On June 1st 2020, Federal Law No. 4 of 2020 was enacted in the United Arab Emirates. The previous law governing security interests was the Federal Law No. 20 of 2016, which already represented a coherent, unified security interest law and created the Emirates Movable Collateral Registry (EMCR). The 2020 Law was an unexpected update that did not change much but merely clarified a few provisions.
Regarding scope, 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 act, 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. The 2020 Law specifically mentions it is possible to create security interests over future property. This is an update from the 2016 Law, where it was unclear whether this was possible. Another update is that the 2020 Law clarifies that it is possible to create security over accounts receivables, something unclear in the 2016 Law.
Regarding formalities, 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 in question. This has stayed the same in the 2020 Law, with the new clarification in Article 8, which states that, unless parties specify otherwise, security rights in assets automatically cover the proceeds, returns and replacements of those assets.
The 2020 law also refers to the creation of a public online register, but the regulations regarding this register have not been published yet. The 2016 Law already created a register with these characteristics, managed by the Emirates Development Bank, and therefore it is unclear whether the register will remain the same under the 2020 Law, or whether they will create an entirely new one. It is expected the regulations will be published soon. This has placed parties who have security interests registered on the current register in a limbo, as the Old law, which created the current register, has been repealed, and the regulations for the new register have not emerged yet. It is unclear what will happen to these parties once the new regulations come out, especially if some happen to not comply with the new regulations.
Under the 2020 law, security rights can be perfected either by registration on the public register, delivery of the asset to the creditor, or control of the asset to the creditor. This has remained the same as in the 2016 law. 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.
Last Checked January 2021
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