The Growing International Reach of Abu Dhabi Global Market (ADGM): Highlighting a Recent Case on Cross Border Insolvency
Financial Services Focus
Mark BrownPartner, Head of Projects
Dina Al-Wahabi Senior Associate,Banking & Finance
The rapid growth of Abu Dhabi Global Market (“ADGM”) and the development of its legal framework will lead to new and novel situations. A recent decision of ADGM’s Court of Appeal1 is an example of how courts are interpreting ADGM’s laws to allow for a flexible administration of insolvency processes. This has important compliance implications for directors and senior officers, with a link to the ADGM.
The case, which is still ongoing, derives from the major ADGM insolvency situation of NMC Healthcare (“NMC”).
As the insolvency progressed, the administrators of NMC gained ADGM recognition for their UK appointments (given that NMC’s global businesses were extensive across the UAE and the wider Middle East), while the other two NMC-affiliated companies (including NMC Healthcare Limited (“NMCH”) after its migration and continuance from an onshore UAE domicile into the ADGM) were put into administration by orders of the ADGM courts.
In the course of proceedings, all three administrators sought the court’s intervention under Section 256 of the ADGM Insolvency Regulations 2022 (“Insolvency Regulations”), which is based, in part, on English law, to issue orders to produce various documents and compel actions from certain persons (including, among others, NMCH’s financial auditors in the region, Ernst & Young Middle East), but more specifically, at least with respect to certain allegations of misconduct, individual directors of NMCH (at the time of the allegations).
The responding parties presumed that the ADGM courts should apply Section 256 of the Insolvency Regulations within the interpretative approach of its UK equivalent, Section 236 of the UK Insolvency Act 1986, which, by English common law precedent, considerably limits the extra-territorial application of English courts making orders to persons outside those courts’ territorial jurisdiction. The UK Insolvency Act 1986 is also the law that ADGM’s insolvency regime is in large part, based upon.
Several jurisdictions, both by way of international agreements, such as the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency (1997) or through internal procedures, grant their courts powers to take certain actions that extend beyond their borders.
In essence, the responding parties argued that the application of the Insolvency Regulations was incorrect in this instance, given that NMCH had not yet migrated (or ‘continued’) into the ADGM at the time of the alleged misconduct under review (within the ordinary context of the ongoing insolvency proceedings). Furthermore, the respondents also argued that the Insolvency Regulations were not even in force at the time of the alleged misconduct under review. These positions suggested that NMCH, in its pre-ADGM domicile stage and prior to the entry into force of the then current Insolvency Regulations had essentially been outside the purview of ADGM’s jurisdiction and, as such, NMCH’s particulars could not be examined for matters which would have required compliance with a legal regime that was not yet even in force in a jurisdiction they were not domiciled in. Similar arguments were made in respect to the other persons and entities who were not domiciled within ADGM before or after NMCH’s continuance into ADGM.
With respect to the request for an order of the production of documents, ADGM’s Court of First Instance decided in favour of the Applicants through a sequence of legal reasoning based on ADGM’s statutory framework. Unconvinced with the Court of First Instance’s decision on this procedural matter, the respondents filed an appeal with the ADGM Court of Appeal. On 30 December 2024, ADGM’s three-justice Court of Appeal issued its judgment, upholding the findings of ADGM’s lower Court of First Instance on the procedural matter.
In doing so, the Court of Appeal essentially confirmed that ADGM’s legal reach in specific matters and certain instances, particularly involving wrongful and fraudulent actions with a bearing on how to assess what forms an ‘insolvent estate’. The outcome of the case extends beyond the ADGM’s primary ‘offshore’ territorial coverage, not only into the mainland of the UAE jurisdictions, but globally. In effect, it also confirmed that the ADGM can, if necessary, retrospectively examine the upstream pedigree of events that may relate to assessing what constitutes an insolvent estate, even beyond the historical dates by which any connection to the ADGM were first triggered.
The extra-territorial reach of insolvency laws is by no means a new or unique phenomenon. Several jurisdictions, both by way of international agreements, such as the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency (1997) or through internal procedures, grant their courts powers to take certain actions that extend beyond their borders. In parallel, the ability to “look back” (in time) ex ante at actions, omissions and events that may have adversely affected an insolvent entity and its estate (prior to insolvency), is a standard instrument of courts that preside over insolvencies, especially with respect to allegations of misconduct.
The most important practical implication is the international reach of director’s actions and decision making in the context of a business that has operations located internationally.
As ADGM pushes ahead with its plan to become the “capital of capital”, this case represents and highlights the possibility of businesses, directors and senior officers around the world with a nexus to the ADGM being subject to an ADGM court order. Companies that have a global footprint with a presence in the ADGM should take note. Senior officers and directors should ensure at all times they have an understanding of their duties as key decision makers in their company within the ADGM’s legal framework.
For further information,please contact Dina Al-Wahabi.
Published in March 2025
