Mahmoud Abuwasel, Partner
Corporate facilities in the United Arab Emirates require a guarantee contract or a personal guarantee to be executed by the principal partner of the debtor company, obliging the guarantor to repay the full or part of the facility granted in case the company that has been granted the banking facilities fails to pay.
In the event that the company defaults in payment banks resort to expedited judiciary procedures and request a travel ban against the personal guarantor, especially if the personal guarantor is not a citizen of the UAE and hence there is a fear of exiting the country. This usually occurs before any other action is taken; such as lodging a claim against the outstanding amount. Without a doubt, imposition of a travel ban is a useful method of pressuring the guarantor into settling the debt.
However, the provisions of the Dubai Court of Cassation have established that to issue a travel ban it is not sufficient to establish that a debt exists and that the guarantor is a foreign national. The creditor must prove that there are serious reasons for the debtor to flee as stipulated in Article 329 of the Civil Procedures Law, which requires that the petition submitted to the Courts state reasons justifying that there is risk of the guarantor fleeing, such as selling all or part of his property, liquidating or closing the company that received the facility, or other evidence to the effect that the guarantor is ending his stay in the UAE in preparation to flee/leave the country.
The absence of these reasons in a petition submitted by the creditor renders it void of one of the conditions provided for in Article 329 of the Civil Procedure Law. When banks apply for a travel ban before the courts of the UAE, it often occurs that they fail to fulfill part of these requirements. Although the law authorizes the judge pursuant to Article 329 to conduct a brief investigation, if the documents supporting the application do not provide sufficient evidence that the debtor will flee, the practice in the UAE is that an urgent matters judge issues the order or rejects it as soon as a request is submitted by the bank without the aforementioned investigation. However, the request for a travel ban is in its original form a petition, and this petition must itself contain the facts of the request and its grounds. Pursuant to Article 140 of the Civil Procedure Law, the judge or the head of the competent circuit shall duly issue his order in writing on the day following the submission of the petition without justification.
The UAE judiciary has determined that the assessment of the availability of meritorious reasons to evidence the risk of the debtor to flee prior to the execution of the judgments against him in favor of the creditor is the authority of the competent court without the need for intervention by the Cassation Court. The legislator granted the creditor bank an eight-day period to file a petition for a travel ban after which the competent judge will deny such petitions under article 330/5 of the Civil Procedures Law.
The Dubai Court of Cassation, in Court of Cassation Appeal No. 119 of 2005 decision issued on 27 November 2005, accordance with Article 329 of the Civil Procedures Law, ruled that restricting the freedom of the debtor to travel outside the country requires that the essential elements that allow the judge to take such action be taken into consideration. The fact that the debtor is a foreign national, or that he is a debtor to a third party, or that a quantifiable civil claim is made is not sufficient. The creditor has the burden of proving more substantial reasons that justify the fear that the debtor will flee the country. It is evident that the courts have a high threshold with respect to the evidence required to restrict travel of a guarantor.
In conclusion, banks in the United Arab Emirates require commitment to a guarantee contract or personal guarantee from principal partners in companies wishing to obtain banking facilities making them jointly liable with the company (debtor) in the fulfillment of any indebtedness in the event that the creditor bank submits a claim to the debt, but what about the precautionary measures that can be taken against the personal guarantor?
The precautionary measures, including travel bans, as mentioned above, can be effective and decisive. They often lead the personal guarantor to reach a settlement for fear of prolonged substantive claims. Travel bans last for at least a year, according to the practice in UAE courts. Of course, it is known that most entities require the travel of their managers and principal partners, which ultimately leads the banks to take advantage of personal guarantees to issue travel bans or any other precautionary measures. In light of the high threshold by the courts, such measures must be carefully pleaded so as to not subject them to rejection by the courts if the debtor lodges an appeal against the order pursuant to Article (141) of the Civil Procedures Law.
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