Impact of Dubai’s Recent Court Resolution on Arrest Orders in Debt Cases

The Resolution of the General Assembly of the Dubai Court of Cassation on Arrest Orders may prevent unnecessary arrests, leading to a new revenue stream for Accounting Experts and Asset Tracing Agencies.

A recent clarification by the Dubai Court of Cassation on arrest orders has sought to strike a balance between the rights of creditors and debtors by preventing unnecessary arrests. Now, Dubai Courts cannot issue an arrest order unless a creditor proves that the debtor is solvent or is trying to evade payment, or has failed to pay a debt instalment without a valid reason.

After a final Judgment is pronounced, a Judgment creditor is required to approach the Execution Court to have the Judgment executed. If the execution application is found to be in order, the Court will issue a notice to the Judgment Debtor for payment of the Judgment amount.

If the Judgment Debtor fails to make the payment within seven days of receiving the notice, the Judgment Creditor can request the Execution Court to take certain measures against the Judgment Debtor, such as attachment of bank accounts, properties, vehicles, as well as the issuance of travel ban and arrest order as a means to execute the Judgment.

UAE Civil Procedure Law on Arrest Orders

Under the UAE Civil Procedure Law, an Execution Court is empowered to issue an arrest order unless it is established that the Judgment Debtor is insolvent and does not possess the means to pay the debts. The Law further states that an insolvency claim may not be accepted if:

1. The debtor smuggles his money or conceals it with the intention of harming the creditor,
2. Where the debt contains one or more instalments, and the debtor has stopped repaying the same,
3. When the debtor has provided a guarantee for another person’s debt before the Court.

Previous Practice and the Recent Resolution Regarding Arrest Orders

Previously, courts would usually issue an arrest order against the Judgment Debtor unless the Judgment Debtor initiated insolvency proceedings or declared his intention to initiate insolvency proceedings. This practice was followed by Dubai Courts and Courts of other Emirates, such as Sharjah and Abu Dhabi.

However, the General Assembly of the Dubai Court of Cassation recently clarified that the onus of proving that the debtor has sufficient funds to pay the Judgment amount is on the Judgment Creditor. In other words, Dubai Courts cannot issue an arrest order unless the creditor proves that the debtor is solvent or is trying to evade payment by fraudulently diverting or concealing his funds or has failed to pay a debt instalment without a valid reason.

The General Assembly also held that a brief investigation should be conducted to prove the aforesaid before issuance of an arrest order. In this regard, it should be noted that this decision is applicable to onshore Dubai Courts but does not bind the Courts of other Emirates.

The Rationale Behind the Ruling Regarding Arrest Warrants

The ruling comes as a positive change as it seeks to strike a balance between the rights of creditors and debtors by preventing unnecessary arrests. A vast majority of Judgment Debtors are in financial distress and face genuine difficulties in making payments.

However, not every Judgment Debtor is willing to file insolvency proceedings and would rather have the option of obtaining more time to pay off the debts. As a result of this ruling, a Judgment Debtor is not necessarily required to initiate insolvency proceedings in order to avoid arrest.

Moreover, imprisonment in cases where a debtor is already struggling financially prevents the debtor to earn an income or find the means to pay the debt. Rather than arresting a debtor because of his economic misfortune, this ruling will limit arrests to cases where there is wilful refusal or an element of bad faith on the part of the Judgment Debtor due to which he is avoiding payment.

Role of Accounting Experts and Asset Tracing Agencies

Following this resolution, in the cases we are handling, we have seen Execution Judges order Judgment Debtors to provide reports on their or company’s funds before issuing the Arrest Orders. We think that this is an area where the services of Accounting Experts could be used in the future in presenting clear and informative reports for the Execution Judges.

On the other hand, it will not be surprising if, to seek Arrest Orders, Judgment Creditors start using the services of Asset Tracing Agencies to show the Execution Judge that the Judgment Debtor has assets in other countries or is deliberately concealing the same.

It may also be the case that in the future, the Execution Judges may themselves start appointing these experts similar to how experts are appointed to investigate the facts during the substantive proceedings.

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Frequently Asked Questions Regarding Arrest Orders

Why did the Dubai Court of Cassation issue this resolution on arrest orders?

The resolution aims to strike a balance between the rights of creditors and debtors by preventing unnecessary arrests. It emphasizes that arrest orders should only be issued if the creditor can prove that the debtor is solvent, attempting to evade payment, or has failed to pay a debt instalment without a valid reason.

What is the process for executing a judgment in Dubai after the resolution?

After a final judgment, a creditor must approach the Execution Court. If the execution application is in order, the court issues a notice to the debtor for payment. If the debtor fails to pay within seven days, the creditor can request certain measures, including arrest orders, against the debtor.

How does the resolution change the previous practice regarding arrest orders?

Previously, arrest orders were commonly issued unless the debtor initiated insolvency proceedings. The recent resolution places the burden of proof on the creditor to demonstrate the debtor’s solvency or evasion of payment before an arrest order is issued.

How does the resolution affect the rights of judgment debtors?

The resolution aims to protect judgment debtors facing financial distress by limiting arrests to cases of willful refusal or bad faith in avoiding payment. Debtors are not necessarily required to initiate insolvency proceedings to avoid arrest.

Is the resolution applicable to all Emirates in the UAE?

The resolution is applicable to onshore Dubai Courts but does not bind the Courts of other Emirates.