In a pivotal judgment on October 30, 2024, the First Execution Objections Chamber of the Abu Dhabi Commercial Court of Execution, tackled a complex corporate liability issue involving third-party liability in debt execution.
The case highlighted both the intricacies of UAE civil procedure and commercial law as applied to enforcement proceedings against foreign corporate entities operating through local branches.
Background of the Case
The dispute arose when an individual (“the Objector”) filed an objection against an enforcement action initiated by a major media company headquartered in Abu Dhabi.
The execution action targeted the Objector personally, arguing that he was responsible for the outstanding debts of a foreign company’s UAE branch, which he had previously managed.
The Objector asserted that he was unjustly implicated, arguing he had relinquished all managerial responsibilities following the branch’s deregistration and its removal from the Dubai authorities’ corporate register.
The Objector contested the validity of the enforcement measures, which included a travel ban, claiming that the liabilities of the company should not extend to him personally.
He further cited a cessation of any relationship with the branch in question and provided evidence that the parent company had been dissolved, thereby dissolving any responsibility for the now-defunct UAE branch.
Legal Arguments Presented
In his submission, the Objector, represented by legal counsel, requested:
- Termination of the enforcement measures—specifically, the travel ban issued against him, based on the lack of legal grounds to hold him personally accountable for the company’s debt.
- Removal of his name from the list of enforcement defendants, arguing that he had no active role in the company’s affairs since its deregistration.
- Suspension of all execution proceedings against him until a conclusive ruling on his liability was reached.
The Objector’s defense team presented documents supporting his disengagement from the company, including reports from regulatory bodies confirming the branch’s deregistration and dissolution.
They argued that under UAE commercial law, particularly the Commercial Companies Law, the financial liability of a limited liability company does not extend to its former managers unless fraudulent intent or gross negligence is proven.
The primary defendant (the media company), represented by its legal team, countered these assertions, emphasizing the Objector’s role as a former executive and claiming that he bore responsibility to disclose all company assets to satisfy creditors.
The defense also argued that the Objector’s administrative role placed the burden of financial accountability upon him, as he failed to conclusively demonstrate that he had informed creditors or authorities of the branch’s dissolution.
Court Findings and Ruling
After extensive deliberation and a review of the parties’ submissions, including expert financial reports and documentation, the court assessed the matter under UAE civil procedures and commercial company laws. It considered whether:
- The deregistration of the foreign branch absolved the Objector from financial obligations toward creditors.
- The Objector had satisfactorily fulfilled disclosure obligations, as required under the Civil Procedures Law, to facilitate creditor claims against the company.
The court held that, per the UAE’s execution and civil procedure statutes, travel bans and personal financial accountability could be imposed on company managers if they are deemed to have obstructed creditor claims or failed in their disclosure duties.
However, the court recognized that without sufficient evidence of malfeasance, fraudulent activity, or continued managerial oversight post-dissolution, extending such enforcement measures to former managers could contradict corporate separateness principles.
In its final ruling, the court:
- Partially lifted the travel ban on the Objector, emphasizing the absence of substantiated evidence linking him personally to the outstanding debts.
- Ordered a temporary halt of the execution proceedings against the Objector, allowing time for the submission of further evidence to clarify the Objector’s prior compliance with disclosure and financial reporting obligations.
- Directed the Objector to collaborate with a court-appointed auditor to confirm that he had exhausted all possible means to locate and report the branch’s assets at the time of its dissolution.
Implications of the Judgment
This case underscores a key aspect of UAE law on the accountability of individuals associated with foreign branches in the country.
It demonstrates the UAE judiciary’s balanced approach in protecting creditors while respecting corporate separateness—especially when dealing with limited liability entities where individual liability is generally limited to cases of fraud or gross negligence.
By reinforcing the requirement for former managers to proactively demonstrate their dissociation from company affairs, this judgment also sets a precedent for future cases involving defunct foreign branches.
Executives and former managers are advised to retain comprehensive documentation confirming their exit from company roles and their compliance with financial disclosure requirements.
The ruling serves as an essential reference for foreign corporations operating in the UAE, emphasizing the importance of thorough administrative closures when winding down branch operations and highlighting the stringent accountability standards that the UAE judiciary can impose on those in managerial positions.
What you need is having next to you one of the best lawyers in dubai, who are up to date, and know how to address your needs efficiently and effectively.
Contact Khairallah Advocates & Legal Consultants and benefit from our free 30-min legal consultation.
*Disclaimer: our blogs, law updates and FAQ’s are freely distributed for educational purposes and to showcase recent updates and regulations in the UAE’s framework.
If you have any questions and need an assistance, contact us at our number or book an appointment online.
