UAE’s State Of Financial Emergency: What It Means For Creditors And Debtors

On 1 June 2026, the UAE Cabinet issued Resolution No. 94 of 2026 declaring a state of Financial Emergency in respect of financial hardship suffered by businesses as a result of the regional conflict that began on 28 February 2026. The declaration activates Chapter 5 of Federal Decree-Law No. 51 of 2023 concerning Financial Restructuring and Bankruptcy, the “Bankruptcy Law”. The practical effect is immediate: creditors cannot commence bankruptcy proceedings against defaulting debtors for the duration of the emergency period, while debtors whose distress arose from the declared event gain access to a more flexible restructuring track.

What Is a Financial Emergency?

A Financial Emergency is a statutory period declared by the Cabinet in response to a general and unforeseen event, such as a pandemic, natural disaster or armed conflict, that disrupts the ability of debtors to pay their debts as they fall due. This is the second time the mechanism has been used: in January 2021, the Cabinet retroactively designated the COVID-19 period from 1 April 2020 to 31 July 2021 as a Financial Emergency.

The current declaration applies to financial hardship resulting from the events that began on 28 February 2026. The end date has not been fixed; it will be determined by a subsequent Cabinet decision.

What Changes for Debtors

Chapter 5 of the Bankruptcy Law applies to commencement applications filed by debtors whose financial difficulty arose from the declared emergency. A debtor relying on Chapter 5 must evidence that causal link; a business that was already failing for unrelated reasons remains subject to the ordinary rules.

Where Chapter 5 applies, the debtor may still apply for preventive settlement, restructuring, or bankruptcy declaration, but with meaningful procedural flexibility, including:

• The Bankruptcy Court may allow proceedings to commence without appointing a trustee;
• The debtor may request a period to negotiate a collective settlement with its creditors;
• A settlement approved by two-thirds in value of participating creditors may bind non-participating creditors; and
• The court may authorise new priority funding to keep the business operating, subject to statutory limits on new security.

The court may not impose precautionary measures over assets essential to the continued operation of the debtor’s business, unless the assets are non-essential and unrelated to it.

What Changes for Creditors

During the Financial Emergency, a creditor cannot commence bankruptcy proceedings against a defaulting debtor. The Bankruptcy Court must postpone deciding creditor-filed commencement applications until the emergency period ends. Proceedings already commenced before the declaration continue under the ordinary rules, although statutory timeframes may be extended where the emergency has caused disruption.

The suspension is narrower than many creditors assume. It does not suspend ordinary civil claims, execution proceedings, or precautionary attachments. Unless the debtor has sought and obtained protection under the Bankruptcy Law, a creditor remains free to sue on the debt, obtain judgment, and attach assets. The distinction matters: the bankruptcy route is closed for now; the litigation route is not.

Practical Takeaways

For creditors, the sensible response is not to wait. Points to consider include:

• Pursuing unilateral claims and precautionary attachments while they remain available;
• Reviewing existing security and guarantees, and the solvency of guarantors;
• Monitoring whether the debtor commences Chapter 5 proceedings, and participating actively in any settlement negotiations to preserve ranking and voting rights; and
• Documenting the debtor’s position now, since whether distress genuinely arose from the emergency will be contested territory.

For debtors, the protection is real but conditional. The causal link between the emergency and the company’s distress must be evidenced, and management of a company that has ceased paying its debts must maintain proper records and act prudently and in good faith throughout the period.

Frequently Asked Questions

Can I still sue a debtor during the Financial Emergency?

Yes. The suspension applies to creditor-initiated bankruptcy applications. Ordinary civil claims, payment claims, execution of judgments and precautionary attachments remain available, unless the debtor has obtained a moratorium under the Bankruptcy Law.

Does the Financial Emergency protect every struggling business?

No. Chapter 5 applies only where the debtor’s financial difficulty arose from the declared emergency. A debtor must evidence that connection. Businesses in difficulty for unrelated reasons remain subject to the ordinary Bankruptcy Law rules.

When does the Financial Emergency end?

The end date will be fixed by a subsequent Cabinet decision. Until then, creditor bankruptcy applications remain postponed, and stakeholders should plan on the basis that the period could run for some time.

Conclusion

Cabinet Resolution No. 94 of 2026 changes the sequencing of debt recovery in the UAE, not its substance. Creditors retain their claims and their enforcement tools, but the bankruptcy lever is off the table until the emergency period ends. The creditors who fare best in these periods are those who secure their position early, before competing claims accumulate.

MIO & Partners advises on debt recovery, insolvency, creditor strategy and commercial litigation before the UAE courts. For advice on a specific matter, please contact our litigation team.