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Consultation Paper No. 5 Law of Security

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January 2003

THIS DRAFT LAW IS PUBLISHED FOR CONSULTATION PURPOSES ONLY. THE REGULATORY AUTHORITY RESERVES THE RIGHT TO AMEND THIS DRAFT AT ITS SOLE DISCRIPTION. THE ENACTMENT OF THIS DRAFT LAW IS CONDITIONAL UPON THE OFFICIAL PUBLICATION OF A FEDERAL DECREE, THE AMENDMENT OF DUBAI DECREE NO. 3 OF 2002, AND THE ISSUANCE OF THE LAW BY THE CHAIRMAN OF THE DIFC.

LAW OF Security OF THE DUBAI INTERNATIONAL FINANCIAL CENTRE

Primary Purposes

1. To provide for the creation of Security interests which are valid and enforceable against a debtor, a debtor's creditors and a purchaser of Collateral.
2. To provide for the perfection of Security interests by filing financing statements in respect of them (subject to certain exceptions and qualifications), and to provide the Council with authority to make further rules in respect of perfection of Security interests.
3. To establish rules to determine the priority of competing Security interests.
4. To provide for the establishment of a Charges Registry at which financing statements must be filed and for filing office rules to be made by the Charges Registry.
5. To provide for third party rights and for rights and procedures associated with enforcing Security interests.

Summary

Part 1: General, Part 2: Scope

Establish the title, authority, application, enactment, commencement, interpretation and scope of the Law.

Part 3: Attachment and Effectiveness of Security Interests; Collateral

Provides for the creation of Security agreements valid against a debtor, a debtor's creditors and a purchaser of the collateral; provides for the valid creation of Security interests in after-acquired Collateral and in Collateral that can be used, commingled or otherwise disposed of by the debtor; provides that a Security interest is only enforceable where value is given, where the debtor has title to the Collateral or the power to transfer rights in the Collateral, where a Security agreement has been executed and in the case of negotiable documents of title, negotiable Instruments, Money, Deposit accounts and Investment Property, where the secured party has control of the collateral; provides that a Security interest attaches to Collateral as soon as it becomes enforceable unless there is express agreement to delay attachment; provides that where a Security interest is in a receivable or general intangible that on the fulfilment or expiry of any secured obligation, a debtor may require a secured party to give written notice of his release from further obligation.

Part 4: Perfection and Priority; Part 5: Rights of Third Parties

Provide for the perfection of Security interests by attachment in the case of certain receivables and the sale of promissory notes, by control plus the filing of a financing statement in the case of negotiable documents of title negotiable Instruments Money, Investment Property and Deposit accounts, and by filing alone in other cases; provides the Council with authority to make further rules in respect of perfection; provide for temporary perfection without filing or control where ultimate sale or Exchange is envisaged; provides that a Security interest continues in Collateral notwithstanding disposal of the Collateral and attaches to identifiable proceeds of collateral; provide for the alienability of debtors rights.

Part 6: Filing

To provide for the establishment of a Charges Registry at which financing statements must be filed; to provide rules in case financing statements become seriously misleading; to provide rules relating to the entitlement to file financing statements, the amendment, lapse and termination of financing statements; to require the Council to adopt and publish filing office rules; to allow the filing office to refuse to accept a record not in compliance with the filing office rules.

Part 7: Default and Enforcement

Provide rights for secured creditors on default including the right to require performance, to take proceeds to enforce obligations to exercise a right of set off on a Deposit account, to enforce a Security interest in real Property to take possession and dispose of Collateral in a commercially reasonable manner; to deduct expenses from the proceeds of Collateral realised; provide that other secured parties are notified and the consent of secured parties with prior claims is obtained before action is taken; provide rules as to the application of proceeds realised; provide for the rights of the transferee of Collateral disposed of by a secured creditor; provide for the acceptance of Collateral in partial or full satisfaction of obligations and require notification to other parties with a secured interest in the collateral; provide for the debtor or any other secured party to redeem collateral; provide the Court with powers to order or restrain dealings with Collateral where a secured party is not proceeding in accordance with the Law of Security; provide a right to bring an action in damages for non compliance with the Law of Security.

Submission of Comments

Please note, that although each draft is in near final form, it is still 'work in progress' and may therefore undergo further amendments prior to enactment. However, it is anticipated that any amendments would be technical in nature rather than substantive and therefore the Regulatory Authority believes it is a sensible time to engage in consultation.

Any persons wishing to submit comments should, where applicable, provide details of the organizations they represent. In addition, persons suggesting alternative approaches are encouraged to submit the proposed text of possible amendments that would be necessary to incorporate their suggestions.

Please note that the names of the commentators and the content of their submissions may be published on the Regulatory Authority website and in other documents to be published by the Regulatory Authority. If you wish your name to be withheld from publication by the Regulatory Authority, please indicate this when you make your submission.

Any comments should be addressed to Ms. Roberta Calarese, Legislative Counsel, Regulatory Authority, P.O. Box 74777, Dubai, u.a.e. All comments should be provided in writing no later than 28 February 2003.