<p><strong>I.&nbsp;Introduction</strong><br /><br />The UAE is a Civil Law jurisdiction and&nbsp;  the law and practice has developed from several sources, including the Sharia&rsquo;a,  and the French and Egyptian legal codes. Banking and commerce in the UAE are  predominantly governed by the Commercial Code (Federal Law No. 18 of 1993) and  the Civil Code (Federal Law No. 5 of 1985, as amended).<br /><br />The law and  practice of creating security in the UAE is an area that has significant  differences from the law and practice adopted by Common Law jurisdictions.  Security such as floating charges or hypothecations, all monies guarantees and  assignments of unidentified or future rights are not recognised in the  UAE.<br /><br />This article will set out some of the key differences when taking  security in the UAE as compared to taking security in Common Law  jurisdictions.<br /><br /><strong>No Concept of a Floating  Charge</strong><br /><br />Under UAE law, there is no concept of a floating charge  The law in the UAE does not allow for the creation of a security interest,  whether by mortgage or pledge, over future assets that were not in existence at  the time the security interest was created.&nbsp; A pledged item must be able to be  sold and therefore (i) must exist at the time of the contract, (ii) must have a  monetary value and (iii) must be capable of being delivered. Consequently, a  security interest under UAE Law can only be created over assets that are  ascertained and identifiable at the time of creating such interest and may not,  subject to certain exceptions, be created over assets that change from time to  time.<br /><br />Therefore, future assets are not able to be captured, nor is a  &lsquo;floating&rsquo; pledge possible. This does make it difficult to take security over  book debts and stock in trade. In the context of working capital facilities, as  an alternative to taking a charge over current assets, bankers in the UAE may  secure facilities by taking a pledge over machinery or a registered mortgage  over immovable property.<br /><br /><strong>No Requirement for Registration &ndash;  Security over Plant, Machinery, Raw Materials</strong><br /><br />In some  jurisdictions, a mortgage over movable property is achieved by a recording  system within the Courts or authorized Governmental Departments (eg Registrar of  Companies), which allows the filing of financing documents. The filing system  protects the mortgagee against third parties or subsequent mortgages against the  same movable property; however, there is no such recording system for pledges of  movable property in the UAE. This is true in the context of plant, machinery and  raw materials.<br /><br />As a consequence, banks are unable to search public  records in order to determine if the security provider has pledged the same  assets to another bank.<br /><br />However, where the security is being created in a  Free Zone (eg the Jebel Ali Free Zone), the Free Zone Authority may require  registration in its records.<br /><br /><strong>No Equitable Mortgages or Mortgage  by Deposit of Title Deeds</strong><br /><br />In order to create a mortgage over  property in the UAE, the mortgage is required to be registered at the Lands  Department of the relevant Emirate. It is insufficient to merely deposit  documents of title with the bank to create security over such  property.<br /><br /><strong>Requirement of Notification and Acceptance - Assignment  of Receivables</strong><br /><br />In certain Common Law jurisdictions, the assignor  and the assignee enter into an assignment agreement and the assignor&rsquo;s debtor is  merely notified of the assignment in order to perfect the assignment. Under UAE  law, especially in certain Emirates (eg Abu Dhabi), the Courts have held that  the debtor&rsquo;s consent is required in order for the assignment to be created. This  issue is developing in the courts and the approach taken by some bankers is to  obtain express consent of the debtor.<br /><br /><strong>All Monies  Guarantees</strong><br /><br />Guarantees for 'all monies' may be unenforceable in  the UAE, with Article 1061 of the Civil Code requiring that guarantees must be  issued with respect to a specified debt or a thing certain in amount. While  there have been judgments in the recent past where the UAE Courts have  recognised and enforced all monies guarantees, the application of such judgments  is limited (typically to current accounts).<br /><br />The above is a brief note on  some of the differences between UAE law and the practices that Common Law  lawyers are accustomed to in the context of security creation. It is pertinent  to note that the Dubai International Financial Centre (established in the  Emirate of Dubai) has issued its laws and regulations that do permit the  creation of security such as floating charges and also have a Security Registry.  However, these regulations would be applicable to assets that are located within  the Dubai International Financial Centre.</p>