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  • ARP Law Group

Dubai Court of Cassation issues principle ruling on debtor's insolvency



On 24 October 2023, the Plenary Assembly of the Dubai Court of Cassation (‘DCC’) under DCC Case Number 4/2023 issued (consisting of eight judges) a unanimous decision on the burden of a creditor on adducing the debtors' solvency as a pre-condition to apply for a summons to arrest and imprison the debtor.

This judgement provides clarification and explanation of Article 319 of the new UAE Federal Law No. 42/2022 on the UAE Civil Procedural Code (‘CPP’), which mandates that the proof of the solvency of the debtor is a necessary element and a prerequisite for the execution judge to then be able to issue an order for the arrest of the debtor. The provision of Article 319 of the CPP explicitly provides that a debtor cannot claim insolvency in the following cases:

  1. If the debtor deliberately smuggled or concealed their assets.

  2. If the debt is due in installments that the debtor has failed to pay, or if the debtor is among those who guaranteed payment for another debtor before the court or the execution judge, except where the debtor provides evidence of new circumstances which did not exist before and which have adversely affected his financial situation.

In summary, this decision from DCC firmly places the burden of proof on the creditor to establish that the debtor is intentionally refraining from paying the debts despite already having the means to do so. The decision as issued by the DCC, interprets Islamic Shariah principles codified under the UAE Law, which by default presumes a person to be insolvent unless proven otherwise.

This recent change in interpretation is likely to make it more difficult for creditors to obtain warrants to arrest and imprison debtors in Dubai, as the burden will be on the creditor to provide the debtor's intentional refusal to pay even though the debtor may have the financial means to settle the debt. While this outcome makes it more challenging for creditors to prove their case, we are of the view this is an added development for the insolvency regime in the UAE & Dubai and we expect parties in insolvency matters to benefit from this development.

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