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Posted September 5, 2017 | Published in Contracts & documentation

Iceberg ahead! Freezing assets in the UAE

Attachment orders are orders given urgently to temporarily freeze assets (which can include funds in bank accounts), to provide security for claims for debts pending their resolution in substantive proceedings, where there is a risk that otherwise the debtor might remove its assets and avoid paying the debt. These are the fundamental components of attachment orders as they are commonly understood.

Attachment orders can provide an effective and often essential tool in debt recovery proceedings. This is particularly important in the UAE where it is notoriously difficult to pursue debts upon insolvency (the UAE was ranked 104th by the World Bank in 2017 for ease of resolving insolvency). The first dedicated insolvency legislation was only introduced in the UAE in late 2016 and sensible parties who are owed money in the UAE should ensure they are prepared to utilise the attachment order procedure, and quickly, once dangers of insolvency or dissipation of assets are identified.

However, the application of this procedure in the UAE can be much wider than the fundamental purpose set out above. Further, once attachment orders have been obtained, the process of removing them can be incredibly difficult. Parties to any dispute in the UAE, in court proceedings or arbitration, should be wary of having their assets frozen by parties seeking to apply pressure, whether or not there is a genuine claim or risk involved.

"Sensible parties who are owed money in the UAE should ensure they are prepared to utilise the attachment order procedure, and quickly, once dangers of insolvency or dissipation of assets are identified."

In order to obtain an attachment order, the applicant must demonstrate that based upon the documents it presents to the court as part of its application, it has a prima facie debt that is due and payable from another party, and it is afraid of losing the security of its debt because:

A. The debtor has no settled residence in the UAE; or

B. The creditor fears that the debtor may abscond, remove or conceal its property; or

C. The securities of the debt are threatened with loss or dissipation.

The above criteria are set out in Article 252 of the UAE Civil Procedure Code, and they are reasonably straightforward as general principles. However, the application of these criteria by the UAE courts has varied widely in our experience, and the attachment order procedure can be open to abuse by unscrupulous parties. 

In terms of application, one example is that we have experienced various interpretations of what constitutes fear of losing a security, which in the broadest sense was accepted merely as the fear arising from one party’s refusal to pay the (disputed) claim at that time.

As for abuse, attachment order applications are made without notice, and the court will decide whether to grant the application based only upon its summary assessment of the debt alleged by the applicant, without hearing from the other party. An unscrupulous party may be able to convince a court that it is owed a debt on this basis when no genuine debt exists.

Further, once an order has been granted, the underlying merits of the application may only be reviewed in the (usually final) resolution of the substantive court or arbitration proceedings between the parties. This means it can take many months or even years before the claim presented in the attachment order application is able to be assessed in any more detail than a summary review of the papers put forward by the applicant.

There is no failsafe approach to obtaining or protecting oneself from attachment orders in the UAE. They can be used both as a shield and a sword, and an informed and alert party should have a much more favourable experience of this tool. Watch out for that iceberg.

2 comments

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Thanks Robbie. Very interesting article. Here in Oman the settled law and procedure in relation to asset freezing of the kind you describe is less developed than in the UAE though UAE jurisprudence can be persuasive in the Omani courts in the absence of anything more compelling. One of the bases you refer to in establishing grounds for obtaining an attachment order is that the securities of the debt are threatened with loss or dissipation. Can you say what sort of evidence would prima facie satisfy the court in UAE of such a threat? Does there have to be a pre-existing claim on foot by the applying party to establish a bona fide contractual debt, for example? This might stop some of the more unscrupulous applicants seeking to exploit this procedure. This is the procedure in Oman is that the court will often temporarily freeze assets pending a full examination of the company's books and assets by an administrator appointed by the court. All the best, Stefan
Hi Stefan, I’m glad you found the blog interesting. In relation to your first question, it is difficult to say what evidence will be accepted as satisfying the prima facie test of a threat of dissipation or loss of assets. We have seen UAE courts accept payment certificates as satisfying proof of debt, and the applicant’s bare submission that the payment certificate amounts have not been paid as satisfying a prima facie threat of loss or dissipation sufficient to justify granting of an attachment order. Conversely, we have seen attachment orders rejected where the defendant acknowledged the debt is due and payable, but failed to pay without excuse, and where prima facie questions of insolvency were evident. We have anecdotal evidence that the Dubai courts may now be applying a more stringent test than previously. Because the test is prima facie only, the applicant should have the advantage, and an applicant should ensure it can present evidence of the outstanding debt and threat in as straightforward a manner as possible. You should be able to find a range of UAE judgments that may be of assistance. As for your second question, applicants must commence a substantive proceeding in relation to the claimed debt no later than eight days from the date an attachment order has been granted (Article 255 of the UAE Civil Procedure Code). The purpose of this provision, as you say, is to prevent this procedure from being exploited by unscrupulous applicants – namely by ensuring the underlying merit of the applicant’s claim is assessed in a timely manner. In practice however abuse is still possible, and for instance where the substantive contractual claim between parties is subject to an arbitration agreement, an unscrupulous applicant might obtain an attachment order in the UAE courts that will remain without having the underlying merits assessed until the final arbitral award. I would be happy to discuss further, Robbie.

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