The New Law (as defined below) was issued on 28 May 2020, came into effect in June 2020 and replaces the Old Law (as defined below). This memorandum is the first in a series of four memoranda and summarises the areas that have not changed. Our subsequent memoranda will look at the positive changes brought in by the New Law, the key issues for financiers and (for those wanting to get into the detail) a more detailed summary of the New Law.

Speed read

UAE federal law No.20 of 2016 in relation to the charging or pledging of movables as security for indebtedness (the Old Law) was a significant development in the UAE banking and finance legal landscape. It gave rise to a significant change in the practice of taking security over movable property in UAE banking and finance transactions.
UAE federal law No.4 of 2020 in relation to securing the rights in movables (the New Law) repealed the Old Law. It continues to grant a number of welcome benefits enshrined in the Old Law (as amended by UAE federal law No.24 of 2019 (the Old Amendment Law)) including: 

• generally speaking, assets that were pledgeable under the Old Law continue to be capable of being the subject of a security right under the New Law and a number of assets that were not pledgeable under the Old Law continue not to be capable of being the subject of a security right under the New Law; 
• the ability to take better quality security over bank accounts and (to the extent previously required for obtaining financier-friendly security) should spell the end of the need for an offshore account pledge; 
• the ability to grant security over qualifying property in favour of natural persons, corporates and non-licensed banks or financial institutions (whether nationals or not) as well as licensed banks or financial institutions (although, generally, we have referred to them as security agents in these memoranda for ease of reference);
• the ability to take security over future qualifying property; 
• permitting non-possessory pledges and reducing other administrative issues (including the need for security contracts to be in Arabic or notarised); 
• a movables registry that is searchable by third parties and grants the right of priority of proceeds of enforcement based on the order of registration; 
• maintaining the principle of the self-help regime enacted under the Old Law for the enforcement of qualifying security (as well as the court enforcement and auction process); and
• continuing to provide a more useful form of security interest than a commercial mortgage, making it preferred by financiers. 

The New Law continues to require new security contracts over certain replacement security assets. To download the full article, click here.