Dubai updates debtor protection guidelines

On 15 May 2024, the General Assembly of the Dubai Court of Cassation issued Decision No. 9 of 2024 regarding the rules of debtor detention. This decision aims to establish clearer guidelines and protections for debtors facing financial difficulties, ensuring that imprisonment is a last resort and only used under specific conditions.

Under this decision, debtor detention in execution cases is prohibited except in very limited cases, as confirmed by the General Assembly in the following statement:

“The General Assembly of the Court of Cassation in Dubai states that a debtor cannot be imprisoned unless the creditor submits proof that the debtor has the means to pay, or that the debtor is involved in transferring or concealing assets, or that he owns assets that may be seized and liquidated to fulfill the debt.”

This landmark decision confirms what is suggested under the Civil Procedures Law—namely, that a debtor who is genuinely unable to pay his debts may not be imprisoned in Dubai.

Building on precedents for debtor detention

This decision builds on Decision No. 4 of 2023 issued last year by the same Court, which states that an order of detention may only be issued if one of more of the following conditions is met:

• the debtor possesses considerable financial resources, or at a minimum, has sufficient funds and assets resources to cover the debt;
• there is evidence that the debtor has deliberately concealed or dissipated his assets; or
• the debt is due in instalments and the debtor has ceased making payments.

The 2024 decision clarifies that it is not permissible under any circumstances to detain a defaulting debtor unless the creditor proves that the debtor is solvent or has concealed his assets (i.e., by transferring them to family members or others, or by moving them out of the country) with the intent to defraud the creditor.

The ruling is based on Article 319 of the Civil Procedures Law, which prohibits imprisonment of a debtor who is unable to pay his debts, unless:

• there is evidence that the debtor has deliberately concealed or dissipated his assets with the intent to defraud a creditor;
• the debt is due in instalments and the debtor has ceased making payments; or
• the debtor has guaranteed the debt of another,

provided that in cases (b) and (c) above, the debtor may avoid imprisonment by demonstrating that circumstances have since arisen which render the debtor unable to repay some or all of the debt.

It is also based on previous rulings issued by the Dubai Court of Cassation which state, in accordance with the tenets of Shari’a, that inability to pay is treated as the default condition for a person, and ability to pay is considered a temporary state. In accordance with this principle, anyone can declare insolvency unless he has sufficient financial resources to cover his debts, in which case the responsibility of proving the solvency of the would-be insolvent party falls on the claimant. Therefore, if a debtor claims insolvency, he may not be imprisoned for non-payment of debts unless the creditor substantiates the debtor’s ability to pay.

As a result, the execution court may not order detention of a debtor without investigating the evidence submitted by the creditor in relation to the debtor’s insolvency, cessation of payment or concealment of assets, as applicable. This decision thus places a significant burden on the creditor to prove the debtor’s insolvency or concealment or dissipation of assets.

Detention without additional burden of proof

The decision also clarifies that, in the following cases, a debtor may be imprisoned without any requirement for the creditor to prove the debtor’s ability to pay:

• The debtor has defaulted on payments ordered by the execution judge;
• The debtor has acted as a guarantor for the debt of another;
• The writ of execution is based on an agreement, a conciliation record, a notarized confession, a reverse execution or a proof of income; or
• The debtor fails to provide documents requested by the execution judge (e.g., account statements, audited financial statements, title deeds) to determine his ability or inability to pay.

These exceptions ensure compliance with existing orders and prevent debtors from avoiding their obligations through non-cooperation or concealment of their financial condition.

Investigative powers of the execution judge

Under this decision, the execution judge also retains the power to investigate the circumstances surrounding the debtor’s proposed imprisonment. It was stipulated that in all cases, the execution judge has the right to conduct a brief investigation to ascertain the debtor’s ability or inability and verify the accuracy of the information provided before issuing a decision to imprison the debtor.

Conclusion

The issuance of Decision No. 9 of 2024 marks a significant step in balancing the rights of creditors and the protections for debtors. By establishing clear and stringent guidelines for the protection of debtors, the decision aligns with both the Civil Procedures Law and Shari’a principles. This is a significant step to preventing the unjust imprisonment of debtors who are unable to meet their financial obligations while ensuring accountability for those who attempt to defraud creditors or conceal assets. This balanced approach underscores the importance of a fair legal process and reinforces the Court’s commitment to upholding justice and equity in financial matters.

Authored by: Mahmoud Kandil