UAE Trends and Developments Contributed by: Victoria Mesquita, Ganna Vlasenko and Aran Au, Curtis, Mallet-Prevost, Colt & Mosle LLP
Article 3 of the Trust Law reaffirms that trust assets will be segregated from those of the trus - tee and the trust founder upon their bankruptcy or liquidation. It is yet to be seen, but the Trust Law may offer a solution for structures where assets cannot be held by foreign SPVs. If the trustee is a corporate entity, then it must be licensed to undertake trustee activities. The Trust Law permits DIFC and ADGM entities, whose licence allows them to exercise power of a trustee, to act as trustees of trusts established under the Trust Law (such professional trustees from common law-based jurisdictions, which are familiar with trust structures, may facilitate the implementation and management of trust struc - tures at least while the new law is being tested). The Trust Law is very recent, and although the concept of a UAE trust was first introduced by Federal Decree Law No 19 of 2020 (which the Trust Law abrogates), the market has not yet widely adopted onshore trust structures, which remain largely untested. In particular, the fact that the trust is a common law concept, adds uncertainty as how to local courts in a civil law jurisdiction such as the UAE will apply the new Trust Law. In the absence of any court decisions or ancillary legislation that would help to interpret the new law, it is also unclear how local courts would deal with the disapplication of “reserved powers” granted to trust founders (such as to terminate the trust, revoke it in full or part and/ or amend its terms). It is worth noting that the Securitisation Law does not incorporate the concept of trust. However, assets transferred to the securitisation vehicle are to be segregated from the assets of the origi - nator and the relevant custodian. Article 10.1 of the Securitisation Law provides that amounts collected from the securitisation portfolio must
be credited by the originator into a separate account and the creditors of the originator “shall have no right to attach on such account”. Article 10.4 goes on to say that in the event of the insolvency of the originator (or the custodian if applicable), none of the creditors of the origi - nator or the custodian may claim any amounts collected by them in respect of the dues of the securitisation portfolio. It is yet to be seen whether the UAE onshore courts would uphold the right to ownership of the noteholders of the underlying assets in an onshore UAE securitisa - tion, in particular in the context of an insolvency. This is of particular importance where there are several issuances by the same SPV. Sharia structures Securitisations also lend themselves well to Sharia-compliant financings, in particular sukuk (or Islamic notes), which are a major source of funding in the UAE. In fact, one could say that all sukuk are in essence securitisations. They share some key structural features, including the sale of an asset or assets to a bankruptcy remote SPV which are purchased using the proceeds of the issuance of certificates. However, Sharia-compliant securitisations must be carefully structured in order to avoid a direct sale of receivables, which under Sharia rules can only be traded at par, as Sharia prohibits the sale of a debt ( Bay al dayn ) at a price other than par. In particular, since the creation of the Sha - ria Higher Authority (the “HSA”) first by a UAE cabinet decision, and then reaffirmed by Fed - eral Decree-Law No 14 of 2018, regarding the Central Bank of the UAE and the organisation of financial institutions and amendments, the HSA, which is mandated with the supervision of Islamic financial institutions, mandated the
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