United Arab Emirates

On June 1st 2020, Federal Law No. 4 of 2020 (referred to below as the ‘2020 Law’) was enacted in the United Arab Emirates. The associated Executive Regulations Regarding the Security Interest in Movable Property (referred to below as the ‘2021 Regulations’) entered into force on 1st April 2021. The previous law governing security interests was the Federal ‘Pledge’ Law No. 20 of 2016 (referred to below as ‘2016 Law’). The 2016 Law already represented a coherent, unified security interest law and created the Emirates Movable Collateral Registry (EMCR) but the 2020 Law and the 2021 Regulations provide important updates compared to the 2016 Law. The 2016 Law is now repealed. The 2021 Regulations included 6-month transition period, and provide that (under Regulation 25) that the registrations already made remain effective.

The 2020 Law has a broad scope. The 2020 Law covers that ‘any’ contract that create a security interest (‘pledge interest’) and outright transfers of receivables, clearly applying to ‘functional equivalents’, which was not the case under the 2016 Law. It also clarifies that it is possible to create security over accounts receivables, something which was unclear in the 2016 Law. There is an extensive number of assets over which one can create non-possessory security interests in UAE, including receivables, bonds, inventory, work tools, agricultural products. Immovable property is outside the scope of the Law, but it is possible to create security interests over fixtures located on immovable property. Overall, most movable assets are capable of being the subject of a security interest under Article 3 of the 2020 Law, as long as they are specified property. Unlike under 2016 Law, the 2020 Law expressly permits an interest in part or undivided interest in an asset to be encumbered. The 2020 Law specifically mentions it is possible to create security interests over future property. This is an update from the 2016 Law, under which it was unclear whether this was possible. As far as personal scope is concerned, anyone can be a security provider 

Regarding formalities for creation of security, the 2016 Law explained that in order to create a valid security, there had to be a written contract, including a description of the asset. The 2020 Law continues to provide for creation of security by contract, and general contract law remains applicable. It is possible to describe collateral and secured obligations either generically or specifically (Regulation 11(2) of the 2021 Regulations). A created but unperfected security interest can be enforced.

The 2020 Law provides for a range of methods of perfection (ie methods of making the security interest effective against third parties), much wider than was the case under the 2016 Law. Chapter V of the 2020 Law provides for four methods of perfection: registration in a public register, control, possession, as well as automatic perfection (Article 8, which states that, unless parties specify otherwise, security rights in assets automatically cover the proceeds, returns and replacements of those assets).

Registration applies not only to consensually-created security interests but also to non-consensual (judgement) liens. In relation to receivables financing – it facilitates notification of the receivables debtor. The details of operation of the register (the Collateral Registry) are set out in the 2021 Regulations. The Registry is electronic, online and available 24/7. It is notice-based and the processing and rejection of notices takes places automatically, without any intervention of the Registry staff. It is also possible to register a notice before a security interest is created. 

Perfection by control (Regulation 18 of the 2021 Regulations) relates to bank (credit) accounts only. Control can be taken either by the bank itself or a third party through a control agreement. 

Priority is determined by the time of perfection but this is subject to transitional provisions and any subordination agreements. Priority of non-consensual (judgement) liens is governed by the same rules as those concerning consensual interests.

 The 2020 Law also allows out-of-court enforcement of security rights, by selling the assets in question in order to settle the debt. This was also present in the 2016 law.

Click here to access the Emirates Movable Collateral Registry (EMCR), the Federal Law and the Regulations 

Further reading:

Last Checked July 2021

If you have any questions or would like to suggest an update please email magda.raczynska@ucl.ac.uk