UAE collection profile

In general, access to reliable financial information is a challenge that is faced across the GCC (Gulf Corporation Council) region as a whole and obtaining such data in the UAEis very difficult as there is no legal requirement for companies to publish financials. An exception to this would be for publicly listed companies.

As a result, financial information on potential business partners is not readily available from independent sources, while documents provided by unofficial sources may not be completely reliable.

Allianz Trade collects financial information mainly through direct calls and buyer visits conducted by credit analysts, and allocates each company a grade reflecting its financial health and how it conducts business. Grades represent a core of our knowledge and analyses, and help clients identify and avoid risk. Data is continuously monitored to offer the most up-to-date information to support management decisions.

Liability for business debts is determined by legal structures, which are described as follows:

• Sole Proprietorship is available for small businesses managed by an individual. However, given that the proprietorship is not a corporate entity with limited liability, the owner is personally liable for all business debts.
• Different types of partnerships are also available. A General Partnership is formed by two or more partners who will be jointly liable to the extent of all the assets of the partnership. Each partner shall be considered a merchant and the partnership’s bankruptcy shall mean the bankruptcy of all partners. A Limited Partnership rather consists of one or more general partners jointly liable to the full extent of their assets for the partnership’s debts, and one or more limited partners whose responsibility for the partnership’s liabilities does not exceed the value of his share in the capital.
• There are several types of companies in the UAE. Limited Liability Companies (LLC) are the most common corporate vehicle used by foreign companies doing business in the UAE. A company must have a capital that is sufficient to achieve its purpose and shall be fixed by the partner. Before 2020, at least 51% of the shares of an LLC incorporated in the UAE had to be held by a UAE national or a company 100% owned by UAE nationals (or nationals of the countries of the GCC i.e. UAE, Saudi Arabia, Bahrain, Kuwait, Qatar, Oman). Since 2020, the foreign shareholders could own up to 100% shares unless a special exemption applies to restrict them. Liability is limited to the shareholders’ contribution to the LLC.
• A Public Joint Stock Company is a company with a capital consisting of transferable shares of equal value. Each partner is only liable to the extent of his share in the capital. The company’s capital must be sufficient to carry out the objectives for which the company has been established but such capital cannot be less than AED 10 million (around EUR 2,5 million). A Private Joint Stock Company is a company which does not offer its share for public subscription, but its capital cannot be less than AED 2 million (around EUR 500,000).
• Foreign companies may also set up Branches in the UAE, although these have no separate corporate entity and their liability is not limited to their assets, meaning that recourse can be extended to assets of the parent company. Finally, Joint Ventures may be set up through a contract by two or more partners willing to share the profits or losses incurred from one or more commercial enterprise undertaken by one of the partners in their own name. Third parties can only make claims against the partner with whom they conduct business.

The UAE has a legal system based on Civil Law and Sharīah Law. It is a federation of seven Emirates sharing a common federal judicial system (with the exception of Dubai and Ras Al Khaimah). The judiciary is organized through courts of general jurisdiction, Appeal Courts and Cassation Courts. There are no specialist courts, which mean that all commercial disputes are heard by non-specialized judges.

In addition, it is necessary to distinguish local courts competent for all civil matters raised by companies registered in the UAE, from Freezones’ Authorities (such as the Dubai International Financial Center) which apply different (Common Law based) rules and are competent for cases filed by companies registered in these Freezones only.

Payment terms in the UAE have long been 30 days, though they increasingly tend to extend up to 60 days. The average DSO for listed companies is above 60 days and varies greatly from one sector to another. Large oil & gas, construction or service entities, in particular, are likely to stretch their payment terms but would normally pay their dues. Smaller businesses (e.g. general trading) are likely to default on their debt, leaving their creditors without recourse, since there is no efficient administration, insolvency or bankruptcy law in the UAE. In addition, most companies registered in the UAE are de facto ruled by foreigners who would tend to disappear when problems arise (sponsors are rarely involved in the business’ administration and are not liable for the debts).

Collection costs cannot be charged to the debtor under UAE law.

Insolvency Law in the UAErecognizes the validity of Retention of Title (RoT) agreements aiming at preserving the seller’s ownership over goods until the related invoice has been paid in full by the debtor. In certain circumstances, in addition, the law also recognizes the possibility of maintaining ownership despite the sale of the goods by the debtor to a third-party (Articles 118 to 119 of the Commercial Code).

In practice, however, enforcing such clauses remains extremely difficult and, by the time proceedings have taken place (if any), there is no guarantee that the goods will still be there once time comes for repossession.

The most common payment methods are as follows:

• Bank transfers are among the most popular payment means for international transactions as they are fast, secured, and supported by an increasingly developed banking network internationally and domestically. Export transactions are usually guaranteed through an Export Credit Insurance policy, which helps minimize the risk of sudden or unexpected customer insolvency. Allianz Trade’s worldwide network of risk offices monitors the financial well-being of customers and grants them a specific credit limit up to which clients may trade and claim should something go wrong. 
• Alternatively, Standby Letters of Credit (a bank guarantees the debtor’s credit quality and repayment abilities) are often used in relation to export shipment transactions because they constitute reliable guarantees which can be triggered as a ‘payment of last resort’ if the client fails to fulfil a contractual commitment. Also, irrevocable and confirmed Documentary Letters of Credit (a debtor guarantees that a certain amount of money is made available to a beneficiary through a bank once certain terms, specifically agreed by the parties, have been met) are increasingly relied upon.
• Local bank guarantees are available, but the process can take up to one week.
• Checks are commonly used as payment instruments since they constitute reliable debt recognition titles which, if left unpaid, may be enforced directly with the court especially under the payment order application which allow creditors to fast track the court process. In addition, since January 2022 amendments to the Commercial Transactions Law, the bank is obliged to make partial payment up to the amount available in the drawer’s account. Moreover, the bounced cheque is now an executive instrument which means that the litigation process is accelerated. Instead of starting substantive civil proceedings, you can directly file an execution case for an executive order, which may include seizing the assets of the drawer. Criminal liability for bounced checks has largely been removed, but the new provisions accelerate recovery through asset seizure. Post-dated checks continue to be used as payment guarantees.
• Letters of Credit, although decreasing in popularity, are still an attractive means of payment for businesses because they are a source of short-term financing by means of discounting or transfer. In particular, they are appropriate for payments in instalments

Payment in advance and down payments are frequent.

Despite obvious improvements over the past few years and a clear intention to speed up business-related queries, the judiciary of the UAE has significant margin for improvement. Although the principle of the independence of the judiciary and the rule of law being recognized in the Constitution of 1971, domestic courts lack reliability and independence in practice, so obtaining favorable court decisions remains an uncertain exercise. In fact, it is often not advisable to commence legal action before domestic courts, unless the claim is significant and the chances to succeed are good. As a result, amicable settlement opportunities should always be considered as a serious alternative to formal legal proceedings.

 Before starting legal proceedings against a debtor, assessment of assets is important as it allows verification as to whether the company is still active and whether recovery chances are at best. In addition, it is essential to be aware of the debtor’s solvency status: if insolvency proceedings have been initiated, it indeed becomes impossible to enforce a debt.

An expedited procedure exists for  obtaining judgment on straightforward, confirmed and undisputed debts. To qualify for Payment Order claim, the creditor must be able to establish the debts by submitting debt instruments, for example, contractual documents, written debts confirmation, cheques, or similar documents, along with evidence of a formal payment demand. If the payment order is granted, the creditor must notify the debtor within three months. In case the payment order is denied, the creditor has an option to pursue Ordinary proceedings.

Legal dunning ought to start with a registered Demand Letter recalling the debtor of their obligation to pay the principal together with late payment interest.

Often, business disputes may be settled before a Reconciliation and Settlement Committee (in Dubai, every dispute below AED 50,000, i.e. around EUR 12,500, must be brought before the Centre for Amicable Settlement of Disputes).

If the amicable negotiation phase fails, the Civil Procedure Code considers a summary judgment procedure, provided that the debt is for a specific or liquidated sum and that it is certain and undisputed (i.e. confirmed in writing through a commercial document). In this case, the debtor is served and must pay (or bring a defense) within 15 days. If a defense is filed, the dispute must be resolved through an ordinary lawsuit before the court of first instance.

Ordinary legal action should be avoided, but if undertaken, proceedings would usually commence when amicable collection has failed. The creditor would file a plaint with the court, which would then serve summons to the debtor. The latter would be required to file a response and written arguments would then be exchanged by the parties: all court proceedings in the UAE are in writing, there is virtually no oral hearing in civil cases. Of course, all proceedings are conducted in Arabic and all documents must be officially translated. 

The courts would normally issue remedies in the form of specific performances and compensatory damages, but injunctive relief is generally unavailable in the UAE while attachment orders are difficult to obtain; there must be a prima facie case against the defendant and a real risk that the requesting party may not be able to enforce the judgment. In practice, it is difficult to obtain such an attachment against the assets of a UAE national or a UAE company as it is difficult to establish the risk of dissipation of such assets. Only in rare cases would a litigant be able to recover consequential losses and/or punitive damages in the UAE.

 A Power of Attorney authorizing a lawyer to act on behalf of the client must be duly notarized. If notarized in the UAE, it must be bilingual and therefore drafted in English and Arabic. If originated outside the UAE, it must be notarized by a competent authority in the customer’s home country and later legalized and authenticated by the UAE Embassy and the Ministry of Foreign Affairs in the UAE. This document must be forwarded to the lawyer before or at the time of filing the case.

Furthermore, all evidentiary and supporting documents must be translated in Arabic by a certified legal translator and submitted with the originals.

In Civil Law matters, Article 473 Civil Code sets the standard timeframe at 15 years. However, in many cases the applicable timeframe will be a lot shorter. For instance, contract breaches would need to be brought within 15 years, while bounced checks would need to be brought within one to three years.

There is no concept of interim or injunctive relief available from the UAE courts for an attachment of assets but, assuming that a case has been filed with the court, the judge can grant a provisional attachment of assets if there is a risk that the defendant will not make payment or a risk of dissipation of assets. In practice, however, these proceedings are rarely awarded and the claimant would be required to demonstrate that the claim has a good chance to succeed and that damages alone would not suffice in the absence of precautionary measures. In emergency situations, the court may make its decision ex parte (i.e. without the debtor being present) on a same-day basis, but the court would usually request that the claimant provides security on costs in order to protect the respondent from irresponsible action.

Decisions rendered in first instance by civil courts may be brought to the Court of Appeal within 30 days, where the decision will be reviewed considering questions of both fact and law.

The Court of Appeal may either confirm or reverse the judgment of the Court of First Instance and substitute the judgment with its own determination of the matter. In some instances, the Court of Appeal may refer the matter back to the Court of First Instance.

Except in Ras Al Khaimah, the decision rendered in second instance may be appealed to the Court of Cassation, which only reviews legal issues (improper interpretation of the law, failure to state reasons, failure to abide by procedural requirements, etc). It is not until several weeks and sometimes months later that the oral hearing will be scheduled, however appeal proceedings before the Court of Cassation do not normally prevent the enforcement or execution of the judgment delivered by the Court of Appeal.

A judgment is enforceable as soon as it becomes final (i.e. when all appeal venues have been exhausted). If the debtor fails to satisfy the judgment within 15 days, and as long as the debtor’s assets may be located, it is possible to obtain an attachment order from the Execution Court and, in extreme circumstances, imprisonment of the debtor (now very rare and generally limited to cases involving fraud or criminal liability, not simple non-payment).

The execution procedure may seem straightforward but it can become time-consuming and complicated depending upon the existence of the assets of the debtor.

Arbitral awards may be difficult to enforce in practice.

Obtaining a decision in first instance could take between nine months and two years, depending on the complexity of the case. In addition, it is frequent for a defendant to file for appeal proceedings in order to delay enforcement. Enforcement may then be difficult, especially if the debtor has taken the ‘escape’ route, as previously explained.

As a general rule, the successful party may only expect to receive compensation for part of its legal costs (AED 2,000 on average, i.e. around EUR 500), but court fees (4% to 7.5% of the claim, capped at AED 40,000, i.e. around EUR 10,000) may be fully recovered. Court fees would vary depending on the resolution requested and on the court where the resolution is being sought.

Arbitration is regulated under the UAE Arbitration Law (Federal Law No. 6 of 2018) and constitutes an increasingly popular Alternative Dispute Resolution method, even though reaching an acceptable compromise may be culturally challenging. Enforcing awards may also prove difficult.

It must be emphasized that, although the law allows business partners to solve their disputes in a foreign forum (i.e. under a foreign law or before a foreign court), courts in the UAE are reluctant to apply foreign law and would typically ignore foreign jurisdiction provisions if they find themselves competent to deal with a dispute. In addition, even though domestic courts might agree to apply foreign law, they might interpret it without taking into account the case law applied in the jurisdiction of origin. Finally, UAE courts would most generally retain exclusive jurisdiction over various areas of law (such as government contracts, transportation by sea, insurance law, employment law, property law, etc.) and over any other matters deemed of public order in the UAE.

Enforcement of foreign awards by domestic courts issued against nationals tends to be difficult. In order to be considered enforceable, foreign judgments must first be recognized as domestic judgments. When bilateral or multilateral reciprocal recognition and enforcement treaties exist (such as the Riyadh Convention), this requirement is normally a formality.

However, in the absence of such agreements, exequatur proceedings aim to ensure that the enforcing tribunal did not have exclusive jurisdiction to decide on the claim, verify that the decision was rendered by a competent court and that it is final and enforceable in the issuing country, and that the parties both benefited from a due process of law. The courts, finally, would also ensure that the foreign decision does not contradict previous decisions rendered by UAE courts and that enforcement does not contradict public morality and public order in the UAE.

The UAE became a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 in 2006; therefore, foreign arbitral awards that are strictly compliant with the New York Convention ought to be enforced by domestic courts.

However, there are some instances where the local court refused the enforcement of the foreign awards, especially when one of the five instances set out in Article V of the New York Convention is triggered. 

A UAE bankruptcy law (Federal Decree-Law No. 51 of 2023) – the Bankruptcy Law – came into effect in May 2024, replacing the previous Federal Law No. 9 of 2016. This was a welcome development for the UAE legal and business landscape, in particular for creditors.

The new Bankruptcy Law repealed and replaced the earlier provisions under the UAE Commercial Code and the 2016 law, introducing a dedicated Bankruptcy Court, streamlined procedures, and stronger creditor protections. It also provides preventive settlement options, restructuring mechanisms, and digital filing capabilities, along with protective measures that can be activated by the Federal Cabinet during financial crises. 

A debtor may itself apply to the court for a Preventive Settlement (previously called Preventive Composition) if facing financial distress but not yet in default for more than 30 consecutive days. 

According to the Bankruptcy Law, the purpose this procedure is to assist the debtor in reaching a settlement with their creditors under court supervision and through a court-appointed trustee .

Such proceedings shall conclude with the elaboration of a Preventive Settlement Plan that shall contain the terms and conditions of the debt settlement, which the creditors shall approve (if not approved both by the creditors and the court the scheme will not be implemented). During this period, a moratorium on creditor actions applies for up to 10 months, unless extended by the court.

The debtor cannot dispose of assets during this process, and creditors’ enforcement actions are suspended. 

As per the new Bankruptcy Law (Federal Decree-Law No. 51 of 2023), the former Financial Restructuring Committee has been abolished. Restructuring procedures are now fully court-supervised and handled by a dedicated Bankruptcy Court and a court-appointed trustee.

The trustee’s role is to oversee the management of restructuring procedures for companies in financial distress, including large entities whose insolvency could impact the UAE economy, and to facilitate consensual agreements between creditors and the debtor under judicial oversight.

This process takes place before any formal bankruptcy declaration and applies to both significant and ordinary companies, unlike the previous system where most small businesses were excluded.

In addition, the new law maintains a registry for disqualified directors and bankrupt entities, but this registry is now managed by the courts and the Ministry of Justice rather than the former Committee. 

This registry improves transparency for businesses granting credit and helps identify individuals subject to bankruptcy restrictions. 

The Bankruptcy Proceeding may be filed by: 

• the debtor, if they either 
  (i) fail to repay their debts on maturity dates for over 30 consecutive business days or
  (ii) are balance-sheet insolvent (the debtor is in fact under an obligation to file for bankruptcy in either circumstance, i.e. it “shall” make the necessary application); 
  
• a creditor holding an ordinary debt of at least AED 100,000 (around EUR 25,000), if the debtor fails to repay the due debt within 30 consecutive business days from the date of being notified with a demand for payment; or 
• the court, upon request from the Public Prosecutor proving that the debtor is in the condition of account receivable. 

During a first stage of bankruptcy proceedings the court will, with the assistance of a trustee, conduct an initial phase of evaluation of the debtor’s financial position to confirm insolvency.

If the debtor is adjudged insolvent, the law provides two options: 
(i) the debtor’s financial restructuring, if possible, thus avoiding liquidation; or
(ii) Liquidation of assets if restructuring is impossible or fails. 

Both scenarios are administered and supervised by the court and a trustee(s) in the interests of the creditors as a whole. A moratorium on legal claims against the debtor will be applied during this second-stage procedure, subject to any application of a secured creditor for permission to enforce his security.

The debtor’s restructuring procedure is handled by a trustee with the assistance of the debtor and the supervision of the court, and in consultation with creditors. Such proceedings shall conclude with the presentation of a Restructuring Plan within three months, which shall contain the terms and conditions of the debt settlement, to be voted by the creditors. The trustee shall advise the court if he considers restructuring is not possible, in which case the court will order the company into liquidation under the supervision of a liquidator (who will typically be the same trustee).

The debtor’s declaration of bankruptcy and liquidation shall take place via judgment when settlement of the debts could not be reached, regardless of the reason, and there is no viable restructuring possibility. Upon issuance of the judgment for bankruptcy, the creditors shall file their claim within ten business days or otherwise be discarded from the bankruptcy procedure. The bankruptcy proceeding will also be handled by a trustee appointed by court, who will audit and liquidate the debtor’s assets.

Having liquidated the assets, the trustee shall distribute the liquidation proceeds based on priorities among creditors as per the provision of the Bankruptcy Law. Secured creditors take priority over other preferential creditors and ordinary creditors to the extent of their security. The order of priority payments to preferred creditors shall be as follows: 

(i) the court costs or fees, including the trustee’s fees and expenses in the process of handling the liquidation; 
(ii) outstanding salaries and end-of-service gratuities of the debtor’s staff; 
(iii) debts of maintenance paid by the debtor as per a competent court’s judgment
(iii) amounts payable to government authorities; 
(v) any other fees agreed by the filing creditor with the trustee for commencing the procedures.

Clawback provisions remain robust under the new law, allowing reversal of transactions made within two years prior to the initiation of bankruptcy proceedings if they prejudice creditors.

Examples include:
(i) donations or gifts;
(ii) prepayment of debts;
(iii) new guarantees for old debts, especially if the creditor knew of the debtor’s financial distress.

Shareholders: The trustee may recover dividends paid from fictitious profits and loans granted to shareholders.

Banks: Banks remain exposed because they typically have knowledge of financial difficulties. Loan agreements often require notification of insolvency and allow banks to call facilities immediately if informal insolvency processes begin. Banks are expected to strengthen monitoring systems to track bankruptcy filings under the new centralized court system. 

The Bankruptcy Law sets out (Article 144) limited scenarios in which personal liability for a company’s debts can be imposed on directors and managers where the company is adjudged to be bankrupt. There are also criminal sanctions that may be imposed personally on managers and directors for certain deliberate acts or omissions in relation to the company’s assets or their conduct during insolvency proceedings. It is not expected such sanctions will be widely applied in practice as the conduct would need to be particularly egregious, and the individuals would have the right of appeal.

Under the Bankruptcy Law, directors and managers can be held personally liable for company debts in certain cases. Liability applies if their actions or omissions contributed to the company’s insolvency, such as mismanaging assets or acting fraudulently. The law also allows criminal penalties for serious misconduct during insolvency proceedings, but these are usually reserved for extreme cases. Individuals have the right to appeal any decision.

Relatively straightforward bankruptcy proceedings could take 6 months to reach a final judgment for liquidation, followed by the period for concluding the liquidation and any distribution to creditors. However, more complex proceedings with multiple creditor layers, especially those involving banks or syndicated loans and securities may take 12-24 months. The courts have had a tendency in many of the early cases (since the enactment of the Bankruptcy Law) to permit debtors to contest a creditor filing for bankruptcy in an adversarial process, thereby protracting the initial stage of the proceedings (and causing increased legal costs to be incurred by the creditor) before the bankruptcy is adjudged and the case moves into the second stage.