UAE federal law on financial covenants approved

Dubai: The UAE Cabinet, chaired by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President, Prime Minister and Ruler of Dubai, approved the issuance of a Federal Decree Law on Financial Covenants.

The new law provides an appropriate legislative framework for practicing financial covenant in the country, with the aim of organizing capital management by specialized persons or institutions with experience in the field of investment.

The decree-law also comes in support of the growing wealth management sector in the country, and in light of the need to find a legal tool that enables companies or persons who own various capital and financial rights, and wish to hand these wealth and rights over as a financial covenant in the custody of another person entrusted with the management and development of funds, either due to lack of necessary knowledge and experience to manage this money, or not having enough time to manage it, or for any other reasons.

Family businesses

Family-owned businesses will be among the most to gain from this decree-law, as the founders and owners of these businesses will be able to plan long-term for the future of their companies’ assets and continuity.

The law provides owners of capital with an integrated system that helps them manage their wealth as a financial trust by competent and qualified persons or institutions experienced and familiar with different investment patterns, their risks, and how to deal with them in the best way.

The decree-law lists various types of covenant with specific purposes, such as “charitable covenant” that is created for charitable purposes, or a restrictive covenant that is created for the purpose of dealing in securities and the financial markets or for establishing retirement funds or ensuring that privileges are provided to the beneficiaries in exchange of regular contributions paid for restrictive covenant.

Financial fee zones

Financial free zones are excluded from implementing the provisions of the decree-law, unless they have their own legislations. The law also regulates the process of managing the covenant, starting from clarifying the legal nature of the covenant, to the methods of its establishment and the conditions that must be met.

The law also clarifies what is the “ bond covenant “ and how important it is given that it is the basic document that includes all terms and conditions.

The decree-law also permitted that the “ bond covenant “ include other provisions for determining the beneficiary, the conditions for dealing in funds, the method for appointing, removing and replacing the trustee, the effects of the termination of the covenant, in addition to the method of appointing the guard of the covenant, his powers, the executor and his powers, and how to increase the covenant funds.

The law comes supports the government’s continuous efforts to raise the efficiency of financial legislation and policies in the country, provide a competitive environment that help preserve and invest capital inside the country, and attract foreign investments.