Travel Ban on Personal Guarantors for Loans

Banks in the United Arab Emirates customarily require the main partner in a company to sign a personal guarantee agreement when granting banking facilities to businesses, obliging the guarantor to repay the full or part of the facility granted in case the company that has been granted the banking facilities fails to pay. In the event that the company defaults in payment banks resort to expedited judiciary procedures and request a travel ban against the personal guarantor, especially if the personal guarantor is not a citizen of the UAE and hence there is a fear of exiting the country. This usually occurs before any other action is taken; such as lodging a claim against the outstanding amount.

There is no doubt that restricting the movement of an investor or a company’s main partner by imposing a travel ban may serve as an effective means of pressure to compel them to settle the debt. However, the rulings of the Dubai Court of Cassation have established that being indebted to a bank, even if the debt is legally established and due, or being a foreign national is not sufficient grounds for issuing a travel ban. The creditor shall prove that there are serious reasons for the debtor to flee as stipulated in Article 329 of the Civil Procedures Law, which requires that the petition submitted to the Courts state reasons justifying that there is risk of the debtor (the personal guarantor) fleeing, such as selling all or part of his property, liquidating or closing the company that received the facility, or other evidence to the effect that the guarantor is ending his stay in the UAE in preparation to flee the country.

The absence of these reasons in the creditor’s petition renders the travel ban order lacking one of the essential conditions stipulated in Article 329 of the Federal Civil Procedure Law. Unfortunately, some banks, when submitting travel ban requests before UAE courts, fail to meet certain requirements, which exposes the travel ban order to cancellation if the debtor files a grievance or an appeal. This, in turn, renders the personal guarantee agreement ineffective in preventing the guarantor from fleeing the country. Although the law, under Article 329 of the Civil Procedure Law, allows the judge to conduct a brief investigation if the supporting documents submitted for the travel ban request are insufficient, the practical approach in the UAE has been for urgent matters judges to either approve or reject the request based solely on the documents provided by the bank, without conducting such an investigation. Judges in urgent matters rely on the fact that a travel ban request is essentially an ex parte order, which shall, in itself, include the facts and legal grounds supporting the request. According to Article 140 of the Civil Procedure Law, the judge or head of the relevant division shall issue the decision in writing on the day following the submission of the petition, without the need for justification.

The UAE judiciary has established that the assessment of the existence of serious reasons justifying concerns about the debtor fleeing the country before the execution of a judgment in favor of the creditor falls within the discretion of the trial court, without being subject to review by the Court of Cassation. The legislator has granted the creditor bank a period of eight days to submit evidence that a lawsuit regarding the debt has been filed. If this period elapses without such evidence being provided, the competent judge shall order the cancellation of the travel ban, in accordance with Article 330(5) of the Civil Procedure Law, as the travel ban is inherently a precautionary measure.

The Dubai Court of Cassation ruled that, in accordance with Article 329 of the Civil Procedure Law, the restriction of a debtor’s freedom by imposing a travel ban is contingent upon the existence of serious circumstances that justify the judge’s decision. These circumstances shall be evident from the submitted documents, demonstrating the creditor’s fear that the debtor might flee before the enforcement of a ruling in the creditor’s favor. It is insufficient for a person to be a foreigner, to owe a confirmed and due debt, or to have a serious claim of indebtedness as grounds for imposing a travel ban. Instead, there shall be a real concern that the creditor’s rights will be jeopardized. The burden of proof lies with the creditor, who shall demonstrate the serious reasons justifying concerns about the debtor’s flight. It is also established that assessing the extent to which these reasons are available or not is a matter of fact that the court of subject matter is independent in deducing from the appearance of the papers presented thereto in the case, provided that it bases its judgment on valid reasons.

Dubai Court of Cassation Ruling – November 27, 2005, in Appeal No. 119/2005 Civil Appeal

As per the foregoing, it can be concluded that banks in the United Arab Emirates commonly require partners in companies seeking banking facilities to sign a personal guarantee or guarantee deed. This serves as a security for the repayment of the granted facilities, effectively making these partners jointly liable with their companies for settling the debt if the creditor bank files a lawsuit to claim the outstanding amount. But what about precautionary measures that can be taken against the personal guarantor?

As previously mentioned, precautionary measures, including travel bans, can be effective and decisive. In most cases, they compel the personal guarantor to seek a settlement due to the fear of prolonged litigation. This is because the travel ban remains in effect from the date of issuance, provided that the main lawsuit to claim the debt is filed within eight days. It remains enforceable until the debtor fulfills the repayment obligation during the execution stage of the judgment, a process that can extend for at least one calendar year, according to prevailing practices in UAE courts. It is well known that most investments and business operations require the travel of company managers and key partners, making a travel ban a severe setback for such companies. However, for banks to benefit from these personal guarantees, the travel ban or any other precautionary measures shall be implemented in full compliance with legal requirements. Otherwise, they may be subject to cancellation if the debtor challenges the order under Article 141 of the Civil Procedure Law, potentially jeopardizing the creditor’s security for the debt.