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UAE Bankruptcy Law: Employee Protections and Entitlements in Times of Company Insolvency

A guide for employees to secure their rights and benefits during corporate insolvency

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Mary Rintu Raju

Published on June 27, 2024, 09:04:02

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employement rights during company insolvency

In today's dynamic economic landscape, where businesses can face unexpected challenges leading to insolvency, it is crucial for employees to understand their rights and protections under the law.

In the United Arab Emirates (UAE), Federal Decree Law 51 of 2023, promulgating the Financial Reorganisation and Bankruptcy Law (the “Bankruptcy Law”), has been pivotal in safeguarding the interests of employees when their employer declares insolvency. This legislation outlines a framework designed to provide reassurance and support to employees during what can be a tumultuous period.

Immediate Protections and Entitlements

This newly enacted Bankruptcy Law establishes that employees are considered privileged creditors. This means that when the company's assets are liquidated to settle debts, employees' claims for unpaid wages, end-of-service benefits and other entitlements are given priority over other creditors, except for secured creditors (like banks with mortgages).

When a company in the UAE declares insolvency, employees are entitled to several key protections and benefits:

Notification and Reporting: When an employer becomes insolvent or is unable to pay its debts, they must notify the Ministry of Human Resources and Emiratisation (MoHRE) within a specified timeframe. This notification triggers the implementation of protective measures outlined in the law.
Unpaid Wages and End-of-Service Benefits: The newly enacted law ensures that employees have a legal right to receive their unpaid wages, end-of-service benefits and any other financial entitlements accrued during their employment. In other words, when a company's assets are liquidated to pay off debts, employees' claims for their financial entitlements are given precedence. This is crucial as it safeguards employees from losing their rightful compensation due to the financial difficulties of their employer.
Redundancy Payments: In cases where the insolvency leads to redundancies, employees can demand compensation. This includes compensation for notice periods and severance pay, which are crucial lifelines for individuals facing sudden unemployment.

Legal Framework and Implementation

The Bankruptcy Law ensures that these protections are enforceable through a clear legal framework. Employers or trustees appointed by the court are obligated to comply with these provisions and ensure that all entitlements are settled. Failure to do so can result in penalties and legal consequences for the employer.

The law underscores the UAE government's commitment to maintaining fair labour practices and protecting the rights of all employees, particularly in times of economic hardship.

Challenges and Considerations

While the law provides robust protections, navigating the complexities of insolvency proceedings can still pose challenges. Employees may encounter delays in receiving their entitlements due to the intricacies of asset liquidation and debt settlement.

Therefore, it's advisable for affected individuals to seek guidance from legal experts or labour lawyers to ensure their rights are upheld throughout the process.

Conclusion

This new Bankruptcy Law represents a significant stride in ensuring that employees are not unduly disadvantaged when their employer faces insolvency. By prioritising employees' financial entitlements and providing support mechanisms during transitional periods, the UAE government underscores its commitment to safeguarding the welfare of its workforce.

For employees navigating the aftermath of company insolvency, understanding these rights and accessing available resources can make a crucial difference in mitigating the impact of unexpected job loss and financial uncertainty.

For any enquiries or information, contact ask@tlr.ae or call us on +971 52 644 3004Follow The Law Reporters on WhatsApp Channels.

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