United Arab Emirates

On 15 December 2016, the United Arab Emirates (UAE) enacted Federal Law No. 20 of 2016 on Mortgaging Moveable Properties as Security for Debts (‘the Security Law’). Introduced with little commotion or notice, the Security Law would came into effect 90 days after publication, approximately on 12 March 2017.

The Security Law follows after a number of recent pieces of legislation, including the Commercial Companies Law and Bankruptcy Law. It builds upon the existing base of UAE secured transactions law, introducing a number of significant changes to the UAE’s secured transactions regime.

Reforms under the Security Law

The changes introduced by the Security Law include:

  • Most significantly, the Security Law will create a Register of Charges, similar to that of United States Uniform Commercial Code, Art 9. Apart from the fact that the Register will be electronic, little is known about what information will be made available, and whether the Register will be accessible by the public. There has not been news on the creation of the Register yet.
  • Priority will now be determined by date of registration. If multiple charges are created over the same asset, the first to register the charge will have priority over the others. This is a departure from the existing regime, under which there was a single provision in the UAE Civil Code dealing with successive assignments, and not with security interests specifically.
  • New rules dealing with commixing of goods were introduced. Under the new regime, if the goods are separable, then the existing pledges will remain effective. If the goods are not separable, then the pledgees have an effective pledge over the percentage of the mixture accruing to him.
  • The ability to create charges free from possession, and without title transfer to third parties has been affirmed by the Security Law.
  • The Security Law confirms that security interests can be taken over future property.
  • Security interests will now extend to the proceeds of moveable assets.
  • The Security Law introduces new self-help remedies. First, if security is taken over a bank account held at the creditor bank, then set-off is permitted. Second, if security is taken over a bank account held at a third party bank, the creditor bank will be allowed to claim against the bank balance. Third, enforcement can also be carried out by delivery or endorsement of bonds or written instruments, if the bonds or written instruments have a value equal to the pledge.

A number of questions remain unanswered. Chiefly, it is unclear when the Register of Charges will be established. The STR has been informed that the design of the Register has proved challenging, and that it is still in development at the time of writing. In addition, given that the Security Law appears to have come into effect, it is unclear whether priority of security interests will have begun to be determined by date of registration.

World Bank Group Commentary

After the law was published, the World Bank Group provided a number of suggestions to the UAE legislature, on how to further improve the operation of the Security Law. These suggestions have been very kindly shared with the STR by Mr Murat Sultanov, a Senior Operations Officer in the Finance and Markets Global Practice of the World Bank Group (WBG).

A number of key suggestions that the WBG has put to the UAE legislature are:

  • Extending the scope of the Security Law to quasi-security, and to adopt a functional approach in characterising security, rather than dealing only with pledges.
  • Making clear in the Security Law whether assets can be described as a class, rather than being described individually.
  • Reconsidering the registration of the contract dealing with the transaction, and instead adopting a notice-filing based model.
  • Making clear under Art 13(2) of the Security Law whether possession of the asset over which security is taken allows the possessor to obtain a security interest binding over third parties, and taking priority over other interests.
  • Not permitting notices of enforcement to be published on the Register, as allowing their publication will put pressure on creditors to constantly check the Register for such notices.
  • Reconsidering the need for proof of the right in the collateral under Art 44 of the Security Law.
  • Clarifying various other issues, such as priority and purchase money security interests.

More information

To view an unofficial English translation of the Security Law, please click here. The STR would like to thank Mr Murat Sultanov for providing this translation. Please note that the Arabic version of the Security Law is authoritative.

For more information, click on the links below: