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Bankruptcy limitation on criminal complaints

A criminal complaint takes precedence over a civil claim or “Le criminel tient le civil en l’état”, is a legal principle with origins in the French Penal Procedures Law, which is commonly applicable in most countries following a civil law system. 

This principle aims to stay civil proceedings until a final and enforceable judgment is issued by the competent penal court, if the dispute is related to the same parties and same subject matter, in order to prevent any potential contradiction between civil and penal judgments. 

The United Arab Emirates (UAE) follows a civil law system with the exception of two Free Zones; the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) who follow a common law system within their jurisdiction, in relation to civil and commercial matters. 

The priority of a criminal claim over a civil claim has become more flexible in France following several amendments to the Criminal Procedures Law, which is not the case in UAE. 

Under Federal Law No. 35/1992 concerning the Criminal Procedural Law where a civil claim is brought before the civil court, it must be stayed until a decisive judgment is rendered in the criminal action filed prior or during the examination of the civil case.

UAE Bankruptcy Law
Federal Decree-Law No. 9/2016 on Bankruptcy “Bankruptcy Law’’ introduces the possibility of a preventive composition that may be availed by those companies that do not meet the bankruptcy conditions the under the Bankruptcy Law, but who wish to obtain the court's assistance in settling their debts, and a restructuring plan which occurs after the opening of bankruptcy proceedings where a trustee is appointed to examine the financial situation of the debtor and prepare a report in relation to the chances of restructuring the debtor’s business.

Therefore, it was necessary for the Bankruptcy Law to include restrictions on criminal complaints against the debtor which are related to its business during a preventive composition or a restructuring plan phase to ensure the implementation of said plans. 

In this context, Article 213 of the Bankruptcy Law states that ‘’any claims or civil or commercial requests related to the implementation of the provisions of Bankruptcy Law, shall remain separate from any penal lawsuit filed according to the provisions of this title. The penal court shall not oppose to these claims and requests, and they shall not be referred to it’’.

Furthermore, crimes stipulated under Articles 197, 199, 200, and 201 of Bankruptcy Law such as bankruptcy fraud cannot be initiated unless a final judgment declaring the debtor’s bankruptcy is issued. 

Recently we came across cases where the court rejected the creditor’s request to open bankruptcy proceedings against the debtor due to the lack of any distributable assets. We believe that in such cases the court should accept the petition to open bankruptcy proceedings against the debtor and appoint a trustee to prepare the creditor’s list and submit its opinion regarding the impossibility of applying any restructuring plan. This should be followed by the court’s final decision declaring the debtor’s bankruptcy, which will enable the Public Prosecution or the creditors to lodge a criminal complaint against the debtor, its manager, board members and any other person involved in fraud crimes, otherwise every debtor will seek to conceal his assets without being held liable for his action. 

In general, criminal complaints still have priority over civil complaints unless the law stipulates otherwise. In all circumstances, each case should be examined separately taking into consideration the seriousness of the criminal complaints and whether or not it was filed for the purposes of delaying the civil proceedings. 

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