To pay or not to pay? That is the question.
This question keeps coming up so time to revisit it.
It is an inconvenient truth that no expat working in Dubai is immune to the risk of redundancy or job loss. Should these trials arise at the start of summer, when many expats depart on vacation and recruitment grinds to a near halt, an individual faces additional pressure. In this situation, it would cross many a person’s mind to board a flight with their family and vow not to return to the UAE, seemingly leaving their debts and troubles behind. Unfortunately for those that do make this unwise decision, there is rarely a happy ending. In this article we will consider the laws in relation to debt and debt recovery and how these apply to expatriates in the UAE.

How do banks react to debt?
When an individual defaults on a loan repayment, a bank may not necessarily send an immediate legal notice to the Debtor. The bank would be realistic about the situation and consider the matter from a legal perspective. The bank would have two options; the criminal or civil routes.

The criminal route:
When an individual takes out a loan, he is obliged to give an undated blank cheque to the Creditor (Bank). The loan contract gives the bank the right to cash the cheque in case of default of the Debtor. This would therefore be the first step of the Creditor. If the cheque then bounces, the Debtor will have committed a criminal offence in Dubai. This is set out in article 305 of the UAE Penal Law of 1970, which states that:
“whoever, by bad intent, gave a bad cheque and the balance is less than the cheque value or if it was withdrawn after giving the cheque [whole amount or part of it] that the remaining credit doesn’t fulfill the value of the cheque, the issuer of the cheque shall be punished by prison for a period not exceeding three years, or fine not exceeding 4,000 AED, or by these two penalties together.”

The civil route:
The Creditor can instead commence a civil case through the Court making use of articles from Federal Law No. 5 of 1985 (the ‘Civil Code’). Particularly, article 246 of the Civil Code which states that each contract entered in to must be fulfilled ‘in good faith’ and article 710 of the same Code obliges the Debtor to repay the loan. Default of a loan would therefore result in breach of the Civil Code. In these circumstances, it would be up to the discretion of the Creditor as to whether they wish to enforce the judgment on a Debtor that has left the UAE.

What if the Debtor has left the country?
Under the UAE criminal procedures law, if it can be shown that the Debtor has left the country, it is possible for the Creditor to obtain a Court judgment in absence of the Debtor. After receiving the judgment, as part of the execution process, the Debtor may be blacklisted at the migration department, meaning in future he would be stopped immediately upon arrival to the UAE. This would include any occasion in which the Debtor was transiting through Dubai on route to another country.

In addition, the Creditor can apply for the matter to be registered with Interpol which is the world’s largest international police organization with 190 member countries.

It is also important to note that the UAE has bilateral agreements with many other countries in relation to the recognition of foreign judgments. It is therefore an option for the Creditor to attempt to enforce the judgment through the Courts of the country in which the Debtor has fled.

Overall, it should be noted that new tools are being introduced to make easier to collect money from the Debtor. Any expatriate thinking that loan problems will be solved once they leave the country must think again; the debt won’t disappear. In these circumstances it may be helpful for an individual to contact the bank or other Debtor. It may be possible to negotiate a payment holiday during a period of unemployment, or to extend the term of repayment of a loan to reduce the monthly payments.

Article courtesy of Alexandra Tribe,
Partner & Solicitor (England & Wales)

Al Rowaad Advocates & Legal Consultancy is licensed to perform legal services and advocacy in all courts of the UAE, reaching out to local and expatriate clients. Our strong practice areas are family law, labor, corporate & commercial, private equity, banking, maritime & transport, litigation & arbitration and real estate. Visit our website or email us at awf@awfuae.com