Asssignemts of rights in the UAE

ASSIGNMENTS IN THE UAE

An assignment under UAE law is the transfer of certain obligations or rights from one party to
another. In the UAE, assignments are often used as a security arrangement under which a party (the assignor) who is entitled to receive certain benefits (arising from a contract, payment arrangement or receivables), assigns those benefits to a financial institution as security for a financing arrangement.

It is important not to confuse the elements of a UAE assignment with its common law counterpart. Being a civil law jurisdiction, assignments in the UAE are subject to certain peculiarities and have different implications. For example, the UAE does not recognize the concept of a floating charge, and technically does not distinguish between an assignment by way of security and an absolute assignment. Under a UAE assignment, the assignor relinquishes all its rights in respect of the assigned property from the outset (albeit that perfection, in respect of the third party, may be deferred). Hence, even the term assignment by
way of security may be a misnomer.

It is also important to note that the UAE does not maintain a public companies register in which records relating to security (including assignments) are kept and made available to the public. While implications of these are too extensive to be discussed in this article, this generally means that the assignee must make a commercial decision on whether it is comfortable that the assignor has not assigned, and will not assign, the subject matter to any other third party other
than the assignee.

The laws of the UAE in relation to assignments are not fully developed. The UAE Civil Code only prescribes for an assignment of debts/obligations, but is silent on the procedural aspect of an assignment of rights. From a banking/lending perspective, an assignment of rights has commercial value as security, and this is what will be discussed in this article.

Please note that the following is not an exhaustive list of the issues to be considered when entering into an assignment, hence prior legal advice should be sought.

Assignable Assets

Based on market practice and case law the following are the main conditions to be satisfied
when assigning rights to an asset:

•  The subject matter of the assignment, or the specific agreement creating the subject matter of the assignment, must be in existence at the time the assignment is entered into and be identifiable. For example, if the assignment is over receivables, where the relevant contract of which has not been signed or where the assignment relates to future unidentifiable receivables, this condition is not fulfilled.
• The assignor owns the subject matter of the assignment as at the date of the assignment. In other words, if the assignor wishes to assign certain rights to a contract, the contract must be signed first before the relevant assignment is executed.
• The subject matter of the assignment is free from encumbrances and other restrictions. For example, if assigning the rights to a contract, the contract must not contain any prohibitions against assignments. If the contract contains specific pre-requisites to an assignment (for example, the consent of certain parties), these conditions must be complied with.

It is not suitable to create an assignment over the following types of assets:

• Land, where specific land laws of the relevantEmirate prescribe that the interest in such land should be registered with the relevant land registration department. In such an instance, the land laws will apply;
• Interest over assets which are capable of being pledged or mortgaged under statute (most relevant being the UAE Civil Code). In such cases, the statutory pledge or mortgage is a more suitable mechanism to create a security interest over the asset;
• Interest over an asset or contract which has not yet materialized and/or cannot be identified or specified;
• An asset which has already been assigned by the assignor, i.e. the assignor is not allowed to create more than one assignment over the same asset.

Common types of assigned assets include assignments over performance bonds and guarantees, insurance policies and agreements which relate to a specified and identifiable income flow (i.e. receivables).

Conclusion

Although a commonly used method of transferring rights and creating security in the UAE, one should be careful of the potential legal risks and requirements in respect of assignments. It is therefore best to seek legal advice as assignments in the UAE can be minefield, each matter having to be dealt with on a case to case basis.

Arkhurst & Abdellah Solicitors 

Creative Tower, 17th & 18th Floors, P.O. Box 4422, Fujairah, UAE.