Insurance regulation in Asia Pacific
Ten things to know about insurance regulation in 20 countries.
On 15 December 2016 Federal Law No. 20/2016 on Mortgaging of Movable Assets as Security for Debts (the New Security Law) was published in the UAE Official Gazette (no. 609). It is expected to come into effect three months after publication. The New Security Law introduces some major changes to the way in which security over movable assets is taken, perfected and enforced. Although the New Security Law is a significant development much of the necessary infrastructure remains to be implemented (notably the new security register) and is expected to be introduced by way of implementing regulations that will follow the entry into force of the new law.
No requirement for possession: The existing law requires the beneficiary of the security to have possession of the relevant asset and, if that is not possible, it is necessary to create constructive possession by demonstrating that the beneficiary has sufficient control over dealings in the asset. This has created obvious practical problems and while there are alternatives – such as the commercial mortgage – these security instruments are cumbersome and relatively expensive to create and not without their own shortcomings. The New Security Law removes the requirement for possession altogether and provides that security interests can be created in the asset without transferring possession (whether constructive or otherwise) of the secured asset to the beneficiary.
Security over future assets: Previously it was not possible to create security over future assets, but this is now expressly permitted by the New Security Law. This is a particularly welcome development as it will allow financiers to secure rights arising under future contractual arrangements provided they can be identified with sufficient certainty.
Effective security over bank accounts: The existing law does not expressly contemplate the creation of security over bank accounts. Instead security over bank accounts has been created by a combination of pledging the debt owed at the time of creation and assigning the rights of the account holder under the account. In consequence it was also not possible to secure fluctuating balances and a cumbersome practice developed whereby the balance standing to the credit of the bank account was re-pledged periodically. The New Security Law does away with this uncertainty and expressly permits the creation of security over bank accounts (including fixed deposits and current accounts) and on the basis that future assets can also be secured would also appear to allow security to be created over fluctuating account balances.
Security attaches to the proceeds of the secured property: The New Security Law clarifies that the security created over a movable asset will also extend to any proceeds or other ancillary rights arising in connection with such movable assets provided the security over such movable has been perfected through registration in the security register, which is described in more detail below.
The New Security Law provides that most forms of movable assets (including future and intangible assets) can be secured and it lists the following movable assets expressly: accounts receivable; bank accounts; documents of title (transferable by delivery or endorsement); equipment and other tools; tangible and intangible assets of a business; manufactured goods, commodities and other raw materials; movable property that is not affixed to land and other movable assets that the law permits to be secured by the New Security Law. In common with other jurisdictions personal property and salaries are excluded from the application of this law as well as those movable assets (such as ships) for which a separate security register exists.
The New Security Law also provides for the establishment of a security register. Security created pursuant to the New Security Law will need to be registered in the security register to be effective against third parties and to preserve priority. Priority will be determined by the date and time of registration. The specific requirements of registration (including the required particulars and registration fees) and the creation of the register itself will be addressed in implementing regulations that are expected to follow the coming into force of the New Security Law. There is therefore likely to be a period of time when it is not possible to register security created by the New Security Law despite the fact the law provides for it.
The New Security Law also provides that any security created over movable assets prior to the date of its entry into force may be registered in the security register provided it is carried out within one year of such date and provided proof of the existence of such security is provided. Priority in this case will be determined by the date of creation of such security. It is not clear what the impact of not registering existing security over movables will be so the expectation is that out of an abundance of caution an attempt to register all existing security over movables will need to be made once it is possible to do so.
Certain basic information on the security register will be publicly available. However, it appears that the parties to the relevant security document will be able to agree to restrict access to information relating to the security in the security register if they wish to do so. It is to be hoped that this practice does not become widespread since a fully searchable security register will allow third parties to determine whether or not security has already been taken over an asset and will also put third parties on notice that such assets are already the subject of security. It is expected that these matters will be clarified further in the implementing regulations.
Previously all enforcement of security had to be undertaken through the courts and no self-help remedies were available. However, the New Security Law introduces a number of self-help remedies that should in theory facilitate and reduce the cost of enforcement. The new law provides for a number of different self-help remedies, including sale, set off, delivery and endorsement, in each case depending on the nature of the movable asset. Given that there is no track record of enforcement using these methods it will be interesting to see how practice in this area develops. However, it is hard to see how court proceedings can be avoided in circumstances where there is a dispute between the parties as to whether these remedies can be exercised or indeed whether as a result of the exercise of such remedies a fair price for the assets has been obtained. Therefore it is no surprise that the new law retains the ability to enforce security through more conventional means, i.e. judicial proceedings and the obtaining of a court order.
The New Security Law is a very welcome legal development in the area of secured lending. The increased flexibility and certainty provided by the new law will do much to facilitate the creation of effective security over the types of asset that are commonly secured by lenders. In addition, the creation of a security register will improve transparency for both lenders and third parties alike, and will provide greater certainty with respect to priority. Finally, the introduction of self-help remedies should in due course speed up, and reduce the cost of, enforcement. However, realising these benefits is predicated on the necessary infrastructure being put in place as well as appropriate clarification on the matters that have been left to the implementing regulations that will follow the entry into force of the new law. Nevertheless, the New Security Law is real step forward and should be welcomed by all stakeholders in the UAE’s lending market.
Ten things to know about insurance regulation in 20 countries.
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