Clawback of Pre-Bankruptcy Transactions in the UAE: Preferences, Undervalue Deals, and Creditor Recovery

Short answer: the UAE’s Financial Restructuring and Bankruptcy Law does not automatically unwind every transaction made before a company becomes distressed. It identifies specific transactions that may not be invoked against creditors, gives the Bankruptcy Court discretion to reject other harmful transactions, and permits a trustee to challenge additional acts under the Civil Transactions Law. The critical questions are timing, the debtor’s payment position, whether the counterparty was an insider or related party, whether there was a commercial justification, and whether the transaction reduced the pool available to creditors.

This article explains the current federal framework for “clawback” claims against UAE companies. “Clawback” is a practical expression; the statutory language often speaks of an act being unenforceable vis-à-vis creditors or being invalidated. The remedy may require return of money, property or benefits, but it does not always mean that the underlying contract is void for every purpose. The distinction matters when preparing a claim, defending a transaction, valuing the recovery and calculating limitation.

The analysis is directed principally to mainland companies governed by the Commercial Companies Law. ADGM, DIFC and certain regulated financial institutions have separate insolvency regimes. A creditor should therefore confirm the debtor’s legal home, the date of the relevant transaction, the date of cessation of payment and the date of any court decision initiating bankruptcy proceedings before selecting a remedy.

Contents

1. Legal framework and scope
2. What a UAE clawback claim is—and is not
3. The dates that control the analysis
4. Article 148: transactions not enforceable against creditors
5. Article 149: late mortgages and liens
6. Article 151 and the Civil Transactions Law route
7. Recovery, restitution and what the counterparty may claim
8. Creditor strategy and evidence
9. Defences and commercial-justification arguments
10. Director, manager and liquidator exposure
11. Free zones, regulated businesses and cross-border issues
12. Checklists, examples and decision matrix
13. Frequently asked questions

1. Legal framework and scope

Federal Decree-Law No. 51 of 2023 promulgating the Financial and Bankruptcy Law (the Bankruptcy Law) is the principal federal statute for preventive settlement, restructuring and bankruptcy of covered debtors. Its stated objectives include preserving creditors’ rights, treating creditors of the same nature equally, protecting the bankruptcy estate and maximising its value. The law applies to companies subject to the Commercial Companies Law, traders and licensed professional civil companies, subject to the exclusions in Article 3.

Article 3 excludes, among others, entities in free zones with special insolvency rules, banks, financial institutions and insurers subject to special resolution legislation, and certain government-owned entities with a special regime. DIFC and ADGM companies should be analysed under their own statutes and courts. A mainland company’s contract may still contain a foreign-law or arbitration clause, but the bankruptcy estate and local property questions can trigger mandatory UAE rules.

The Bankruptcy Law also creates a specialist Bankruptcy Court structure and appoints trustees to protect and administer the estate. Under Article 148, the trustee can challenge specified acts; Article 151 preserves a broader challenge under the Civil Transactions Law; Article 152 describes the consequences of a successful invalidation. The law also deals with late security registrations, debtor and trustee powers, creditor claims, precautionary measures and liability of directors, managers and persons responsible for liquidation.

Current-law verification note

This article is based on the English text of Federal Decree-Law No. 51 of 2023 published on the UAE legislation platform, together with the current Civil Transactions Law enacted by Federal Decree-Law No. 25 of 2025. The Arabic text prevails in case of conflict. The effective-law and transitional analysis can change when a transaction, cessation-of-payment event or bankruptcy application straddles a legislative change. Counsel should confirm the operative text and any Executive Regulations before filing.

2. What a UAE clawback claim is—and is not

Preference

A preference is a payment, security or other arrangement that improves one creditor’s position shortly before insolvency at the expense of the collective creditor body. Examples include paying a related-party loan while ordinary suppliers remain unpaid, granting a new pledge for an old unsecured debt, repaying a debt before maturity, or paying in an unusual form to remove one creditor from the risk of the impending bankruptcy.

Undervalue or unbalanced transaction

An undervalue transaction transfers property, goods, receivables, shares or another right for substantially less than the value given by the debtor. Article 148 describes transactions in which the debtor’s obligations are significantly unbalanced with the other contracting party’s obligations, whether the obligations are in cash or in kind. A sale at a discount is not automatically improper: inventory may be obsolete, a distressed sale may preserve value, or a buyer may assume liabilities. The evidence must show whether the consideration was commercially supportable at the time.

Gift or gratuitous transfer

Article 148 expressly addresses donations and gifts, except for small gifts usually accepted by custom. Transfers to a shareholder, director, family member, charity or connected company should be tested for value, authority, timing and business purpose. Calling a transfer a “dividend,” “management fee,” “consultancy payment” or “loan repayment” does not determine its legal character if the records show no genuine value or debt.

Related party and insider

The Bankruptcy Law’s definitions are deliberately broad. For a legal person, related parties can include subsidiaries, directors and senior management, persons owning 5% or more, certain relatives and partners, connected joint ventures and persons able to exercise effective influence. An “insider” includes persons who, by office, have access to undisclosed information about the debtor’s financial position, including board members, senior management and relevant auditors. The classification is important because Article 148 extends the review period for transactions with insiders or related parties.

Unenforceability versus total nullity

A successful Article 148 or Article 151 claim generally operates against creditors: the transaction cannot be invoked to defeat the estate’s claims. The court may order restitution of money, property or value. Whether the contract is rescinded between the original parties, whether title returns automatically, and how a good-faith sub-purchaser is treated depend on the transaction and applicable civil-law rules. Plead the precise relief required rather than using “void” as a catch-all term.

3. The dates that control the analysis

Clawback disputes are often won or lost on chronology. Build a date chart before drafting a pleading:

“Cessation of payment” is not simply the date of the bankruptcy application. The law defines it by reference to failure to pay a due debt after the statutory grace period in the relevant notice. The parties may therefore contest the date by examining the debt, notice, maturity, payment history and whether the obligation was genuinely due. A trustee’s report, bank records and enforcement chronology are usually more persuasive than a conclusory assertion that the company was “insolvent.”

4. Article 148: transactions not enforceable against creditors

Article 148 targets acts made by a debtor against whom a decision has been issued to initiate bankruptcy proceedings, when the act falls within the six months preceding the cessation-of-payment date. It identifies categories that may not be invoked against creditors:

1. Donations and gifts, subject to the exception for small customary gifts.
2. Significantly unbalanced transactions where the debtor’s obligations are materially disproportionate to the other party’s obligations.
3. Premature or unusual repayment of a debt before maturity or through a method different from the usual method for that debt.
4. Payment with a substitute consideration rather than the agreed consideration, unless commercial considerations justify it. The law treats creation of consideration for a payment instrument that has not matured as premature repayment unless commercially justified.
5. New security for an old debt, unless commercial considerations justify the security.

These categories should be analysed transaction by transaction. A supplier paid by ordinary bank transfer on the contractual due date is not automatically preferred merely because other suppliers were unpaid. Conversely, a payment labelled “ordinary” may be vulnerable if it was accelerated, made after a special demand, paired with a release of claims, or funded by a last-minute asset transfer to a related party.

Article 148(2): harmful dispositions and knowledge

In addition to the listed categories, the Bankruptcy Court may order that another disposition made during the relevant period is not enforceable if it harmed creditors and the counterparty knew or should have known, at the time, that the debtor had ceased payment or was in financial deficit. The inquiry is contextual. Red flags may include repeated dishonoured payments, creditor enforcement, sudden management requests, a price far outside market evidence, a request to backdate documents, or a counterparty with access to the debtor’s internal accounts.

Article 148(3): insiders and related parties

For a transaction between the debtor and an insider or related party, Article 148 extends the review back two years before the cessation-of-payment date. The longer period reflects the information advantage and influence that such parties may possess. The company’s board minutes, shareholder ledgers, family and control links, intercompany accounts and beneficial-owner records should therefore be reviewed early.

The judgment invalidating the act operates against all creditors, whether their rights arose before or after the transaction. That collective effect is one reason a private settlement with one creditor may not protect the counterparty from a later trustee challenge.

5. Article 149: late mortgages and liens

Article 149 addresses registration of a mortgage or lien over debtor assets after the cessation-of-payment date. A court may make the registration unenforceable against creditors if the creditor knew that the debtor had ceased paying its debts. The rule does not generally attack a security that was registered late merely because the paperwork was delayed: it includes exceptions where the security secures an existing debt and the underlying security right was created earlier, or where registration implements a contract ratified before cessation of payment.

Security counsel should distinguish the date of agreement, date of execution, date of perfection and date of registry entry. A creditor who has a signed pledge but does not perfect it until after the debtor stops paying may face a ranking dispute. Search registry records, compare the security document to the original facility, and identify whether the late registration changed the position of an existing creditor or merely completed a pre-existing bargain.

Article 149 also addresses the effect on the next-ranking mortgagee. If the first mortgage is held unenforceable, the next mortgagee may take its rank, but only to the amount it would have received if the first mortgage had been enforceable; the difference goes to the creditor body. This prevents the second creditor from receiving an unjustified windfall.

6. Article 151 and the Civil Transactions Law route

Article 151 permits the trustee to request invalidation of debtor acts made before the initiation decision to the detriment of creditors, in accordance with the Civil Transactions Law’s rules on a creditor’s claim for non-enforceability. This is broader than the fixed categories in Article 148, but it requires careful pleading of the civil-law elements and the debtor’s effect on the creditor’s general guarantee.

The current Civil Transactions Law, Federal Decree-Law No. 25 of 2025, includes a claim for non-enforceability in Articles 344 and 345. In general terms, a due creditor may challenge a disposition that diminishes the debtor’s rights, increases obligations, causes or aggravates insolvency, or otherwise prejudices recovery. A disposition for consideration commonly requires proof of the debtor’s bankruptcy or insolvency and the beneficiary’s knowledge; an unusual gratuitous disposition is treated more strictly. All creditors harmed by a successful non-enforceability ruling may benefit from it.

The Civil Transactions Law also contains limitation rules for the claim. The creditor’s knowledge date and the act’s date should be proved carefully, and older transactions may require a transitional-law analysis because the 2025 Civil Transactions Law replaced the earlier code from its effective date. Do not use the Article 151 route as a shortcut around Article 150’s one-year period without determining which claim is being filed and which limitation rule applies.

7. Recovery, restitution and what the counterparty may claim

Article 152 sets out the principal consequences of an invalidated act. The counterparty must return to the debtor or trustee the amounts received from the debtor, or the value of the item at the time of receipt if return in kind is impossible. The counterparty must also pay interest or benefits resulting from the received item from the date of receipt.

The counterparty may recover the consideration it supplied if that consideration remains in the debtor’s assets. If it is no longer there, the counterparty may claim the benefit that accrued to the debtor and participate as an ordinary creditor for any excess. The result is not necessarily an all-or-nothing forfeiture: the accounting must trace both sides of the transaction and distinguish recoverable value from an ordinary unsecured claim.

Typical recovery outcomes

8. Creditor strategy and evidence

Start with an asset-and-relationship map

Before filing, list the debtor’s bank accounts, real estate, vehicles, inventory, receivables, intellectual property, shares, related-party balances and security registrations. Map directors, shareholders, senior managers, subsidiaries and beneficial owners. Compare the map with the debtor’s financial statements and the disposition list required in a bankruptcy application. An unexplained reduction in assets may be more important than a single suspicious payment.

Build the chronology

Prepare a spreadsheet with every material payment or transfer for at least two years before the suspected cessation of payment, extending further where the civil-law claim or other avoidance basis requires it. Record value, counterparties, relationship, stated purpose, payment method, approval, valuation, business justification and the effect on unsecured creditors. Flag transactions completed shortly after a demand, enforcement notice, bounced payment or change in management.

Preserve digital and registry evidence

• Bank statements, payment instructions, beneficiary details and approval trails.
• Accounting ledgers, general journals, shareholder and related-party accounts.
• Commercial-register extracts, land-register entries, movable-asset pledges and corporate filings.
• Board and general-assembly minutes, email chains, messaging records and valuation reports.
• Supplier demands, enforcement proceedings, returned instruments and collection notices.
• Tax, payroll, customs and regulatory arrears showing the debtor’s payment condition.

Choose the procedural vehicle

Article 148 and Article 149 actions are brought in the Bankruptcy Court within the statutory period. The trustee may also ask for precautionary measures to preserve the estate. A creditor should coordinate with the trustee rather than file parallel proceedings that create inconsistent findings or unnecessary costs. Where the trustee has not yet been appointed or is not pursuing an obvious transfer, the creditor should obtain advice on the available application, intervention or information route.

For an Article 151 claim, plead the Civil Transactions Law elements and relief with precision. Explain why the disposition reduced the debtor’s guarantee, how the beneficiary knew or should have known, why the creditor’s right is due, and how the act affects the recovery pool. Seek interim protection where dissipation is imminent, but support the request with concrete evidence rather than suspicion.

9. Defences and commercial-justification arguments

Ordinary-course dealing

A supplier may argue that the payment followed normal terms, was supported by delivered goods, and was made without knowledge of distress. This defence is stronger where the creditor continued supplying on ordinary credit, did not demand acceleration, received no unusual security, and can produce consistent records from before the review period.

Commercial considerations

Article 148 expressly recognises commercial considerations for certain premature repayments, substituted payment methods and new security for a prior debt. The phrase does not create a blanket safe harbour. The party should show a contemporaneous business reason, proportional value, management approval, objective evidence and a result that was reasonably capable of benefiting the business. Examples may include preserving a critical supply line, funding a transaction that generated cash, replacing an expiring security package or resolving a genuine dispute for a discounted amount.

No knowledge of cessation or deficit

For the Article 148(2) discretionary challenge, the counterparty may contest actual or constructive knowledge. A buyer who is independent, paid market value, conducted reasonable diligence and had no access to internal information will have a better factual position than a director’s family company paid after several unpaid demands.

Good faith and benefit to the business

Article 150 permits the Bankruptcy Court to dismiss actions under Articles 148 and 149 if satisfied that the debtor acted in good faith to carry out its business and had reasons to believe the action could benefit the business. The evidence should be contemporaneous. A defence drafted after insolvency, without board minutes, forecasts or market evidence, will be less persuasive.

10. Director, manager and liquidator exposure

Clawback recovery and personal liability are related but distinct. Returning an asset to the estate does not automatically make a director personally liable for the entire company debt. Personal exposure depends on the conduct, statutory provision, causation and the remedy sought.

Article 246 permits the Bankruptcy Court, after the company is declared bankrupt and upon request of the trustee, the Financial Restructuring and Bankruptcy Unit or a creditor, to order members of the board, managers, actual managers or persons responsible for liquidation to pay an amount proportionate to the mistake attributed to them. The article addresses liquidation procedures carried out outside the Bankruptcy Law and provides a two-year period for bringing the liability case from the bankruptcy judgment.

The Bankruptcy Law also contains offences concerning concealment or destruction of books, embezzlement or concealment of assets, false debts, fictitious profits, disposal of assets below market value to delay bankruptcy, and preferential payment after cessation of payment. A transaction may therefore create civil recovery, director-liability and criminal risks at the same time. Do not destroy or “clean up” records after learning of a bankruptcy application; preserve them and obtain advice.

Managers and liquidators may also face liability under the Commercial Companies Law and other laws for fraud, abuse of power, breach of duty, employment violations, tax misconduct or unlawful distributions. A resignation or replacement does not erase responsibility for acts performed while in office.

11. Free zones, regulated businesses and cross-border issues

ADGM and DIFC

ADGM and DIFC have separate companies, insolvency courts and avoidance rules. The federal Bankruptcy Law expressly excludes free-zone entities with special insolvency provisions. A creditor should not assume that the six-month and two-year periods in Article 148 apply to an ADGM or DIFC debtor. Check the debtor’s registration, governing law, court and security registry first.

Financial institutions and regulated assets

Banks, insurers and other regulated financial institutions may be subject to resolution or special liquidation legislation. Client money, trust assets, custody property and segregated accounts may not form part of the ordinary bankruptcy estate. Obtain the regulator’s position before treating a payment or account transfer as an ordinary preference.

Cross-border recovery

Assets or counterparties outside the UAE may require recognition, letters of request, local proceedings or a treaty-based route. A UAE avoidance judgment may be useful evidence but does not guarantee automatic enforcement abroad. Conversely, a foreign insolvency proceeding may need recognition in the UAE before a trustee can control local assets or challenge a UAE transfer. Asset tracing should address beneficial ownership, not just the name on a bank or land record.

12. Checklists, examples and decision matrix

Creditor checklist

• Confirm the debtor’s legal form, registry, free-zone status and the court that issued the initiation decision.
• Obtain certified copies of the initiation and bankruptcy judgments and prove service dates.
• Calculate possible cessation-of-payment dates from due debts and notices.
• Collect two years of related-party and insider transactions, plus at least six months of ordinary dealings.
• Search real-estate, movable-asset and commercial registers for late security or title changes.
• Trace consideration: what left the debtor, what it received, where it went and whether value remains.
• Coordinate with the trustee and preserve evidence before assets or records move.
• Check Article 150’s one-year limit and any Civil Transactions Law limitation or transitional issue.

Counterparty checklist

• Preserve the contract, invoices, delivery records, payment history and original approval documents.
• Document market value and the reason for any discount, acceleration, substitute payment or security.
• Show independence from the debtor’s management and the absence of knowledge of cessation of payment.
• Identify any consideration still held in the debtor’s estate and calculate a potential ordinary claim.
• Do not transfer or dissipate the received property after receiving a trustee or court notice.
• Obtain a forensic accounting review before making admissions or settlement proposals.

Illustrative scenarios

HZ Legal view

The strongest clawback cases are built on a clean timeline, a defensible valuation and a relationship map. Creditors should avoid relying on the label given to a transaction and instead trace the commercial substance: what did the debtor give, what did it receive, when did it happen, who knew about the distress, and how did it change the recovery pool? Counterparties should preserve contemporaneous evidence of value and business purpose. A careful review can distinguish an ordinary transaction that kept a business alive from a disguised preference that shifted value away from the creditor body.

13. Frequently asked questions

Does every payment made before bankruptcy have to be returned?

No. The Bankruptcy Law targets listed transactions, harmful dispositions and transactions involving relevant knowledge or relationships. A payment made in the ordinary course at maturity may survive if it was not premature, unusual or otherwise prejudicial.

What is the main Article 148 look-back period?

The listed Article 148 acts are examined during the six months preceding the cessation-of-payment date. Transactions between the debtor and an insider or related party can be examined during the two years preceding that date.

When does the one-year court period begin?

Article 150 states that an action under Articles 148 and 149 is not heard after one year from service of the decision initiating proceedings. Prove the service date and do not assume that publication, knowledge or the bankruptcy judgment automatically substitutes for service.

Can a creditor challenge a transfer outside the Article 148 periods?

Potentially. Article 151 allows the trustee to use the Civil Transactions Law’s non-enforceability rules for acts detrimental to creditors. The elements, limitation and transitional treatment must be analysed separately.

Is a late-registered pledge automatically invalid?

No. Article 149 focuses on registration after cessation of payment and the creditor’s knowledge, while preserving exceptions for a pre-existing security arrangement or a ratified earlier contract. The dates of creation, execution and perfection matter.

What does the counterparty receive after returning the benefit?

Article 152 allows recovery of consideration supplied if it remains in the debtor’s assets. Otherwise, the counterparty may claim the benefit that accrued to the debtor and participate as an ordinary creditor for any excess.

Can directors be ordered to pay company debts?

In appropriate cases, yes. Article 246 permits a proportionate liability order against directors, managers, actual managers or persons responsible for liquidation after a bankruptcy judgment, where the statutory conditions and mistake are proved. Separate civil and criminal provisions may also apply.

Do the federal clawback rules apply to DIFC or ADGM companies?

Not as a default assumption. Those financial free zones have their own insolvency laws and courts. Other free zones and regulated businesses may also have special regimes.

Sources and further reading

• Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy.
• Official English download of the Bankruptcy Law.
• Federal Decree-Law No. 25 of 2025 promulgating the Civil Transactions Law.
• Official English download of the Civil Transactions Law.
• Federal Decree-Law No. 32 of 2021 on Commercial Companies.
• UAE Government portal: Law on Bankruptcy.

Disclaimer: This article is general information for educational purposes and is not legal, insolvency, tax, accounting or financial advice. The Arabic text, amendments, Executive Regulations, court practice and transitional rules may affect the analysis. The article does not cover every free-zone, financial-sector or cross-border regime. Before filing a clawback claim, defending a transaction or returning property, obtain advice on the debtor’s jurisdiction, transaction dates, cessation-of-payment evidence, limitation, security perfection, valuation, related-party status and available interim relief.