Ways to create security over assets in the UAE

As the economy of the United Arab Emirates continues to recover from the 2008 financial crisis, the market is starting to see a steady increase in lending.

The creating of security interests in the UAE (outside the designated “free zones”, which are governed by their own regulations) is principally governed by the UAE’s Civil Code and Commercial Code. In addition, security over certain classes of assets can be created under special laws. Some of the nuances of UAE law that foreign lenders should be aware of when attempting to take security over assets in the UAE are discussed below.

Key restrictions

Unlike common law, UAE law does not allow creditors to resort to self-help to enforce their security interests. Lenders that hold security over particular assets must petition the UAE courts to order the sale of the secured assets to recover their dues. Although remedies are available in principle, enforcement in practice can sometimes take a long time and court decisions can be unpredictable.

With limited exceptions, foreign lenders are not permitted to register a direct security over assets in the UAE. This difficulty is typically overcome by the appointment of a local security agent, which must be a bank or other financial institution licensed in the UAE. The bank or financial institution must be willing to act as required and the terms of appointment must be agreed.

Haroon Jan Baryalay is a senior associate at Afridi & Angell, a UAE-based law firm with offices in Abu Dhabi, Dubai and Sharjah.