When a company faces severe financial distress, employees are often the first to feel the impact. Salary delays, unpaid benefits, and uncertainty about job security become immediate concerns. In the UAE, corporate bankruptcy is governed by a structured legal framework that aims to protect creditors, stabilise businesses, and ensure fair treatment of employees. Understanding what happens to salaries, gratuity, and other entitlements during bankruptcy helps employees navigate this challenging situation with clarity.
Employees Are Priority Creditors Under UAE Law
UAE bankruptcy legislation recognises employees as priority creditors. This means that unpaid salaries, end‑of‑service gratuity, and other labour entitlements must be settled before most other debts. The law places employee claims ahead of unsecured creditors, suppliers, and many financial obligations.
This priority status ensures that employees are not left without protection when a company becomes insolvent.
Unpaid Salary and Allowances Must Be Settled First
If a company enters bankruptcy proceedings, unpaid salary is treated as a privileged debt. Employees are entitled to receive:
- unpaid wages
- overtime dues
- unpaid commissions
- accrued but unused leave salary
These amounts are calculated up to the date the company stops operating or the date the employment contract is terminated.
The bankruptcy trustee is required to verify and prioritise these claims during the settlement process.
End‑of‑Service Gratuity Remains a Legal Obligation
End‑of‑service gratuity is a statutory right under UAE labour law. Bankruptcy does not cancel this obligation. The gratuity is calculated based on the employee’s last basic salary and must be included in the list of priority debts.
Even if the company has no liquid cash, the trustee may liquidate assets to pay employee entitlements.
What Happens if the Company Has No Funds to Pay Employees
If the company’s assets are insufficient to cover all employee claims, the bankruptcy court may:
- liquidate remaining assets
- pursue claims against shareholders or directors in cases of misconduct
- distribute available funds proportionally among employees
In certain situations, if the company’s financial collapse is linked to fraud, mismanagement, or unlawful conduct, directors and managers may be held personally liable.
Can Employees File a Labour Complaint During Bankruptcy
Yes. Employees can still file a complaint with the Ministry of Human Resources and Emiratisation if salaries are unpaid. The Ministry will review the complaint and may refer the matter to the Labour Court. Once bankruptcy proceedings begin, the employee’s claim is transferred to the bankruptcy trustee, who must include it in the list of priority debts.
Filing a complaint ensures that the employee’s rights are formally recorded and protected.
What Happens to the Employment Contract During Bankruptcy
When a company enters bankruptcy, employment contracts may be:
- terminated
- suspended
- continued temporarily during restructuring
If the company is undergoing restructuring rather than liquidation, employees may continue working under revised arrangements. If the company is liquidated, employment contracts are typically terminated, and employees become creditors entitled to settlement of all dues.
Personal Liability of Owners and Directors
In an LLC, the company is generally responsible for its debts. However, UAE law allows personal liability in cases where:
- the company was mismanaged
- financial records were falsified
- the company continued trading while insolvent
- funds were misused or diverted
If misconduct is proven, employees may pursue claims against the owners or directors personally.
Visa and Residency Considerations for Employees
If a company enters bankruptcy, employees must ensure that their visas are cancelled properly. The bankruptcy trustee or authorised signatory is responsible for completing visa cancellations. Employees should monitor their residency status to avoid overstaying.
In many cases, employees are granted a grace period to find new employment.
How Employees Can Protect Their Rights
Employees should take practical steps to safeguard their entitlements. These include keeping copies of employment contracts, salary slips, bank transfer records, correspondence regarding unpaid dues, and any internal notices about financial difficulties. Documentation strengthens the employee’s claim during bankruptcy proceedings.
Conclusion
Corporate bankruptcy can be unsettling for employees, but UAE law provides strong protections to ensure that salaries, gratuity, and other entitlements are prioritised. Employees are recognised as privileged creditors, and their claims must be settled before most other debts. Whether the company restructures or liquidates, employees retain clear legal rights throughout the process.
Our team at Ayesha Al Dhaheri Advocates and Legal Consultants assists employees and employers in navigating bankruptcy‑related labour issues, filing claims, and ensuring that entitlements are properly recovered. If your company is facing financial collapse or you are concerned about unpaid dues, we provide the legal guidance needed to protect your rights with confidence.