How Can lawyers Effectively Manage Debtor Detention procedures in light of the recent changes of Federal Decree-Law No. 42 of 2022
Introduction: The Impact of Debtor Detention on the UAE Trade Environment
The UAE has been a fast paced and growth-oriented environment, being an interrogational hub for business activates. That being said, the UAE’s laws faced a challenge to maintain a business-friendly climate. Under the previous legal civil procedure code debtors who failed to meet their financial obligations were easily detained. This impacted both business and individuals, as it threatened the business community and trade, creating a climate of uncertainty and hesitate entrepreneurs and investors. ?
In particular, the practice of detaining company owners and legal representatives of businesses for unpaid debts disrupted business operations and damaged reputations. It also failed to foster a supportive environment for resolving financial difficulties through structured repayments or insolvency procedures, which are common in more developed business ecosystems.
Legal Reforms: The Introduction of Federal Decree-Law No. 42 of 2022
In the recent reformation of the UAE legal system in October 2022, The UAE legislator recognized crucial effect of the old debtor detention regime on trade and commerce, the UAE passed Federal Decree-Law No. 42 of 2022, which introduced significant changes to the Civil Procedure Code governing debtor detention.
This marked a major shift from the traditional approach and the higher courts principals(1) whereas the debtor detention was seen as a default response to unpaid debts into ?a more balanced system where detention is treated as an exception rather than the norm.
Under Article 319 of the new law, detention orders can only be issued if certain conditions are met, and a debtor’s ability or inability to pay must be surely verified. Execution judges are now required to investigate whether a debtor truly has the financial ability to settle their debts before ordering a detention. The debtor is also given the chance to present evidence of their financial situation whereas he can propose a payment plan or installments subject to the approval of the court.
This reform aligns with the UAE’s broad vision of being a global economic hub. By protecting debtors from immediate detention, the law aims to boost business confidence and ensure that entrepreneurs and business owners are not penalized for short-term financial challenges by giving them extra layer of protection under the Civil Procedure Code.
On top of that, the law introduces a safeguarda against the abuse of detention orders. Time limits are imposed on how long a debtor can be detained (36 months for civil cases and 60 months for debts arising from criminal financial cases), The execution judge also have the room now ?to allow debtors grace periods to settle their debts in structured installments, making the process more transparent.
The Landmark Decision of General Assembly of Dubai Cassation Court Clarifying Detention Conditions
Following the introduction of Federal Decree-Law No. 42 of 2022, ?the General Assembly of Dubai Cassation Court issued a ruling to further clarify the detention legal grounds of the debtor.? The court emphasized that detention should not be the default action for unpaid debts unless certain conditions are met. These conditions are:
Furthermore, the court emphasized that before issuing a detention order, the execution judge must conduct a brief investigation into the debtor’s financial condition. The court gave the execution judge a full discretion on the way of carrying that investigation.? It is conventional now that this investigation may include gathering evidence from third parties, such as financial institutions or government entities. This careful approach ensures that detention if ordered by the execution judge it is only in cases where the debtor is clearly avoiding payment despite having the means to do so.
Advocating for Creditors : A Lawyer's Obligation to Expose Hidden Assets and Enforce Payments
In light of these legal changes, the role of lawyers representing creditors has become even more crucial in ensuring that their clients' interests are protected. Therefore, Lawyers must now carefully navigate the requirements of Federal Decree-Law No. 42 of 2022 and the guidelines set forth in General Assembly of Cassation Courtto prove that a debtor is hiding assets or willfully refusing to pay.
It is worth noting that execution is generally disregarded by lawyers as long as they got wining verdict after a long course of litigation. However, a winning case should not be counted as long as the execution is not in progress. For that reason, a lawyer should always note during the course of litigation the opponents’ assets and financial position. There are many ways a lawyer can safeguard his client interest like precautionary attachments of the opponent assets if any.
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That being said during the execution process under the new legislation allow the creditor’s lawyers to:
1.???? Submit Requests for Governmental Inquiries:
Lawyers can petition the court to conduct inquiries with various governmental bodies and departments to investigate whether the debtor owns assets that they have not disclosed. This includes but not limited to making inquiries to:
By gathering this evidence, lawyers can build a strong case to present before the execution judge, proving that the debtor is deliberately hiding assets. Which might lead to his detention accordingly.
2.???? Requesting Inquiries Directly from the Debtor:
If the creditor has specific knowledge of assets or funds that the debtor is hiding, lawyers can request that the judge directly question the debtor about these assets. The debtor is legally obligated to answer such inquiries and provide relevant documentation. If the debtor refuses to cooperate or fails to disclose the requested information, the court may view this as an attempt to hide assets and issue a detention order based on non-compliance.
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3.???? Additional Measures to Support the Creditor’s Case:
Lawyers should also advise creditors on gathering evidence that supports claims of the debtor’s solvency or financial capacity. This could include collecting notarized agreements, financial statements, or any documented admissions by the debtor that they have the means to pay but are choosing not to.
Moreover, lawyers can recommend that creditors request the court to impose specific installment payment plans, where the debtor is required to make regular payments.
Conclusion: The Lawyer's Role in the Modern Debtor Detention Framework
The amendments to the UAE’s debtor detention laws under Federal Decree-Law No. 42 of 2022 and General Assembly Decision No. 9 of 2024 provide a more balanced approach to handling unpaid debts. While the new legal framework limits the conditions under which debtors can be detained, it also empowers creditors and their legal representatives to take concrete steps to protect their rights.
Lawyers play a critical role in ensuring that the debtor's financial status is thoroughly investigated and that all available evidence is presented to the court. By leveraging governmental inquiries, court-ordered asset disclosures, and structured payment plans, lawyers can help their clients navigate the new legal environment and ensure that debtors are held accountable when they are hiding assets or refusing to pay.
Ultimately, these changes benefit the UAE’s commercial environment by creating a fairer and more transparent legal system that fosters trust and encourages continued trade and investment without fear of unjustified detention.