Dubai skyline — insolvency and employment protections are decided by law and by the assets available to liquidators.
Published: 1 December 2025 | By Calm Gulf Life Blog
If your employer becomes insolvent, what happens to unpaid wages and end-of-service gratuity? Short answer: employees are usually given priority in UAE insolvency law — but that priority is limited, and there’s no automatic government fund that pays out missing gratuity. This post explains the legal basics, practical limits, and exact steps you should take to protect your claim.
What the law says — plain and simple
When a company goes into formal bankruptcy, a court-appointed trustee or liquidator gathers the company’s assets and distributes proceeds to creditors in a set order. Under the UAE’s recent restructuring and bankruptcy rules, **employees are treated as preferred (priority) creditors** for unpaid wages, notice pay, accrued leave and end-of-service gratuity — but with a statutory limit on how much of those claims receive that preferred status.
Key legal change to know
In May 2024 the UAE introduced a new Financial Restructuring and Bankruptcy law which modernised creditor ranking and insolvency procedures. This update reinforced employee protections but kept caps and procedural rules that affect how much workers actually receive.
Key Highlights
- Employees are generally classed as preferred creditors in UAE insolvency proceedings.
- The preferential payout is **capped** (commonly referenced as up to three months’ salary in practical guidance); amounts above the cap are treated as unsecured claims.
- There is **no universal government fund** that automatically covers unpaid gratuity — payments must come from the employer’s assets or court-ordered remedies.
- Free zones such as DIFC and ADGM follow their own insolvency rules which can change procedural outcomes.
- You must file a claim with the liquidator and can also file a labour complaint with MOHRE (or the relevant free-zone authority).
Why it matters to you
Being a preferred creditor raises your priority, but it does not magically create cash. If a company has few or encumbered assets, a capped priority and many creditors may mean employees receive only part — or, in the worst cases, none — of the amounts owed. Knowing the rules helps you take the right steps quickly.
- Preferred creditor status exists but is **limited**; expect the law to prioritise part of your claim first.
- There is no automatic state compensation for all unpaid gratuities — funds come from the employer’s estate.
- Free-zone rules may differ — check DIFC/ADGM guidance if you work in those zones.
- File claims quickly with the liquidator and lodge a MOHRE complaint to preserve options.
How the priority/cap works (more detail)
Legal analyses and recent reporting explain the typical pattern: a limited portion of unpaid wages and benefits is paid first (the “privileged” portion). Anything over that amount becomes an unsecured claim. Practically speaking, employees with small unpaid months may recover most of their dues, while long-serving employees with large gratuity balances may only recover the capped portion unless the company has substantial unencumbered assets.
- Privileged amount: often described in commentary as roughly the equivalent of a few months’ salary for each employee (practical cap reported as three months' salary in recent coverage).
- Excess claims: treated as unsecured; paid pro-rata only if funds remain after all preferred and secured creditors are satisfied.
- Secured creditors: lenders with asset-backed claims may have first rights over specific assets, reducing what’s left for employees.
- Timing: bankruptcy and liquidation processes can take months to years — patience, documentation and active follow-up are required.
Legal paperwork — lodging formal claims and MOHRE complaints gives you documented standing in insolvency proceedings.
Step-by-step: what to do if your company goes bankrupt
Follow these actions in order to preserve your rights and maximise your chance of recovery:
- 1. Confirm the insolvency process: when a company files, the liquidator or trustee should publish notices. Watch official court or regulator announcements and any notices at the workplace.
- 2. File a formal claim with the liquidator: submit your claim (salary, notice pay, accrued leave, gratuity) in writing and keep proof of submission. The liquidator manages the creditor list.
- 3. Lodge a labour complaint with MOHRE (or free-zone authority): MOHRE’s online complaint system and smart app let employees file wage/gratuity complaints; MOHRE can mediate and escalate to court if needed.
- 4. Gather documentation: employment contract, payslips, bank transfer records, visa/ID, any termination notice, and communications about unpaid dues. Photocopy and keep originals safe.
- 5. Consider legal advice if sums are large: an employment or insolvency lawyer can help lodge stronger claims, challenge creditor rankings, or file court applications.
Who benefits from the privileged status?
Most salaried employees with clear unpaid wages and standard end-of-service entitlements benefit from preferred status — especially where the unpaid amount is within the privileged cap. Lower-value unpaid months typically recover better than large, multi-year gratuity balances. Free-zone employees should verify local rules (DIFC/ADGM have their own frameworks).
Common pitfalls and what to avoid
- Don’t assume a company’s accounting entry for gratuity means cash exists — many employers only record a future liability on paper.
- Don’t miss the liquidator’s claims deadline — late claims risk exclusion or lower priority.
- Avoid informal compromises without documentation — always get settlement offers in writing and legal advice if needed.
Final Thoughts
UAE law has improved employee protections in insolvency, and being a preferred creditor helps — but reality depends on the company’s assets and creditor structure. Be proactive: file claims early, lodge a MOHRE complaint, collect paperwork and consider legal support for large claims. That gives you the best chance to recover wages or gratuity when an employer goes bankrupt.
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