Category: inBriefs

The UAE Direct Debit system

Background

 

The implementation of a system for effecting payments by direct debit in the UAE is the latest effort by the UAE Central Bank to modernize and streamline the system for individuals and companies to meet their financial obligations. It is widely anticipated that the UAE Direct Debit System (DDS) will lead to a more efficient and secure system for payments.

 

The UAE Central Bank has published an extensive set of rules to assist financial institutions, corporates and individuals in understanding how the DDS can help them with their day-to-day operations and what they must do to ensure that they are compliant with the applicable rules.

 

The implementation of the DDS will change the landscape for electronic payments in the UAE. It offers corporates and individuals the ability to make automated recurring payments electronically which will have consequences for the manner in which financial institutions offer their products and collect payments from customers. It is important to understand the full impact of these changes before they come into effect.

 

Set out below are some of the key features of the new system as well as an overview of the three main parties who will be involved in the DDS.

 

Parties Involved in the DDS

 

In addition to the customer or payer who will use the DDS to pay recurring bills/payments, three parties will be involved in completing the cycle of payment.

 

  1. The Originator – A financial institution or corporate entity (referred to under the DDS as the “Originator”) may use the DDS to collect payments from its customers by direct debit. An Originator must also meet specific regulatory thresholds set by the UAE Central Bank and is required to provide a broad indemnity to other users of the DDS.

 

  1. The Sponsoring Bank – Each Originator is required to appoint a sponsor (referred to under the DDS as the “Sponsoring Bank”) in order to use the DDS. The Sponsoring Bank will provide the Originator with access to the DDS and will assist in the processing of direct debit payments. The Sponsoring Bank shall, in summary, act as a conduit for payment requests from Originators and payments flowing from customers of the Originator (or Payers as referred to under the DDS) to the Originator. The Sponsoring Bank shall be responsible for collecting payments due to the Originator. The Originator remains, subject to some limitations, at liberty to appoint more than one Sponsoring Bank. The Sponsoring Bank may also be an Originator.

 

  1. The Paying Bank – Each Payer who wishes to make payment to an Originator will require a bank account with a so called “Paying Bank” that is registered with the DDS. The Paying Bank shall be responsible for effecting the required payment from the Payer’s account to the relevant Originator’s Sponsoring Bank.

 

Dispute Resolution

 

It is noteworthy to mention that that the DDS will provide a dedicated mechanism for dispute resolution. This process involves communication between the parties involved and allows for final approach to the UAE courts if a resolution is not achieved.

 

Implications of the DDS on your business

 

Since all commercial banks in the UAE are obliged to undertake the roles of a Sponsoring Bank and a Paying Bank in the DDS, the DDS has the potential to change the way in which financial institutions in the UAE operate their businesses and will consequently impact a broad spectrum of businesses and individuals. It is also mandatory for all financial institutions in the UAE providing credit facilities (such as personal loans, car loans and mortgages) to act as an Originator.

 

In Conclusion

 

Afridi & Angell has developed specialist knowledge of the rules that apply in relation to entities participating in the DDS and is able to offer market leading advice and assistance in the preparation of the required documents in order to enable participation in the DDS. ■

 

For advice in connection with the DDS, its implementation and the consequences it may have for your business and operations, please contact Amjad Ali Khan or Danielle Lobo, or get in touch with your usual contact at Afridi & Angell for further assistance.

Liquidating Dubai’s cancelled real estate projects

His Highness, Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice Presient, Prime Minister and Ruler of Dubai, recently issued Decree No. 21 of 2013 concerning the formation of a special judicial committee (the “Committee”) for the liquidation of cancelled real estate projects in the Emirate of Dubai and the settlement of relevant dues.

 

The Decree comes at a time of government activity to better protect the rights of investors and is one of a number or proposed changes to Dubai real estate law.

 

The main aim of the special Committee is to consolidate the process for investors to seek compensation against developers for cancelled real estate projects. It aims to further facilitate quicker proceedings, particularly since legal proceedings have not only been lengthy but also expensive.

 

Formation and Powers of the Committee

 

The Committee shall consist of one or more panels, provided that the members of each panel consist of at least three judges from the Dubai Courts, including the Chairman. The Committee has the power to:

 

  • consider and decide any issues, demands and claims that may arise between developers and purchaser relating to cancelled real estate projects;

 

  • liquidate real estate projects cancelled under a final resolution issued by the Dubai government’s Real Estate Regulatory Agency (“RERA”) in accordance with RERA’s powers under Law 13 of 2008;

 

  • settle any debts with respect to such cancelled projects, after deduction of liquidation expenses; and

 

  • consider all executive proceedings, complaints and grievances relating to cancelled real estate projects.

 

In exercising its powers, the Committee may seek the assistance of experts and legal consultants, in particular those from the Dubai Land Department. The Committee may appoint auditors (at the cost of the developer) to audit the financial position of the cancelled real estate project. Decisions of the Committee are final and binding and may not be appealed.

 

Court Cases Referred to Committee

 

One of the most ground breaking provisions of the Decree is that all courts in the Emirate of Dubai (including in the Dubai International Financial Centre) shall no longer consider any case or claim relating to cancelled real estate projects – all such claims must now be considered by the Committee. In addition, the courts are required to refer any current cases before them to the Committee. Cases or demands brought before the Committee shall eb exempt from court fees.

 

A Step in the Right Direction?

 

The Committee was established in an attempt to unravel the many cancelled real estate projects that exist in Dubai after the real estate crash of 2008. Moreover, the Committee would appear to give those unfortunate investors who have long since written off their investments a fast tracked and cost effective forum to recover, at least, some of their losses.

 

However, the Decree and establishment of the Committee raises some questions and practical issues.

 

Any prospect of recovery for investors relies upon there being sufficient assets to liquidate. One of the most valuable assets of any developer of a cancelled real estate project is the land on which the real estate project is constructed. However, in many cases the developer does not own the land until completion of the project. In such instances, the prospect of liquidating just the under-construction building to repay hundreds of off-plan investors who have invested hundreds of thousands of dirhams seems unrealistic.

 

Also, investors expect the Committee to repay them from funds in the escrow account, the bank account set up to specifically protect the investors in the event of failed construction. The reality is somewhat leak with escrow accounts. Many escrow accounts are fully depleted due to land payments, marketing costs and early development and construction works. In circumstances where the two main assets of any cancelled project (i.e., the land and funds in the escrow account) available for liquidation by the Committee are insufficient to repay an investor, the chance of an investor recovering his or her investment is unlikely.

 

The Decree specifically relates to “cancelled” projects rather than “on hold” projects. Investors seeking recovery of their money from developers in projects deemed “on hold” by RERA will still have to pursue developers through court action or arbitration, thereby protracting the process and increasing costs.

 

Going Forward

 

The Committee will need to deal with over two hundred cancelled real estate projects in Dubai as well as thousands of cases relating to cancelled real estate projects currently going through the Dubai courts. How quickly and effectively the Committee deals with such cases will go a long way in re-establishing confidence in a market which is still partially suffering from the wounds of the 2008 crash.

 

The Decree is a clear signal to international property investors that RERA is taking practical steps to deal with rogue developers of days gone by; introduce transparency and protection for investors; and in turn, propel Dubai from a market of short term speculators to a more established and stable real estate market.

 

Afridi & Angell – Our Real Estate Services

 

Afridi & Angell’s real estate lawyers provide strategic advice and legal services with respect to the sale, purchase, and development of real estate (including jointly owned property (i.e., strata) matters)), as well as any related litigation and arbitration. We offer innovative solutions to both developers and investors in relation to cancelled projects. Under the newly issued Decree No. 21 of 2013, we can liaise with and facilitate representation before the new Committee, the Dubai Land Department and RERA.

 

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For more information, feel free to contact any one of our lawyers. We welcome the opportunity to be of service.

 

Shahram Safai, partner – ssafai@afridi-angell.com

 

The content, comments and opinions included in this document are intended solely for information purposes. They should not be regarded or relied upon as legal advice.