The DIFC Rehabilitation Plan reflects a global trend towards restructuring solutions, allowing companies the opportunity to recover through a structured approach, under Court supervision.
Instead of winding up operations, a debtor company may reorganise its debts and business structure with the cooperation and support of its creditors. The approach promotes the preservation of enterprise value, protection of employment, and maximisation of recoveries for stakeholders.
In my experience, it is absolutely vital that the Rehabilitation Nominee, when assisting the board in formulating meaningful proposals to creditors for a Rehabilitation Plan, engages in early discussions with major creditors, outlining the terms of the plan and the proposed return. No proposal should be structured that prejudices, in any way, the rights of secured and preferential creditors. Alternatively, any creditor or member which considers that the arrangement is unfairly prejudicial to them may apply to Court objecting to the arrangement.
Commencement of the Process
A debtor company incorporated in the DIFC may apply to the DIFC Court for rehabilitation if it is insolvent or likely to become insolvent and there is a reasonable prospect of reaching an agreement with its creditors and shareholders.
Key features include:
- Rehabilitation Nominee – The Board of directors of the company appoints one or more insolvency practitioners to supervise the process. Management remains in place but operates under the Nominee’s oversight.
- Automatic Moratorium – On filing, a 120-day moratorium is triggered, unless the Court orders otherwise, preventing creditor enforcement actions and blocking contractual termination rights (including ipso facto clauses).
This “breathing space” is a cornerstone of the process, giving the company time to formulate a viable restructuring proposal.
Directions Hearing and Classification
At the Directions Hearing, the Court will approve the notice and voting procedures proposed by the company, which shall provide that secure creditors, unsecured creditors and shareholders are placed into separate classes for voting on the Rehabilitation Plan. The Rehabilitation Nominee must confirm that:
- the plan has a reasonable prospect of approval and implementation;
- the debtor has sufficient resources to continue operations during the moratorium; and
- it is appropriate to convene a meeting of creditors and shareholders of the company.
Voting at the Rehabilitation Plan Meeting
At the Rehabilitation Plan Meeting, each class of creditors and shareholders must approve the plan by at least 75% in value.
Classes that are not impaired are deemed to have accepted automatically. The Court may sanction a plan even if certain classes object, provided at least one impaired class has approved and statutory safeguards on fairness and value distribution are met. This mechanism operates in effect as a cross-class cram-down, preventing holdout creditors or shareholders from blocking an otherwise viable restructuring.
Financing During Rehabilitation
The DIFC Insolvency Law allows companies under a Rehabilitation Plan to raise fresh financing with Court approval. This can include secured or unsecured debt that ranks ahead of existing unsecured claims or is backed by new or junior security. Where necessary, the Court may even permit financing that takes priority over existing secured creditors, provided adequate protection is in place. This Debtor in Possession (DIP) financing is designed to keep distressed businesses operating and stable while restructuring is underway.
Sanction and Binding Effect
After creditors and shareholders vote, the Court holds a sanction hearing. The plan will only be confirmed if the Court is satisfied that:
- it has been proposed in good faith;
- it complies with statutory requirements;
- is not unfairly prejudicial to any class of creditors or shareholders, or to creditors as a whole;
- all classes have accepted, or at least one impaired class of creditors has voted to accept;
- there has been no material violation of the Court-approved notice and voting procedures;
- does not leave any creditor worse off than in liquidation; and
- junior creditors or shareholders do not recover value ahead of dissenting senior creditors.
Once sanctioned, the plan becomes binding on all creditors and shareholders in the affected classes, including dissenters. If sanction is refused, the Court shall immediately proceed to take steps to wind up the company.
Role of an Administrator
Where an application for a Rehabilitation Plan has been made and there is evidence of fraud, mismanagement, or incompetence, creditors may apply to the Court for the appointment of an Administrator. The Administrator displaces the directors’ powers, investigates misconduct, manages assets, raises financing (subject to approval by the Court), and may propose alternative restructuring solutions. This mechanism ensures integrity and protects creditors against potential abuse of the process.
Cross-Border Recognition
The DIFC Insolvency Law incorporates the UNCITRAL Model Law on Cross-Border Insolvency, facilitating recognition of proceedings and cooperation with foreign Courts. This is particularly valuable given the international nature of businesses operating within the DIFC.
Conclusion
The DIFC Rehabilitation Plan regime allows the debtor to benefit from an automatic moratorium, whilst combining judicial supervision, structured creditor involvement, cross-class cram-downs and access to rescue financing. Together, these elements provide distressed companies with a genuine opportunity for recovery whilst seeking to maintain transparency and fairness for all stakeholders.
By aligning closely with international best practice, the regime reinforces DIFC’s position as a leading international financial centre, one that promotes both commercial resilience and creditor confidence.
Chris is a Chartered Accountant, member of the ICAEW and on the list of approved Insolvency Practitioners of the DIFC and ADGM. He is also a UK, Cyprus and Romania licensed Insolvency Practitioner.
