FINANCIAL INSTITUTION SECURITY PROTOCOLS IN UNITED ARAB EMIRATES GET A BOOST FROM NEW LAW

The United Arab Emirates has recently introduced a new law that clarifies several key aspects of factoring and transfer of accounts receivables, providing much-needed certainty for financial institutions operating in the country.

Federal Decree Law No. 16 of 2021: Key Provisions

Federal Decree Law No. 16 of 2021 on Factoring and Transfer of Accounts Receivables has been hailed as a major development for the UAE’s financial sector, offering lenders greater clarity on the mechanisms and avenues available for fast and robust enforcement against assignments.

Key Takeaways from the New Law

• Notice of Assignment: The law makes it clear that serving the debtor with notice of assignment is required for the assignment to be valid against them. However, seeking the debtor’s consent to the assignment is not necessary.
• Assignee’s Rights: The assignee is entitled to claim any additional rights associated with the assignment, including security rights established on goods, guarantees, and credit insurance.
• Debtor’s Defenses: The debtor is entitled to invoke any defenses available to them under the original contract governing their relationship with the assignor. However, this right can be waived by the debtor.
• Enforcement: Enforcement against accounts receivables without the consent of the assignor can only be sought if the assignor commits a default on their borrowing obligations.

Implications for Financial Institutions

The new law is expected to have several implications for financial institutions operating in the UAE, including:

• Increased Clarity: The law provides greater clarity on the mechanisms and avenues available for fast and robust enforcement against assignments.
• Improved Enforcement: Financial institutions are likely to see improved enforcement outcomes as a result of the new law.
• Registration Requirements: Creditors are advised to register their assignments in the Emirates Movable Collateral Registry (EMCR) registry as soon as possible to be able to enforce against the assigned receivables when the need arises.

Conclusion

The introduction of the new law is a significant development for the UAE’s financial sector, offering lenders greater clarity and certainty on factoring and transfer of accounts receivables. Financial institutions are advised to familiarize themselves with the provisions of the law and take steps to comply with its requirements.