16 May 2021

Implementing Regulations of the Movables Pledge Law – Key Issues

Authored by: Ahmed Hadeed

In Brief:

  1. The UAE has recently promulgated the implementing regulations (‘Implementing Regulations’) of Federal Law 4 of 2020 Concerning Security Rights over Movable Property (the ‘Movables Pledge Law’): Cabinet Resolution 29 of 2021 Concerning the Implementing Regulations of Federal Law 4 of 2020 Concerning Security Rights over Movable Property.

  2. The Implementing Regulations set out the procedures governing the movables pledge register (‘Register’), the registration of security rights, and the enforcement of the pledge right.

  3. Under the Movables Pledge law, a security right over a movable asset becomes binding against third parties through three routes, namely registration, possession or control.

The Register

The Register is an electronic register established pursuant to cabinet resolution and regulated by the Implementing Regulations. Security rights over certain movable property are registerable in the Register.

Cabinet Resolution 6 of 2018 Concerning the Establishment of a Register for Registering Rights over Movable Property, which was issued under the repealed movables pledge law (Federal Law 20 of 2016 Concerning the Pledge of Movable Property as Security), had established the Register. Although Cabinet Resolution 6 was issued pursuant Federal Law 20, it is still valid as it has not been replaced.

Cabinet Resolution 6 provides that the Register shall be established and managed by Emirates Development Bank (‘EDB’). Emirates Integrated Registries Company LLC, a subsidiary of EDB is currently managing the Register. Emirates Integrated Registries Company LLC could be considered to be acting as the registrar of the Register (‘Registrar’).

The Register could be accessed via https://www.eirc.gov.ae/

Registration of the security right

Security agreement

Registration of a security right over a movable asset requires the existence of a security agreement between the pledgor and the pledgee or a written consent to register the security right from the pledgor.

It should be noted that, under the Movables Pledge Law and the Implementing Regulations, a security right over a movable property can be registered even before it comes into existence through entering into a security agreement, provided that the pledgor gives their written consent to the registration.

The security agreement can take the form of a formal or informal document. It can be considered formal if it is attested by a Notary Public or other government official. It will be informal if it is a document merely signed by the relevant parties without any official involvement.

A security agreement is a sufficient proof that the pledgor consents to the registration of the security right. The Registrar may not require any further proof for such consent.

The pledged property must be reasonably described in the security agreement. The pledged property is considered reasonably described in the following instances:

  • The type, class, or amount is reasonably identified.
  • The pledged property is included in a list.
  • The pledged property is stated to include all the pledgor’s property, current or future. 

The secured right must also be reasonably described in the security agreement. The secured right is considered reasonably described in the following instances:

  • It is described as a specific sum of money.
  • It is stated to include all obligations owed by the pledgor to the pledgee at any time. 

The Movables Pledge Law permits the pledge and registration of future property, i.e. property that does not yet belong to the pledgor.

Details of the pledgor, pledgee and the pledged property

Registration of a security interest over a movable property requires entering the details of the pledgor, pledgee, the pledged property, the secured right, and the term of the pledge.

The pledgor and pledgee’s details include the name, nationality, ID number (for an individual) or trade license number (for a body corporate) and address.

Language

The Implementing Regulations allow the registration process to take place through the Arabic language or the English language.  

Effectiveness

Registration of a security right over a movable property enters into force as of the time and date of duly entering the registration information into the Register, so as to allow the registration details to appear in a search of the Register.

The Registrar must reject an application for a pledge registration in the event that any of the mandatory information required for the registration is not provided, or if the information entered is illegible. Otherwise, the Registrar may not reject the application.

Liability

The Registrar shall not be responsible for the validity of the information entered into the Register.

Conducting a search of the Register

Any person may conduct a search of the Register.

A search of the Register may only be conducted through entering either of the following search parameters:

  1. Pledge registration number.

  2. Pledgor identification number (ID number for individuals; registration number for corporate entities).

A search of the Register will generate a search report. The search report will contain the details of an existing pledge registration or may indicate that there are no registered pledges in accordance with the entered search parameters.

A search report can be obtained in either a paper form or an electronic form, attested by the Registrar.

The Registrar may reject an application for the search of the Register in the event that any of the mandatory information required for conducting the search is not provided, or if the information entered is illegible. Otherwise, the Registrar may not reject an application for the search of the Register.

Cancellation of a pledge registration

Voluntary cancellation of a pledge registration

A voluntary cancellation of a pledge registration takes place with the consent of the pledgee. The cancellation is effective as of the time and date of registering the cancellation in the Register.

A voluntary cancellation of a pledge registration is conditional upon the approval of the pledgee. A pledge registration shall remain in the Register and shall appear in a search of the Register unless and until the pledgee consents to its cancellation.

Involuntary cancellation of a pledge registration

If the obligations underlying a pledge are satisfied, the pledgee shall apply for the cancelation of the pledge registration.

If a pledge registration rightfully ought to be cancelled and the pledgee does not apply for the cancelation of the pledge registration, the pledgor may give a written notice to the pledgee including the details of the pledgor and the pledge to cancel the pledge registration.

If the pledgee does not cancel the pledge registration within 7 working days as of receiving the pledgor’s notice, the pledgor may apply to the competent court to order the cancelation of the registration of the pledge.

A pledgee will be liable to the pledgor for any damages suffered by the pledgor as a result of the pledgee’s omission to cancel a pledge registration, which lawfully ought to be cancelled.

Enforcement of a pledge

If a pledgor defaults on the obligations underlying a pledge, the pledgee may sell the pledged property to satisfy such obligations, provided that the pledgee gives a due notice (‘Sale Notice’) to the pledgor and other relevant parties (these could be other pledgees of the same pledged property or a possessor of the pledged property who is not the pledgee). The sale of the pledged property can take place without applying to the court.

The sale of the pledged property may not take place before 7 working days as of the date of giving the Sale Notice.

The Sale Notice shall include:

  • The intention to sell the pledged property.
  • The details of the pledgor and pledged property.
  • Time and place of the sale and the sale method.

Enforcement of a pledge may also take place by applying to the competent court to order the sale of the pledged property to fulfil the pledge obligations. It is envisaged that the pledgor may resort to court if they do not possess or control the pledged property.

Should you require further information about the movables pledge register, the registration of security rights, or the enforcement of the pledge right, please feel free to contact Ahmed Hadeed, Partner.

 
 

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.