UAE Law and Practice Contributed by: Duncan Pickering, Nicola de Sylva and Sean Cope, DLA Piper Middle East LLP
3.8 Lenders’ Liability Under Environmental Laws
within such 30-day period, the magistrate of summary justice (in Abu Dhabi) or the execution judge (Dubai) shall, at the request of the lender, order an attachment against the mortgaged property, and shall, at the request of the lender, issue a decision enabling the mortgaged prop - erty at public auction. The court may postpone the sale of the property by public auction for a period of up to 60 days if it is of the opinion that the mortgagor may be able to settle the debt within this period, or if the sale of the property would cause “serious damage” (Abu Dhabi) or “substantial damage” (Dubai) to the mortgagor. If the real estate is insufficient to satisfy the debt, the mortgagee may have recourse against the mortgagor’s other assets as an ordinary creditor. The mortgagee must follow the statutory proce - dure, and provisions in the mortgage document attempting to circumvent this procedure would be held to be void. 3.7 Subordinating Existing Debt to Newly Created Debt If a security interest is required to be registered, the date of registration determines its ranking. If it is not registrable, it will rank in order of the date of creation (noting, however, that the laws relating to priority are largely untested in the UAE). If two or more applications to register a mortgage against the same property are made at the same time, the mortgages are registered together and rank equally in the distribution of auction proceeds. A lender may assign the ranking of its mortgage to another creditor that has a security interest in the same property.
Environmental laws in the UAE are not particu - larly detailed, but the relevant authorities are likely to pursue the party responsible for caus - ing the environmental harm, which may or may not be the mortgagor. If there are any remedial costs associated with rectifying the damage, the law provides that the lender may “take whatever legal action is necessary to protect its rights and recover the costs from the mortgagor”. In addi - tion, the mortgage will typically contain indemni - ties in favour of the lender in the case of pollution or other acts caused by the mortgagor that are harmful to the environment. 3.9 Effects of a Borrower Becoming Insolvent There remains a degree of uncertainty as to the correct application of Federal Decree Law No 9 of 2016, as amended (the “UAE Bankruptcy Law”). A declaration of insolvency will not result in the dissolution of contracts that are binding on both parties unless the services are “personal” in nature. If a borrower declares insolvency, the lender’s security interests will not be extinguished to the extent that such security is not challengeable on an antecedent transaction. The obligations of a UAE company are subject to limitations arising from bankruptcy, liquidation, composition, and all other laws and general principles affecting the rights of creditors generally. The UAE Bankruptcy Law provides for a short- term cramdown process for debtors entering bankruptcy during (and as a result of) an emer - gency financial crisis, and the amendment also suspends creditor applications during an emer - gency financial crisis. An “emergency financial crisis” requires a Cabinet Decision to declare it.
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