Taking and enforcement of security in UAE and China

The market has seen, in recent years, increasing numbers of Chinese banks establishing a presence in the United Arab Emirates (UAE), including at the Dubai International Financial Centre (DIFC).

As a Chinese lawyer practising banking law in the UAE, the author is often called upon to ensure Chinese banks comprehensively understand the local legal environment. This article sheds some light on the taking and enforcement of security – which is always of essence to the banking business – in the UAE, in comparison with that under the laws of the PRC.

PRC law provides for three types of security – namely mortgage, pledge and lien, the perfection of which enables the secured party to enjoy a priority right over secured property above unsecured creditors and secured creditors subsequent in rank.

In comparison, generally under UAE law security would either be a mortgage or pledge without necessarily guaranteeing the right of priority, except for a registered mortgage or pledge. In practice, six types of security or quasi-security are widely used based on the type of property to be secured. These are discussed below.