Published: Feb 7, 2023

New UAE Laws Part 3: The Effect of the New Commercial Transactions Law on financial activities

Following on from our client alert on the effect of the new Commercial Transactions Law on the Islamic Finance Industry, we now look at other key developments and amendments under the new Commercial Code, which affect the financial industry generally. The new Commercial Transactions Law – Federal Decree-Law No. 50/2022 (“New Law”) or the (“Commercial Code”) has replaced the old Commercial Transactions Law (Law No. 18 of 1993) (“Old Law”).

Recognition of virtual commercial business and technology

The New Law has introduced ‘virtual commercial business’ as one of the commercial activities which come under its scope. Virtual commercial business has been described as business carried out in the technological space or through modern means of technology performed by any person, even if not a trader.

A key change to many provisions of the New Law is reference to technological means and soft copies instead of traditional and physical means of conducting commercial activities. For example, commercial contracts may now be formed or concluded, through technology. We understand that this means, in addition to the recognition of the Electronic Transactions Law of electronic documents, the Commercial Code now confirms the recognition of electronic contracts and transactions conducted online or through blockchain and other means of technology. Also, traders (including financial institutions) are now permitted to keep hard or soft copies of their books and records.

Presentation of cheques to a bank, or reservation of the cheque amount can now be made by phone or any other legally established method including the means of modern technology by that bank with the drawee bank.

Virtual Assets

Notably, virtual asset business has been added to the commercial business activities governed by the Commercial Code. This implies that contracts, recordkeeping and other requirements of a virtual commercial business applicable to traders would apply to virtual asset providers as well (this would be in addition to any regulations issued by other regulators such as the UAE Central Bank or the Securities and Commodities Authority in relation to virtual assets).

Commercial Business and Commercial business Mortgage

The definition of commercial business has historically included tangible and intangible properties allocated for the practice of the business. A mortgage over commercial business can be registered with the relevant economic department and is noted on the commercial licence of the business. The New Law adds that a commercial business now includes actual or virtual commercial business, whether it’s a business that is being conducted in the technological space, through modern means of technology or through conventional means.

Mortgage requirements over a commercial business has not changed significantly. However, the New Law scrapped the need to publish the mortgage registration in newspapers and has referred to the process in any relevant legislation applicable to the properties which form part of the commercial business. Although not expressly provided, our view is that the UAE Movable Assets Security Law requirements would be followed in relation to movable properties which form part of the commercial business. Further analysis is required on the practice to be followed for commercial business mortgages due to the fact that commercial business mortgages are still a separate mortgage under the Commercial Code and there is no express reference to the Movable Assets Security Law.

On enforcement of a commercial business mortgage, there is a reference in the New Law that the enforcement should be through courts unless otherwise provided in any other legislation. Again, it appears that the intention is to permit enforcement over movable elements of the commercial business in accordance with the Movable Assets Security Law.


Guarantees provided in the course of commercial transactions are considered to be joint and several guarantees (i.e. without the need to refer to the joint liability of the debtor). There is now an addition in the New Law which clarifies that guarantors shall be held liable jointly between each other (for multiple guarantors) and jointly with the debtor.

Interest (conventional)

Interest shall be determined in the contractual agreement between parties. However, the cap on legal interest (which is the interest to be decided by the court in a dispute) has been reduced to 9% (previously 12%). We are aware that UAE courts have been recently awarding a legal interest of 5% up to full payment of the debt. The New Law now confirms that compounded interest is prohibited. This prohibition aligns with the provisions of the Banking Law which prohibit charging of compounded interest.

Commercial Pledge

Commercial pledge is a pledge created on a movable property to guarantee a commercial debt. The New Law now excludes pledge over movables which are subject to the Movable Assets Security Law. However, pledge of assets which are registered in any register (such as shares) would still fall under the Commercial Code.

Sufficient Security

Similar to the position under the Banking Law, the New Law now requires banks to obtain sufficient security or guarantees against loans. While replicating similar provisions under the newly amended Banking Law, the New Law does not expressly limit application to individuals and sole proprietorships (which the Banking Law does). This potentially leaves some uncertainty around the scope of application and whether the Banking Law will prevail when interpreting the same.

Payment Guarantees

Historically, banks were not permitted to reject payment to the beneficiary for a reason attributed to the bank’s relation with the applicant or the applicant’s relation with the beneficiary. By way of exception from this restriction, the New Law now permits banks to reject payment to the beneficiary, if there is an attachment order issued by a court over the amount of guarantee with the issuing bank. For the issue of the order or the judgment in this case, the applicant shall in its application or claim, rely on serious grounds.

Age of Legal Capacity

The legal age of capacity for individuals conducting commercial activities has been reduced to 18 calendar years of age and minors can practice trade if they reach 15 calendar years of age (subject to terms and conditions issued by the Cabinet).

Time Barring

Claims of obligations of traders against each other regarding their commercial business (including banks and bank customers who conduct any type of business regulated by the Commercial Code) shall be time barred upon the lapse of 5 years (instead of 10 years in the Old Law) from the maturity date of the obligation.

How can we help?

We are equipped to advise potential and existing applicants to understand the regulatory impact of this new regime on their businesses.