Preventative composition is available to companies that do not meet the bankruptcy test under the Bankruptcy Law, but which wish to obtain the court’s assistance in settling debts and trade out of their indebtedness. If the courts accept an application for preventative composition, the company’s debt obligations will be suspended and the court will appoint a trustee to supervise the directors’ management of the company. The trustee would then seek to get the approval of a majority of the creditors for a plan which enables the company to trade out of its existing financial position. During the term of that plan, the company is restricted from certain actions such as settling claims and taking on new debt.
The formal bankruptcy process…
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