03 May 2024

Landmark Dubai Judgment Unwinding Dissipation of Assets and Protecting Creditors

Authored by: Karim Mahmoud and Mohammed Abbas Al-Obaidi

Debtors in the UAE will now find it more difficult to dissipate assets or otherwise wrongfully avoid satisfying a judgment against them. Creditors enforcing a judgment in the UAE are often in a race against time to secure assets from debtors willing to shield assets through various means. One of the main considerations of whether assets have been dissipated is the timing of the transfer. In a recent recovery case, we explore how simply transferring assets prior to a date of judgment alone is not sufficient to prevent a creditor’s recovery.

In Brief:

  1. Hadef & Partners LLC have secured a landmark decision in the Dubai Court of Cassation.
  2. The ability of creditors to unwind transactions made by a debtor to the detriment of creditors has traditionally been limited to only transactions that occur after a creditor has secured a judgment in their favour.
  3. However, Hadef & Partners have recently been able to unwind transactions that occurred prior to a final judgment being obtained thereby giving judgment creditors an extremely powerful tool against debtors seeking to transfer their assets.

Hadef & Partners achieved a major landmark victory before the Dubai Court of Cassation potentially expanding the application of Article 397 and 398 of Federal Law No. 5 of 1985 (the “Civil Transactions Law”), which deal with civil claims unwinding illegitimate transactions carried out by debtors to the detriment of creditors.

Pursuant to Articles 397 and 398, a creditor can claim against a third party seeking recovery of assets dissipated to them by a debtor under certain circumstances.

Typically, the Court has found transactions could be unwound only if they occurred after a final judgment confirming the creditor’s right. This created a situation where any assets dissipated by a debtor prior to the final judgment being issued against them could not be recovered by creditors.

However, in a recent judgment before the Dubai Court of Cassation, Hadef & Partners have been able to obtain a judgment unwinding a transaction carried out by a debtor prior to any judgment being obtained by the creditor in question. Evidence was submitted which showed that assets were dissipated without real consideration indicating an intention to remove assets in view of impending legal proceedings.

This marks a major step in strengthening the enforceability of judgements, both foreign and local, and preventing judgment debtors from evading the effect of judgments by simply transferring their assets to third parties. The fact the judgment was issued in support of foreign proceedings also assists in expanding the scope of this legal principle to complex cross-border disputes.

Ultimately, there are a number of tools available to creditors dealing with unscrupulous debtors seeking to transfer their assets. The above judgment is a welcome development that adds another potential avenue for creditors to hold debtors and complicit third-parties liable for the same. In the event you would like further advice on protecting your position as a creditor please contact Karim Mahmoud, Partner, and Mohammed Abbas Al-Obaidi, Senior Associate, Dispute Resolution.

 

This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.