UAE Trends and Developments Contributed by: Victoria Mesquita, Ganna Vlasenko and Aran Au, Curtis, Mallet-Prevost, Colt & Mosle LLP
Bankruptcy remoteness One of the main features of securitisations is bankruptcy remoteness. This involves reducing any leakage of cashflows as much as possible thereby reducing the risk of insolvency of the securitisation vehicle. Bankruptcy remoteness is typically achieved through a number of struc - tural techniques, including the establishment of the SPV in a zero tax jurisdiction, restricting the activities of the SPV to the securitisation trans - action and generally restricting the occurrence of any liabilities other than those required for the purposes of the transaction, restricting the SPV’s ability to hire employees (the SPV must use third- party service providers instead) and incorporat - ing limited recourse and non-petition language into the relevant transaction documents. The use of Cayman Islands SPVs for UAE secu - ritisations (and to a lesser extent DIFC and ADGM SPVs) is primarily driven by bankruptcy remoteness concerns. Insolvency-related matters It is also important to analyse risks associated with the current insolvency regime. The UAE Federal Law No 51 of 2023 on bankruptcy (the “Bankruptcy Law”), which only entered into force in May 2024, provides that certain dispositions made by a debtor six months (or two years if to a related party) prior to it failing to pay its debts will not be effective against creditors. These disposi - tions include donations, any transactions where a debtor’s obligations significantly exceed a counterparty’s obligations, early repayments of debt and security for existing debts. If courts were to rule any dispositions to be unenforceable, transfers of assets to the secu - ritisation vehicle may be set aside by a liquidator of the transferor.
Trusts Historically, the concept of trust was not recog - nised under UAE law. This had several ramifica - tions from an international finance perspective, including the validity of standard turnover trusts in the context of subordination provisions and security documents, and in three important ways in the context of securitisations in particular. • For loan structure securitisations, security would typically be held by a security agent rather than a security trustee. Because an agent is unlikely to be able to prove a claim against the originator in an insolvency, paral - lel debt provisions are used to create a debt between the originator and the agent, so that the agent can prove the debt in insolvency proceedings, with the parallel debt being deemed to be reduced upon payment of the underlying debt. • For tax reasons, securitisation transactions are often structured as a receivables trust with receivables being sold to a trust, with the beneficial ownership of the receivables split between the SPV (up to the amount required for servicing payments due under securities issued by it), with any surplus held on trust for the originator. This structure was not avail - able to securitisation vehicles and originators incorporated onshore. • In Sharia-compliant securitisations a trust must be created over the underlying Sharia assets used for the purposes of the issuance of trust certificates, which again was not viable until now for onshore UAE vehicles. The UAE Federal Law No 31 of 2023 concern - ing trusts (the “Trust Law”) stipulates that the trust assets to be transferred to the trust must be owned by the trust founder. The trust will have legal personality from the date of registration in a specialised register set up in each emirate.
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