INSITE - UAE - May 2024
- sukhwinder21
- Jun 10, 2024
- 4 min read
COMMERCIAL LICENSES CAN NOW BE SEIZED AND INCLUDED IN DEBT RECOVERY PROCESSES
Summary: In a groundbreaking decision, the General Assembly of the Dubai Court of Cassation has ruled that commercial licenses can now be seized as part of debt recovery proceedings. This landmark judgment overturns previous interpretations and expands the assets that creditors can pursue to settle debts. By recognising the value of commercial licenses as tangible assets that can be evaluated and sold, the court has significantly widened the options available for creditors seeking to enforce their rights. This ruling is poised to reshape debt recovery practices in the United Arab Emirates (UAE), potentially setting a precedent for similar legal developments in other jurisdictions.
In Detail: The recent judgment from the General Assembly of the Dubai Court in Cassation No. 1 of 2024 (the “General Assembly Judgment”) is a significant development in the legal landscape of UAE, particularly in matters related to debt recovery. It introduces a new legal principle regarding the attachment of commercial licenses as part of debt recovery proceedings, expanding the options available to creditors seeking to enforce their rights.
Previously, there was uncertainty surrounding whether commercial licenses, being intangible assets, could be subject to attachment orders. However, the recent judgment clarifies that commercial licenses can indeed be seized and included in debt recovery proceedings. This represents a departure from previous interpretations and opens up new avenues for creditors to pursue their claims.
The General Assembly Judgment is based on several legal principles. Firstly, it emphasises that under civil transactions law, all of a debtor's property serves as security for their obligations. This includes not only tangible assets but also intangible ones like commercial licenses. Secondly, it reaffirms the creditor's right to seek attachment of assets to prevent the loss of their rights, as outlined in civil procedures law.
Moreover, the judgment recognises that assets subject to attachment must be saleable. In the case of commercial licenses, while they may be intangible, they significantly contribute to a company's material value and can be evaluated and sold under UAE laws, subject to official approvals, prescribed fees, and compliance with laws regulating commercial activities.
Importantly, the judgment overturns a previous ruling from Cassation No. 122 of 2018 (Real Estate), which held that commercial licenses could not be seized due to their perceived lack of inherent value beyond the licensee. This shift in interpretation reflects a more nuanced understanding of the role and value of commercial licenses in the context of debt recovery.
Overall, the judgment has far-reaching implications for debt recovery cases in UAE. By expanding the scope of assets available for attachment to include commercial licenses, it empowers creditors and enhances their ability to recover debts owed to them. Additionally, it sets a precedent for future legal interpretations and creditor strategies, both within UAE and potentially in other jurisdictions observing these developments.
Conclusion: This judgment marks a significant shift in the legal framework for debt recovery in UAE. By allowing commercial licenses to fall within the scope of an attachment order, the court has expanded the range of assets available for creditors. This new legal principle, which overturns previous restrictions, enhances the ability of creditors to enforce their rights and will likely influence future legal interpretations and strategies in the UAE and beyond.
DIFC ANNOUNCES CONSULTATION OF UPDATED PRESCRIBED COMPANY REGULATIONS
Summary: The Dubai International Financial Centre (DIFC) has proposed amendments to its Prescribed Company (PC) Regulations and opened them for consultation. The proposed regulations seek to significantly expand and simplify the current PC regime in the DIFC.
In Detail: The PC Regulations were first introduced in 2019 and were updated in 2020 and 2022 to include more applicants. However, there has been ongoing demand to expand the regulations further. DIFC aims to strike a balance between being a substantive jurisdiction and meeting the need for special purpose vehicles for legitimate structuring and transactions. With the introduction of UAE corporate tax, concerns about substance requirements are alleviated, prompting DIFC to consider expanding the PC regime.
Under the existing regime, establishing a PC is limited to qualifying applicants, primarily those with an existing connection to the DIFC or certain other low-risk applicants, or where the PC is serving a qualifying purpose, such as structured financing. Under the proposed regulations, it will be possible to establish a PC in the following scenarios:
Where the PC is:
Controlled by GCC citizens, authorised firms, or DIFC registered persons.
Created to hold legal title to GCC Registrable Assets.
Established for a Qualifying Purpose.
These changes simplify the regime and make it more accessible to a wider range of applicants. Importantly, there is no requirement for local corporate service providers or local representation on the management or board of the company.
The proposed changes state that a PC can only be used for its qualifying purpose or as a holding company and cannot hire any employees. This ensures that PC function solely as holding vehicles, not operational entities. Transitional arrangements will be provided to existing PC that may no longer meet these criteria if the amendments are approved as proposed.
Conclusion: These regulations mark a significant step towards enhancing and simplifying the existing regulatory framework. By expanding the eligibility criteria for establishing a PC and clarifying its purpose as a holding vehicle, DIFC aims to meet the evolving demands of businesses while maintaining its position as a jurisdiction of substance. These amendments are expected to broaden access to PC formation, providing opportunities for a wider range of applicants without the need for extensive local representation.
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