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Limitation Periods for Onshore Companies Affect Enforcement of Guarantees

A recent Supreme Court ruling in Abu Dhabi has highlighted the importance of understanding the limitation periods for guarantees, particularly in relation to onshore companies.

Civil Transactions Law

According to Article 1092 of the Civil Transactions Law, creditors have a six-month time limit from the date payment fell due to claim a debt against a surety. However, the Supreme Court has ruled that this provision only applies to guarantees related to civil transactions and not commercial transactions.

  • Commercial transactions are subject to a different limitation period
  • No specific time limit is specified in bank guarantees, so the general limitation period under UAE law of 10 years will apply

Offshore Companies

Free zones in the UAE have introduced specific regulations that govern the taking of security and enforcement of guarantees. For example:

DIFC Law of Damages and Remedies

  • A claim cannot be commenced more than six years after the date of the event that gave rise to the claim, excluding fraud

ADGM Regulations

  • Incorporates English law statutes, including the Limitation Act 1980, which governs the taking of security
  • Under this act, a claim founded on a simple contract cannot be commenced more than six years after the date of the event that gave rise to the claim

Collateral Security

In both onshore and offshore companies, collateral security can be taken over various assets, including:

  • Real estate
  • Tangible moveable property
  • Shares
  • Receivables
  • Cash deposits

However, there are differences in the types of collateral available and the laws governing their taking and enforcement.

Asset Security

In the UAE, asset security can be taken by means of a general security agreement or separate agreements for each type of asset. While general overarching security agreements are possible, it is generally recommended to have separate agreements wherever possible to avoid uncertainty and additional costs.

  • Procedures for taking collateral security vary depending on the asset in question
  • Separate documents required for different types of assets such as land and shares

Conclusion

The enforcement of guarantees and collateral security is a complex process governed by various laws and regulations in the UAE. Understanding these laws and regulations is crucial for lenders and borrowers alike, particularly when dealing with onshore and offshore companies.

By taking the time to understand the limitation periods, types of collateral available, and procedures for taking asset security, parties can avoid disputes and ensure that their rights are protected.

Sources

  • Supreme Court ruling in Abu Dhabi
  • Civil Transactions Law
  • DIFC Law of Damages and Remedies
  • ADGM regulations governing the creation, perfection, and enforcement of security
  • Pledge Law