Published: Aug 2, 2022

Precedent setting example of LLC Share Pledge enforcement in Dubai

In a clear win for secured parties, a recent Dubai case proves the veracity and value of an LLC share pledge following the reforms of the 2015 UAE Commercial Companies Law.

The litigation department of Al Tamimi & Company recently represented a Bank in proceedings relating to its request for an enforcement order for the sale of pledged shares. The Respondent had provided security for the facilities extended by the Bank to the Debtor under a Murabaha agreement. The facilities were secured by a share pledge in favour of the Bank over certain shares that the Respondent owned in a limited liability company, perfected and registered with the Dubai Department of Economic Development. When the Debtor defaulted under the Murabaha agreement, the Bank sought to enforce its rights under the share pledge by filing execution proceedings against the Respondent requesting the court to issue an attachment and order of sale by public auction in relation to the pledged shares in order to collect the amount of the debt from the sale proceeds.

Readers will recall the clear legislative right to grant or take security over shares in an LLC was only expressly set out in 2015 Commercial Companies Law reforms (and continued in the 2021 Commercial Companies Law). Moreover, the reforms in the 2018 Civil Procedure Regulations allowed a share pledge to be an executory deed. However, since these reforms, there has been limited working examples of an LLC share pledge enforcement in action.

The court reversed its initial rejection of the Bank’s application and considered that the Bank had established its right to recover its debt from the sale of the pledged shares. Consequently, the court imposed an executory attachment on the pledged shares and ordered the sale of the pledged shares by auction (as provided in the Civil Procedures Law) to recover the secured debt.

This judgment is significant as it is one of the first judgments in the UAE that permitted the enforcement of a share pledge on LLC companies. It accordingly should provide comfort to secured parties that LLC share pledges can be enforced via an accelerated execution enforcement method in Dubai, akin to the well-developed procedures for land mortgages

How can we help?

Al Tamimi & Company regularly advises clients on shares pledge agreement and enforcement processes. We can explain the implications of this case on any existing practices or for new transactions.

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