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Following the issuance of the new Moveable Security Law (Law No. 4 of 2020, the “New Law”), introducing various changes to the Movable Security scheme and replacing the old law on movable security (Law No. 20 for 2016), the Cabinet of Ministers has now issued Decree No. 29 for 2021 regarding the Executive Regulations (the “Executive Regulations”) for the New Law.
Clients will recall that under the New Law, the existing regulations of Law No. 20 for 2016 remained in effect until new regulations where implemented. Accordingly, the Executive Regulations primarily deal with the registration procedures on the Emirates Movable Collateral Register (the “EMCR”) and are a replacement of the 2018 regulations (Cabinet Decree No. (5) of 2018), as the New Law, while repealing the old one, provided for the 2018 regulations to be temporarily applicable only until the issuance of the new regulations that shall replace them (Article 49 of the New Law).
The regulations do not deal with the implementation (or confirmation) of a new register as the New Law, as stipulated by Article 6 of the New Law. Accordingly, the EMCR continues to be applicable forum. However, the EMCR changed its name (and revamped its website accordingly) to Emirates Integrated Registries Company L.L.C. (EIRC) on 25 April 2021.
The regulations were published in the UAE Official Gazette on March 21, 2021, and came into effect as of March 22, 2021. Clients will now, consequently, need to follow the EMCR procedures as set out in the new Executive Regulations. Helpfully, these are not substantively different for the simple procedures of registration but certain, nuanced changes do lead to different results so should be reviewed in detail. Fees have also remained the same for the typical transactions of registration, amendment and termination.
Some interesting aspects of the regulations include:
As would be expected matters that have been discarded in the New Law have also been removed from the Executive Regulations (e.g. exclusion of personal and domestic goods, no right to formally oppose registration). Certain equivalent provisions to the 2018 regulations have been simplified or clarified.
Particularly, it is now certain that a registration is not enforceable where the wrong prescribed identity information is included on the EMCR meaning it is not recoverable when a search is undertaken. This is important as a search is now limited to only the registration number or the identification number of the debtor (the 2018 regulations had the possibility of further search parameters).
The New Law contemplated that the regulations would determine the degree and type of description of the secured obligation, including specification of the maximum limit. In this respect, the Executive Regulations provide that a description of the secured obligation must allow reasonable identification thereof The maximum limit of the secured obligation is deemed to be sufficient description of the obligation if it is specified as either a maximum sum or limit for the secured obligation, or all liabilities owed to the secured party at any time. This is useful as it accords with the practice since the enactment of the law to insert a numerical limit but does not impose that as the only method.
The EMCR will not be held liable, in case the information and entry on its database were wrongly uploaded by the applicants on its website. There is a clear logic behind this, as the regulations provide that EMCR may not verify the information uploaded by the applicants on the database. Responsibility falls on the person submitting the registration information to the EMCR (although the EMCR can still reject the application if required information is not provided).
The Executive Regulations provide that security rights over accounts (only and not other types of assets) can be enforceable against third parties by way of control.. This is established:
A consequence of the above is that security over a bank account established by control provides the best priority, meaning registration will not provide a first ranking security where a party has control (which is a departure from the general priority principles of the law).
The regulations also mandate a specific form of notice that is to be sent when a secured creditor exercises their rights against collateral directly.
The 2016 law introduced the right for parties that obtain an attachment over movable property to perfect its interest in the attached items (which continues in the New Law) but it was not a feature of the 2018 regulations. The Executive Regulations provide that an attachment’s priority over a physical movable asset in accordance with a court order or judgment, is decided from the earlier of registration or from possession/seizure of the property. A secured party(s) that has a purchase security interest still maintains it super priority over the attachment holder.
Taking into account the imposition of the control method for bank accounts, the Executive Regulation set out a priority waterfall for credit accounts with the bank holding the account and security ranking first, followed by those with a control agreement and then others with a valid security right.
The New Law provides that the law of a security provider’s home country will apply to the creation and enforceability of a security interest over intangible movable property. In effect, this means that security over UAE individuals and corporates intangible movable property must perfected under the New Law.
We remind readers, according to the Commercial Code No. 18 for 1993, intangible properties can be a certain clientele (customer contacts), or goodwill, trade name, right to let, industrial, literary and artistic patents and licenses etc. More broadly, they are any property that is not tangible.
The Executive Regulations clarified how to determine the laws of the security provider’s country of residence:
The Executive Regulations, has made clear that security rights previously granted over movable assets, in accordance with the provisions of Law 20 for 2016, shall remain enforceable vis-à-vis third parties, only after registration of such security on the EMCR database in accordance with the provisions of the New Law and shall remain valid until expiry.
Article 48 of the New Law provided that a secured party could register a security interests arising before issuance and entry into force of Executive Regulations and that the registration needed to be made within six months as of the effective date of the Executive Regulations of this Law. Priority is then determined pursuant to the laws under which they were created. Otherwise, the rights are enforceable vis-à-vis third parties as of the date of registration.
Taking Article 48 and the regulations together, we consider that it means any security interest granted under the 2016 law but not perfected prior to the enactment of the New Law and Executive Regulations needs to be registered in accordance with the New Law but priority is determined under the 2016 law (which would be the date of registration in any event).
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