Insolvency Law
Framework for rehabilitation, administration, and winding up (DIFC Law No. 1 of 2019).
The Solvency Test (Art 3)
A Company satisfies the Solvency Test if:
- (a) Cash Flow Test: It is able to pay its debts as they become due in the ordinary course of business; AND
- (b) Balance Sheet Test: The value of its assets exceeds the value of its liabilities.
Corporate Distress Lifecycle
Directors Duty Shift (Art 11)
Company Voluntary Arrangement (Part 2)
Administration (Part 3)
Winding Up (Part 5)
Procedures Comparison
| Procedure | Goal | Initiator | Moratorium? |
|---|---|---|---|
| Voluntary Arrangement (CVA) | Compromise with creditors to avoid liquidation. | Directors | Limited (Small Companies only) |
| Rehabilitation (Administration) | Rescue the company as a going concern. | Company / Directors / Creditors | Yes (Automatic stay on actions) |
| Receivership | Realise charged assets for secured creditor. | Secured Creditor | No |
| Liquidation (Winding Up) | Realise assets and distribute to creditors (Terminal). | Shareholders (Voluntary) or Court (Compulsory) | Yes (upon order) |
Priority of Distribution (Liquidation)
Director Liability & Wrongful Trading (Art 113)
⚠️ Wrongful Trading
If a Director knew (or ought to have concluded) that there was no reasonable prospect that the Company would avoid going into insolvent liquidation, and failed to take every step to minimise potential loss to creditors, the Court may declare the Director personally liable to contribute to the Company's assets.
Court may examine the conduct of any past or present officer/liquidator. If they have misapplied money or breached duty, they can be compelled to repay with interest.