A progressive regime that allows for a flexible, yet speedy restructuring is crucial for companies looking to restructure their indebtedness. With its stable and commerce-oriented market, well-functioning courts with the highest-caliber of common law judges, advanced digital landscape, and vast resources, including practical guides for corporate stakeholders, the Abu Dhabi Global Market (ADGM) has all the right attributes to become a preferred restructuring hub in the region.
The ADGM restructuring regime is generally available to companies incorporated in the ADGM. The regime provides certain flexibility, albeit at the moment available primarily to solvent companies, allowing debtors to migrate into the ADGM1. To be eligible, the law of the original jurisdiction must permit continuance in other jurisdictions2. In order to migrate into the ADGM, certain customary information must be provided, including certified constitutional documents, a statement of solvency, and particulars of directors3. To facilitate redomiciliation, the ADGM has published a helpful continuance guidance as well as a checklist for prospective registrants.
An insolvent company, in general, would be unable currently to migrate into the ADGM. That said, the Registrar can disapply the requirement for the company to be solvent on public policy grounds (the amendment was introduced to allow NMC Health to take advantage of the ADGM administration regime and could potentially be available for other companies).
The ADGM restructuring regime is primarily embedded in the ADGM Insolvency Regulations 2022 (the Insolvency Regulations) and the ADGM Companies Regulations 2020 (as amended) (the Companies Regulations) and contemplate the following key restructuring options: administration, including DOCA, and schemes of arrangement. Liquidation/winding up is not separately analyzed given the focus on restructuring business as a going concern. Both pieces of regulation are roughly modelled on the relevant UK legislation, but also draw additional helpful features from other jurisdictions.
The ADGM restructuring regime is primarily embedded in the ADGM Insolvency Regulations 2022 (the Insolvency Regulations) and the ADGM Companies Regulations 2020 (as amended) (the Companies Regulations) and contemplate the following key restructuring options: administration, including DOCA, and schemes of arrangement. Liquidation/winding up is not separately analyzed given the focus on restructuring business as a going concern. Both pieces of regulation are roughly modelled on the relevant UK legislation, but also draw additional helpful features from other jurisdictions.
1. Administration
An administrator may be appointed to manage the affairs, business, and property of a distressed company. An administrator is appointed for the following objectives (in the following priority): (a) rescuing the company as a going concern; (b) achieving a better result for the creditors as a whole (compared to if the company was wound up); and (c) realizing property in order to make a distribution to one or more secured or preferential creditors. The administrator must perform its functions in the interests of the creditors as a whole. To be considered for appointment, an administrator must be registered as an insolvency practitioner with the ADGM.
An administrator is initially appointed for one year, but the term may be extended by order of court for a further period (not exceeding 12 months). Following the making of an administration order, any petition for the winding-up of the company, as well as any previously appointed administrative receiver or other receiver (if the administrator so orders) shall be dismissed.
When the administration order takes effect, a moratorium will apply in respect of insolvency proceedings, as well as other legal processes involving the company. Any pending winding up petitions shall be dismissed, and administrative receivers shall vacate the office.
The administration process roughly follows its UK equivalent. However, it has certain additional features, e.g., DOCA (described in more detail below).
An administrator is initially appointed for one year, but the term may be extended by order of court for a further period (not exceeding 12 months). Following the making of an administration order, any petition for the winding-up of the company, as well as any previously appointed administrative receiver or other receiver (if the administrator so orders) shall be dismissed.
When the administration order takes effect, a moratorium will apply in respect of insolvency proceedings, as well as other legal processes involving the company. Any pending winding up petitions shall be dismissed, and administrative receivers shall vacate the office.
The administration process roughly follows its UK equivalent. However, it has certain additional features, e.g., DOCA (described in more detail below).
2. Dealing with Secured Property
The administrator can deal with certain charged property subject to the following considerations:
2. Dealing with Secured Property
The administrator can deal with certain charged property subject to the following considerations:
3. New Financing
Chapter 9A of the Insolvency Regulations allows the debtor to incur unsecured debt while administration is in place. Such credit or debt will be payable as an expense of the administration giving it priority in potential liquidation. Notably and in the absence of existing secured creditors’ consent or court approval, such debt can only be incurred on an unsecured basis.
An administrator may, however, apply to the court to incur such debt on a secured basis including secured on property that is already subject to a security interest with new security ranking pari passu or above existing security interest if it is unable to obtain such credit otherwise and there is “adequate protection” of the interest of the holder of existing security interest.
“Adequate protection” is deemed provided if the court is satisfied that (i) the provision of credit or debt would enable the administrator to achieve the first two objectives of the administration: rescue the company as a going concern or achieve a better result for the creditors as a whole (compared to if the company was wound up); and (ii) the grant of security is likely to achieve a better result for each creditor benefiting from an existing security.
4. Deed of Company Arrangement
The DOCA is a bespoke concept that has been introduced in the ADGM restructuring regime. DOCA provides for an agreed framework governing the debtor’s affairs with the approval of the requisite majority of creditors. The purpose of a DOCA is to maximize the chances of the company remaining in business and it may also result in a better return for creditors than a winding up of the company.
The process involves the administrator preparing an instrument setting out the terms of the arrangement to deal with the debtor’s outstanding debts. A resolution adopting the instrument needs to be passed by a simple majority of creditors (by value) voting at the relevant meeting. All creditors vote as a single class. The administrator of the company will typically act as the administrator of the DOCA, unless otherwise resolved at the creditors’ meeting.
All unsecured creditors are bound by the DOCA with respect to claims arising on or before the record date. A secured creditor/owner or lessor of property may realize or deal with secured property unless the DOCA (subject however to such secured creditor’s consent) or the court provides otherwise. The court may make an order for a secured creditor not to realize or otherwise deal with their security where such dealing or realization will have a material adverse effect on achieving the purpose of the DOCA, so long as the court is satisfied in light of the relevant circumstances that the creditor’s interests will be adequately protected.
The DOCA must contain a provision giving priority to preferential creditors, ensuring that preferential debts (such as employment costs and other contributions) would rank equally, or abate in equal proportions (in the event that the available assets are insufficient to satisfy the preferential debts owed). The terms of a DOCA may be varied at a creditors’ meeting. A DOCA will terminate on the first to occur of:
a) a court order, where: (i) any material false or misleading information was provided about the company’s business, property, affairs, or financial circumstances; (ii) there has been a material breach of the DOCA by a person bound by it, or a material omission in a report or statement issued by the company; (iii) effect cannot be given to the DOCA without injustice or unreasonable delay; or (iv) the DOCA will be oppressive, unfairly prejudicial, discriminatory, or contrary to the interest of creditors. Application for a court order may be made by a creditor, the company, the ADGM Financial Services Regulator, or any interested person;
b) pursuant to validly convened creditors’ meeting (in the event of a breach which has not been rectified). Creditors may also resolve at the meeting that the company be wound up;
c) occurrence of termination event(s) specified in the DOCA; or
d) execution of a notice of termination by the administrator where: (i) all the proceeds of the realization of assets have been paid to creditors; (ii) the administrator has paid the full amount outstanding, or such lesser sum as determined by creditors at a general meeting; or (iii) obligations under the DOCA have been fulfilled and creditors’ claims have been addressed. The administrator must lodge a notice of termination with the ADGM Registrar within 28 days.
Upon application by an interested person, the court may void or validate a DOCA where there is specific doubt regarding compliance of the DOCA with the provisions of the Insolvency Regulations. Nonetheless, the court may declare the DOCA (or a provision thereof) valid notwithstanding a breach, provided that the provision was substantially complied with, and such decision will not amount to injustice. Where a court declares a provision void, the court may vary the DOCA with the consent of the administrator. Termination or avoidance (whether partial or full) of the DOCA does not affect the previous operation of the DOCA5.
Upon application by an interested person, the court may void or validate a DOCA where there is specific doubt regarding compliance of the DOCA with the provisions of the Insolvency Regulations. Nonetheless, the court may declare the DOCA (or a provision thereof) valid notwithstanding a breach, provided that the provision was substantially complied with, and such decision will not amount to injustice. Where a court declares a provision void, the court may vary the DOCA with the consent of the administrator. Termination or avoidance (whether partial or full) of the DOCA does not affect the previous operation of the DOCA5.
