Types of Debts
In general terms, debt obligations are divided into two categories:
- Commercial debts or debts of the companies
- Consumer debts or individual loans
In the UAE, having unpaid debts is a serious crime which not only damages business reputation, but can lead to the forced liquidation of a company.
Litigation is an extreme measure. It is used only when it’s impossible to resolve the issue by negotiations. In the majority of cases, lenders try to establish communication with borrowers, and as a result, reach an agreement. At this stage, the lender and its representatives can issue invoices to the borrower and communicate in written or oral form.
The legislative framework of the UAE strictly regulates the forms of interaction between the lender and the borrower. The creditor or his/her representatives are prohibited from:
- Use of physical or moral violence against the borrower, members of his/her family and other close persons
- Stalk & interfere into their private affairs
- Mislead
- Use falsified documents
In case the extrajudicial debt collection has not led to any agreed result, the creditor has no choice but to get in touch with the appropriate authorities. In the emirates of Abu Dhabi, Ajman, Fujairah, Sharjah and Umm al-Quwain, a federal judicial system, which includes the Court of First Instance, the Court of Appeals and the Supreme Court of Cassation, is used. Dubai and Ras al-Khaimah have their own courts named the Court of First Instance and the Court of Appeal, headed by the Court of Cassation in Dubai.
Moreover, on the territory of the UAE there are free financial zones that have special privileges and their own judicial authorities. One of the best examples is the Dubai International Financial Center (DIFC) which is a self-contained zone within the UAE with its own commercial laws, as well as an independent tribunal with the ability to conduct processes in English.
According to the Federal Law No. 5 of 1985 On the Civil Transactions Law of the United Arab Emirates State, the limitation period for judicial collection of the debt is 15 years. However, depending on the type of dispute and the specifics of the agreement, the period may be revised.
In case the borrower is a UAE resident or has assets in the country, local courts have the right to resolve any disputes in relation to him/her, if there jurisdiction in the agreement between the debtor and the borrower is absent.
If the court takes place outside the UAE, make sure you check in advance whether there is an agreement on mutual legal assistance between the UAE and that state, because the execution of decisions of foreign courts without a special document is impossible in the UAE.
At the initiation of civil or commercial proceedings, the lawsuit may first be referred to the Reconciliation and Settlement Committee appointed by the Ministry of Justice. The aim of the committee is to help parties reach the agreement before the actual initiation of legal proceedings.
If the meeting of the Committee didn’t reach any result, the case is transferred to the Court of First Instance. A lawsuit is drawn up and documents confirming the existence of an outstanding debt are provided.
NB! All documents submitted to the UAE courts must be written in / translated into Arabic.
A lawsuit must state the essence of the dispute and indicate the exact amount of the debt. While applying to the court, you will also need to pay a court fee. From that moment, the trial will begin. Persons authorized by the court must provide the defendant / debtor with a notice of a lawsuit, and after that a date for the first hearing of the case is set. If the defendant ignores the judicial authorities or is impossible to be found, a court decision can be made without his/her presence.
In the cases of debt collection, the local court may impose a ban on the transfer of assets including cash, bank accounts, company trading licenses, as well as movable and immovable property. However, these measures won’t allow the defendant to hide his/her financial situation or reduce the amount of payment needed to be repaid.
The judicial authorities of the DIFC and the Abu Dhabi Global Market (ADGM) have the right to impose a ban on the alienation of assets located in the UAE, as well as outside the country.
During the hearing, parties get the opportunity to present their arguments and vision of the case in written form.
The decision of the Court of First Instance may be appealed through the Court of Appeal within 30 days from the date of the judgment. If one of the parties remains dissatisfied with the outcome, a further appeal can be held in the Court of Cassation within 30 days from the date when the decision of the Court of Appeal has been taken, but only in the case that the amount of the lawsuit is from AED 500,000 (USD 136,000).
NB! The decision of the Court of Cassation is final.
Execution of Judgment
The decision of the court can be executed only after it enters into force. The implementation of all prescribed measures is done by the special administrative staff of the Department for the Execution of Judgments who manages the jurisdiction and enforces decisions of the court.
NB! Implementation of the measures prescribed by the court is possible only in the case when neither party has appealed the current judgment to the Court of Appeal.
There are several ways to execute a judgment:
- Make a seizure with a subsequent sale of the debtor's movable property
- Sale of the property
- Deprivation of liberty
It’s important to remember that whilst entering into a lawsuit, that even the most successful court decision cannot always be enforced. We respect our clients and provide them with the clearest prospects for their cases. We strongly believe that openness with clients is important during the conduct of litigation.