There are often concerns about retroactive rebates agreed between the company and the buyer. This risk can be addressed in the factoring agreement proposed by: One of the top global concerns regarding crypto assets is about potential money laundering issues – an issue addressed by the September 2021 amendment to Federal Decree Law No. 20 of 2018 on Combating Money Laundering, Terrorist Financing and Financing of Illegal Organizations (the Anti-Money Laundering Law). The amendment created a new category of institutions that must comply with the anti-money laundering law – namely virtual asset service providers – and provides that natural or legal persons are prohibited from carrying out the activities of virtual asset service providers or any of the financial activities without a licence, entry or registration. by the relevant regulatory authorities. Although the postman is advised to obtain a power of attorney from the company approving its legal recourse against the buyer for non-payment, it should be noted that a power of attorney is generally revocable in the UAE. Given that the new law appears (prima facie) to cover all factoring agreements and assignments of receivables, it would be appropriate for market participants to ensure that all their factoring agreements and assignments of receivables comply with the new law, whether or not such agreements involve the provision of security. Another interesting point – particularly for the SME market – concerns factoring, which is defined in the new Assignment Law as “a transaction in which the transferor has the The alternative arrangement is non-recourse factoring, where non-payment factors can only be claimed from the purchasers themselves (except in special circumstances such as a commercial dispute between the company and the buyer). We describe some of these circumstances in the next section, which looks at the most common risks clients face. In a recourse factoring agreement, the factor takes no risk to the buyer`s creditworthiness unless the company becomes insolvent, whereas in a non-recourse factoring agreement, the factor takes a risk to the buyer`s creditworthiness. This can make a non-recourse factoring arrangement more expensive. UAE law requires that the party receiving the assets or rights as a result of a sale or transfer of assets or rights take possession or control of those assets or rights in order to complete the sale or transfer. In a recourse or non-recourse factoring agreement, this requirement must be fulfilled by an instruction in the notice of assignment (addressed by the Company to the buyer) that the assigned receivables are deposited in the account designated by the factor.
In an undisclosed factoring contract in which no notice has been sent to the buyer, the possession requirement may be fulfilled by the company collecting the assigned receivables for the factor as its representative and obliging the company to pay the receivables collected from a blocked account held by the factor. Although the enactment of this law has aroused great interest among various financial companies wishing to enter the factoring market, it should be noted that the law stipulates that factoring can only be carried out by companies approved by the Central Bank of the United Arab Emirates and under the conditions to be determined within the framework of a decision of the Central Bank – which determines the types of institutions, who can perform factoring, seems to restrict. We await further guidance on the more detailed terms of the new Assignment Act and will monitor this area. This risk only arises in the case of non-recourse factoring, as it would be repurchased by the Company under a recourse factoring agreement. Therefore, any denial of the assignment should be considered a breach of the factoring agreement. This risk may be resolved by requiring the Company under the factoring agreement to take all actions required by the factor or otherwise to complete the engagement(s) entered into under a factoring agreement. There is no independent public registry in the United Arab Emirates that records documentation relating to factoring agreements or assignments of receivables. In the event of a concurrent assignment or claim, performance depends on the dates of notification or confirmation of each of the competing assignments, the first assignment to be regularly perfected being effective. Therefore, an assignment under a recourse or non-recourse factoring agreement can still be effective if it is first made effective (against competing counterparty) compared to an assignment under an undisclosed factoring agreement that is never perfected.
An undisclosed factoring contract is not perfect in nature and therefore does not create any rights over the factor vis-à-vis the buyer. “Transfers” will be regulated and regulated by the new law. The same definition is provided for in the provision of the law, which contains the reasoning that the law would regulate assignments that are exclusively those that assign debts and assignments of debts that have a security right in them. However, it is more common for factoring and recognizance clauses to be the mere assignment of debts than those for which security rights exist. The shortcomings of the new law also include the lack of specifications for the various factoring agreements, including the purchase or sale of receivables, discount and reverse factoring, etc. The new law aims to govern and regulate all factoring agreements and assignments of receivables in the UAE. In view of the above, all market participants must ensure that they strictly comply with the requirements and regulations set out in this Law with regard to their factoring agreements and assignments of receivables, whether or not they involve the creation of securities. If buyers are highly valued but it is difficult to obtain confirmations from them, the factoring contract cannot be disclosed to the buyer and only the company has recourse against the buyer. In these cases, in case of non-payment and recourse to the buyer, the Company acts as the representative of the postman.
Under an undisclosed factoring agreement, it is very likely that the receivables will be part of the insolvent company`s asset pool because the assignment has not been finalized. In this case, the factor takes a credit risk for the company. In the case of disclosed factoring, if there is a perfect assignment, the receivables are not part of the assets of the insolvent company, so the factor does not take credit risk for the company. Federal Law No. 20 of the United Arab Emirates of 2016 on the encumbrance or pledging of movable property as debt security (the former UAE Movable Property Security Law) was an important development in the UAE banking and financial law landscape. It has brought about a significant change in the practice of providing security rights in movable property in the context of United Arab Emirates banking and financial transactions (including trade receivables) and has expressly permitted the possibility of taking a security right in specified movable property in the future as well as in current specified movable property. In conclusion, the new law clarified some key issues of assignment of receivables and thus created a more uniform framework. It is now clear that all receivables that are the subject of an assignment (which may include future receivables) need to be described only in general terms in the assignment, and it is now clear that certain elements of mortgage law on movable property apply to assignments of receivables (such as registration requirements and priority rules). However, it is questionable how the new law treats certain types of assignments of receivables and factoring agreements (in particular those involving absolute assignments and the absence of security rights), as well as how a court would interpret the relevant provisions of the Civil Code in the light of the new law. However, this implied that future claims could be the subject of a genuine sale, without explicitly specifying this. Federal Law No. 16 of the United Arab Emirates of 2021 on Factoring and Assignment of Receivables (the Factoring Law of the United Arab Emirates) clearly specifies this and sets out the requirements to this effect under the law of the United Arab Emirates.
The main features of the UAE Factoring Law and the considerations arising from it are as follows: There are many law firms in the UAE, but not all law firms have a license to advocate and advise legally, which allows a lawyer to present a case in court. The UAE government recently promulgated Federal Decree No. 16 of 2021 to address factoring and debt transfer issues in the country. The new law is the first of its kind in the country to deal exclusively with factoring and assignment of receivables. Before the law, there was uncertainty about how such an agreement would be legally implemented in the UAE. The current law provides a framework that regulates and establishes the essential requirements necessary for the legal enforcement of the transfer and assignment of receivables, the various provisions to ensure their validity and completeness, and the various rules to be followed in determining priority over such assigned receivables over other competing receivables.