Mortgage of Movable Assets in the UAE: A Wanted Change

The Federal Law No. 20 of 2016 which came into effect from March 2017 is highly welcoming change and opens a new system of mortgaging movable property as a guarantee of debts by eliminating the requirement for possession. Prior to the law, pledges were completely under the purview of the Civil Code under certain conditions such as the transferability of the asset or the change of possession of assets...etc.

The new law has clearly altered this situation by letting a mortgage of movable assets without the need to transfer the possession to the mortgagee or to the third party as bailee provided such mortgage is registered in the registry names as Security Registry. Let us analyze the provisions of the new law which are significant:

1. As mentioned above, the registration of Pledge in the Registry will transfer the rights enjoyed by the Pledger over the Movable(s), from the Pledger to the Pledgee, and the Pledgee will be the new beneficiary of those transferred rights in the Movable(s).

2. Pledge shall be enforceable from the date of it is recording in Register. No pledge shall be created on Movable(s) unless it can be entered in the Register.

3. There are specifications as to movables which can be or cannot be registered under the Security Registry. It includes:

(i) bank accounts, tangible and intangible assets, fungible assets, raw material and future assets that can be registered whereas assets relating to home or personal use,

(ii) receivables under an insurance policy,

(iii) public, foreign consulates or endowment properties,

(iv) rights resulting from future inheritance, and

(v) assets which require possession or specific registration [listed shares, vehicles, ships, aircraft and certain free zone security] cannot be registered under Security Registry.

4. A pledge may be effected over tangible and intangible assets of a commercial business (e.g. Intellectual property of a business) as security for any acquisition funding provided to acquire such commercial business.

5. Enforcement procedures of such pledges have made easy by obtaining a summary judgment from the UAE courts. It gives liberty to the parties of the mortgage to enforce the right there under directly without the interference of the court including sale, set off, delivery and endorsement, in each case depending on the nature of the movable asset.

6. The parties may decide the extent of information relating to the pledge will be accessible to the public. However, they will have access to basic information regarding a registered pledge.

Written by:

Rajasree Ravivarma | Hussain Lootah & Associates