If the trustee submits a proposal to honor the dues of the creditors with liens over moveable property, the Judge may order that the first monies coming into the bankruptcy be applied for this purpose.

Article 711 of the Law states:

1-    “The names of the bankrupt’s creditors, whose debts are secured by a mortgage or a lien on a moveable property, shall be included in the list of creditors, by way of a memorandum, with reference made to the mortgage or the lien.

2-    The trustee of the bankruptcy may, at any time after obtaining permission from the judge of the bankruptcy, pay the debt secured by a mortgage and redeem the things mortgaged in favor of the Group of Creditors.”

Article 717 of the Law states: 

“According to a proposal made by the trustee of the bankruptcy, the judge of the bankruptcy may order if necessary usage of the first money coming into bankruptcy, for honoring the dues of the creditors who have lien upon the bankrupt’s movable properties, provided that their names are included in the final list of uncontested debts referred to in paragraph 1 of article 757, however, if an objection to a lien occurs, payment shall not be made except after deciding on it by a final judgment.”

Within ten days from the issuance of bankruptcy, the trustee shall pay the wages and salaries of the workers and employees that have fallen due before the issuing of the bankruptcy declaration even if there are other debts having earlier priority.

Article 713 of the Law states:

1-     “After obtaining permission from the judge of the bankruptcy, the bankruptcy trustee, shall, within ten days following the issuing of the judgment declaring bankruptcy pay the wages and salaries of the workers and employees that have fallen due before the issuing of the judgment declaring   the bankruptcy, for a period of thirty (30) days from the bankruptcy money which is in hand, even if there are other debts.  If the trustee of the bankruptcy has no sufficient money for honoring such debts, payment shall be made from the first money that comes into the bankruptcy even if there are other debts having earlier priority in the order of liens.

2-    Amounts due for the said categories, in excess of the extent referred to in the preceding paragraph, shall have preference in the order of priority prescribed by the law.”

The landlord of the bankrupt may have a lien to secure the rent due to him or her for the year preceding the issuance of the bankruptcy judgment and for the current year. 

Article 715 of the Law states:

“In the case of termination of a tenancy under Article 722, the landlord of the property rented to the bankrupt shall have a lien to secure the rent due to him for the year preceding the issuing of the judgment declaring the bankruptcy and for the current year; however if the moveable goods available at the rented property are sold or removed, the landlord shall continue to reserve his right of lien.”

With Respect to Holders of Debts Secured by a Mortgage or Lien on Immoveable Property:

Article 719 of the Law states:

1-    “If one or more distributions of the proceeds from movable properties take place prior to distribution of the proceeds from real estates, the loan holders or preferred creditors, shall take part in the distributions by all of their dues, provided that such dues have been ascertained.

2-    After the selling of the real estates and making of the final settlement, in accordance with the ranks of the loan holders and preferred creditors, whoever is entitled by his rank to receive the whole of his debt from the proceeds of the said real estates, shall not receive the debt except after deduction of the amount received by him from the distribution of the proceeds of the movable properties, and such amount shall be reimbursed to the group of ordinary creditors.

3-    If the status of creditor entitles him to obtain only part of his debt, he must return to the group of ordinary creditors the amount in excess of what he could have obtained if the distribution of the value of the real estate burdened with the pledge or lien had taken place before the distribution of the value of the moveable property; and he shall participate in the bankruptcy for the remainder of his debt.”

Article 721of the Law states:

1-    “A judgment declaring bankruptcy shall not involve termination of the contracts binding on both sides, of which the bankrupt is a party, except if they are based on personal considerations.

2-    If the trustee of the bankruptcy fails to perform a contract, or fails to continue with its performance, the other party may apply for termination, and any decision taken by the trustee of the bankruptcy in respect of the contract shall be brought before the judge of the bankruptcy for his approval; and the other party may give the trustee of the bankruptcy a grace period to explain his stand concerning the contract.

3-    A contracting party may join the bankruptcy as an ordinary creditor for the compensation accruing from the termination unless it is provided that the compensation shall have the preference prescribed by law.”

Redemption:

Prior to commencing the distribution of assets, the Receiver must redeem moveable properties, stocks, or money held in trust by the bankrupt for third parties after receiving a statement of proof of the partnership of these items.  The Receiver must also redeem on behalf of the bankrupt any property or money or money payable to him by any other party.  (Al Tamimi)

Article 725 of the Law states:

1-    “Any person may recover from a bankruptcy certain things whose title thereto is established at the time of declaration of the bankruptcy.

2-    The trustee of a bankruptcy may, after taking the opinion of the controller and obtaining permission from the judge of the bankruptcy, return the thing to its owner, and if the trustee of the bankruptcy refuses to return it, the matter shall be referred to the court.”

Article 726 of the Law states:

1-    “Goods held in possession of a bankrupt as deposit or for the purpose of selling them for the benefit of their owner, or for the purposes of handing them over to him, may be redeemed, provided that they exist intact in the bankruptcy; the price of goods may also be redeemed, if no settlement in respect thereof has been made, whether in cash, or by a commercial paper or by setting-off or by making entry thereof in a current account between the bankrupt and the buyer.

2-    The redeemer shall pay to the trustee of the bankruptcy, the rights due to the bankrupt.

3-    If the bankrupt has deposited the goods with a third party they be redeemed from him.

4-    If the bankrupt borrows against mortgaging the goods and the creditor was unaware at the time of mortgaging of the fact that they are not owned by the bankrupt, they may not be redeemed except after payment of the mortgaged debt.”

Article 727 of the Law states:

“Commercial papers and other deeds of value delivered to a bankrupt for collecting their value or profits or for appropriating them for a certain payment may be redeemed if they exist intact in the bankruptcy and the value thereof has not been paid at the time of declaration of the bankruptcy.

However, redemption may not be affected if such papers and bonds have been placed in a current account between the applicant for redemption and the bankrupt.”

Article 728 of the Law states:

“Monies deposited with a bankrupt, be it coins or notes, may not be redeemed unless the redeemer proves his title to the actual cash.”

Article 729 of the Law states:

“In the cases provided for in the foregoing Articles, the redeemer shall pay to the trustee of the bankruptcy the rights due to the bankrupt.”

If a sale contract is terminated prior to the bankruptcy judgment, the seller may redeem the goods in whole or in part from the bankruptcy. 

Article 730 of the Law states:

1-    “If a sale contract is terminated, either by a judgment or according to a clause in the contract, before the issuing of the judgment declaring the bankruptcy, the seller may redeem the goods in whole or in part from the bankruptcy, provided that they exist intact.

2-    Redemption may be made even if the termination is adjudged after the issue of the judgment declaring the bankruptcy, provided that the claim for redemption or termination has been lodged before the issuing of such judgment.”

A seller may foreclose goods still in his or her possession if the buyer becomes bankrupt before payment of a price.  If the goods have been transferred to the buyer’s possession and the buyer becomes bankrupt, the seller may recover their possession.  In all cases, with the permission from the bankruptcy judge, the trustee can request to take delivery of the goods provided that the trustee pays to the seller the agreed price.

Article 731 of the Law states:

1-    “If a buyer becomes bankrupt before payment of the price, while the goods are still with the seller, the latter may foreclose them.

2-    If a buyer becomes bankrupt after the goods have been dispatched to him, and before taking them into his stores or the stores of his agent who is entrusted with their sale, the seller may recover their possession.  However, recovery may not be possible if the goods have lost their characteristics or if the bankrupt has, without fraud, disposed of them before their arrival, according to bills of lading or shipping documents, to a bona fide buyer.

3-    In all cases, the trustee of the bankruptcy may, after taking permission from the judge of the bankruptcy, request to take delivery of the goods,  provided that he shall pay to the seller the agreed price, failing which, the seller may insist on his right of termination and compensation.”

If the buyer takes possession of the goods and then becomes bankrupt before payment for the goods and the goods have been taken into the buyer’s stores or the stores of the buyer’s agent, then the seller may not request termination  of the sale or recovery of the goods and the seller’s right of lien shall be extinguished. 

Article 732 of the Law states:

1-    “Without prejudice to the provisions of Article 48 hereof, if the buyer becomes bankrupt before payment of the value and after the goods are taken into his stores or the stores of his agent who is authorized to sell them, the seller may not request termination of the sale or recovery of the goods, and his right of lien shall be abolished.

2-    Any condition that enables the seller to redeem the goods or to retain his lien thereupon shall not be acceptable evidence in respect of the group of creditors.”

UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance