Civil Law And UAE Debt Transfer Mechanisms

1. Introduction

Debt transfer is a mechanism by which an existing obligation is shifted from one debtor to another. In UAE civil law, this is commonly associated with assignment of debt (Hawalat al-Dayn). The essential consequence is that the new debtor assumes the obligation and, once the statutory requirements are satisfied, the original debtor may be released.

Debt transfer must be distinguished from:

Assignment of a creditor's right — the creditor changes, but the debtor normally remains the same.

Debt transfer — the debtor changes.

Guarantee — another person becomes liable or secures performance without necessarily releasing the original debtor.

Novation — the parties replace an existing obligation or contractual structure with a new one.

Subrogation — one person acquires rights against the debtor after satisfying another person's claim.

This distinction is particularly important in UAE banking, restructuring, real-estate finance, construction, M&A, corporate reorganisations and insolvency transactions.

2. Current UAE Legal Framework

The UAE's new Federal Decree-Law No. 25 of 2025 promulgating the Civil Transactions Law came into force on 1 June 2026, replacing Federal Law No. 5 of 1985. The new Code separately regulates transfer of rights and transfer of obligations.

The new law places transfer of obligations within the provisions dealing with multiple-party obligations.

Article 418

The new framework requires the consent of the relevant parties for a debt assignment. In particular, the transferee/new debtor and creditor must consent to the transfer.

Article 419

Where the original debtor and proposed new debtor arrange a transfer, the transfer does not automatically release the original debtor against the creditor. The creditor's acceptance is significant to the external effectiveness of the transaction.

Article 420

The law also recognises obligations between the original debtor and transferee concerning payment of the creditor.

Article 424

Special rules apply where transfer of debt is connected with mortgaged real property; the existence of a mortgage does not mean that the secured debt automatically follows the property merely because ownership changes.

The new regime therefore places considerable emphasis on creditor consent, identification of the obligation, and the distinction between internal arrangements and a legally effective substitution of debtors.

3. Meaning of Debt Transfer

Conceptually:

Original Debtor → New Debtor

Suppose:

A owes AED 10 million to B.

A and C agree that C will assume A's debt.

B accepts the substitution.

The intended legal result is:

C → B

and, subject to the statutory requirements, A is released.

The essential change is therefore in the identity of the debtor.

This differs from assignment of a creditor's right:

A (debtor) → B (creditor) → C (new creditor)

Here the debtor remains A but the person entitled to payment changes.

4. Essential Elements of UAE Debt Transfer

A. Existing Debt

There must be an identifiable obligation capable of being transferred.

The debt may arise from:

loan agreements;

commercial contracts;

supply agreements;

construction contracts;

guarantees;

settlement agreements;

financing arrangements;

judgments or enforceable obligations, subject to applicable procedural rules.

The agreement should identify the debt clearly enough to determine what obligation is being transferred.

B. Original Debtor

The original debtor is the person whose obligation is intended to be transferred.

Under the traditional terminology:

Muhil = transferor/original debtor;

Muhal alayh = transferee/new debtor;

Muhal lah = creditor.

The terminology is important because the legal consequences differ according to which party's position is being transferred.

5. Consent of the New Debtor

A person cannot ordinarily be made responsible for another person's debt without consenting to assume that obligation.

Therefore, the new debtor's acceptance is a central element.

For example:

A cannot simply declare:

"C will now pay my AED 5 million debt."

C's consent to assume the obligation is necessary.

The new debtor may conduct due diligence concerning:

principal amount;

accrued interest or profit;

default charges;

security;

guarantees;

maturity;

litigation;

counterclaims;

set-off;

conditions precedent.

6. Creditor Consent

Creditor consent is particularly important because the creditor is being asked to exchange one debtor for another.

A creditor may have originally extended credit because of:

the original debtor's financial strength;

guarantees;

collateral;

credit rating;

corporate structure;

personal guarantees;

relationship with the debtor.

Replacing that debtor with another person may materially change the creditor's risk.

Accordingly, a debt transfer should not be confused with a private agreement between two debtors.

Under the new UAE framework, the creditor's acceptance is central to the transfer becoming effective against the creditor and to the release of the original debtor.

7. Internal Agreement Versus External Transfer

A very important distinction is between:

Internal arrangement

A and C agree that C will pay A's debt.

External debt transfer

B, the creditor, accepts C as the new debtor and A is released.

The first arrangement may create contractual obligations between A and C without necessarily changing B's rights.

Thus:

A–C agreement ≠ automatically A's discharge toward B.

This distinction prevents a debtor from unilaterally changing the creditor's contractual counterparty.

8. Debt Transfer Versus Guarantee

The distinction is fundamental.

The new UAE Civil Transactions Law expressly reinforces this distinction. Article 999 treats an arrangement involving release of the original debtor as an assignment rather than an ordinary guarantee, while a transaction in which the original debtor remains liable can be characterised as a guarantee.

9. Debt Transfer Versus Novation

Novation is broader than simple debt transfer.

A debt transfer may preserve the underlying debt while changing the debtor.

Novation may replace an existing obligation with a new obligation.

For example:

Debt transfer:

A's AED 10 million loan obligation → C becomes debtor.

Novation:

Old financing arrangement → replaced by a new financing agreement between B and C.

The distinction can have consequences for:

securities;

guarantees;

arbitration clauses;

interest;

limitation;

contractual defences;

conditions precedent;

ancillary obligations.

10. Types of Debt Transfer

A. Voluntary Debt Transfer

The original debtor, new debtor and creditor voluntarily agree to the substitution.

This is the most straightforward structure.

B. Debt Assumption

A third party agrees with the original debtor to assume responsibility for the debt.

However, the assumption should not automatically be treated as a release of the original debtor unless the creditor accepts the substitution in accordance with the applicable law.

C. Debt Transfer Through Corporate Restructuring

Debt transfer can occur in:

mergers;

acquisitions;

corporate reorganisations;

business transfers;

project restructuring.

The transaction documents should specify whether liabilities are:

assumed;

assigned;

guaranteed;

refinanced;

novated.

D. Debt Transfer Connected With Secured Property

A buyer of mortgaged property does not automatically become personally liable for the seller's secured debt merely because the property is transferred.

The treatment of the mortgage and underlying debt must be separately analysed.

11. Effect of a Valid Debt Transfer

Once the statutory requirements are fulfilled:

1. New debtor becomes responsible

The creditor obtains the right to demand performance from the new debtor.

2. Original debtor may be released

The purpose of debt transfer is generally substitution rather than merely adding another debtor.

3. Underlying obligation continues

The transfer normally concerns the debtor's position rather than creating an entirely unrelated debt.

4. Security must be separately examined

Mortgages, guarantees and other security arrangements should not automatically be assumed to survive in exactly the same manner after a debtor substitution.

5. Contractual defences require examination

The new debtor's rights and defences depend upon the governing law and the terms of the transfer.

12. UAE Case Law

Case 1: Federal Supreme Court — Debt Transfer and Creditor Consent

A significant UAE Federal Supreme Court decision concerned a dispute in which one company argued that the delivery of replacement cheques demonstrated a debt transfer.

The Supreme Court emphasised the requirements of Articles 1106 and 1109 of the former Civil Transactions Law. It explained that debt assignment transferred the debt and claim from the original debtor to the new debtor and required consent of the original debtor, creditor and transferee. The Court also stressed that the original debtor is released only when a legally valid debt transfer has actually been established.

The Court rejected the proposition that the mere possession of cheques demonstrated creditor acceptance of a debt transfer where the creditor disputed having accepted substitution.

Importance: This is a particularly useful UAE federal authority for the proposition that creditor consent and proof of the transfer cannot simply be presumed.

Case 2: Ras Al Khaimah Court — Debt Transfer Following Company Sale

In a Ras Al Khaimah appellate/cassation matter reported in the Judicial Publications, a company sale agreement contained arrangements under which the debt was transferred from the existing debtor to another party.

The court accepted that a valid debt transfer could arise between the original debtor and transferee where the creditor bank had approved the arrangement. The evidence included an expert's report and documentary material demonstrating the bank's consent.

The court treated the issue as one of identifying whether the statutory requirements for debt transfer had been fulfilled.

Importance: The case illustrates that creditor approval may be established through documentary evidence and surrounding contractual material, rather than necessarily through one isolated document.

13. DIFC Case Law Relevant by Analogy

DIFC cases must be treated separately because DIFC law is not identical to the UAE federal Civil Transactions Law. Nevertheless, they are useful authorities for understanding assignment, novation and assumption of obligations in UAE commercial practice.

Case 3: Taaleem PJSC v National Bonds Corporation PJSC & Deyaar Development PJSC [2010] DIFC CFI 014

This dispute concerned the Sky Gardens financing structure.

Taaleem, National Bonds Corporation and Deyaar had arrangements under which Taaleem's rights and obligations, including its obligation to repay financing, were transferred to Deyaar through novation.

The DIFC Court subsequently described the transaction as involving transfer of rights and obligations through novation.

The dispute demonstrates that when the entire contractual position—including both rights and obligations—is transferred, the transaction may properly be analysed as novation rather than a simple assignment of a debt.

Importance: Useful for distinguishing debt transfer from complete contractual novation.

Case 4: Deyaar Development PJSC v Taaleem PJSC & National Bonds Corporation PJSC [2015] DIFC CA 010

The DIFC Court of Appeal considered the earlier Sky Gardens financing dispute.

The case concerned the agreed transfer of Taaleem's interest and obligations to Deyaar, including the obligation to repay National Bonds.

The judgment recognised the importance of determining whether the transaction constituted:

assignment;

novation; or

another binding contractual arrangement.

The case is particularly useful because it demonstrates that substance and mutual intention matter when determining whether a debtor has actually been substituted.

Case 5: Lakhan v Lamia [2021] DIFC CA 001

In this case, a subcontractor, contractor and developer entered into a novation agreement by which the developer took the place of the original contracting party.

A dispute subsequently arose concerning payment and the applicable dispute-resolution mechanism.

The DIFC Court of Appeal treated the novation as a substantive contractual replacement and considered the consequences of the new contractual relationship.

Importance: The case demonstrates that a novation can transfer the contractual position rather than merely transferring an individual debt. It is therefore useful when analysing whether a transaction is genuinely a debt transfer or a wider contractual substitution.

Case 6: Parking District Solutions LLC v Ritz-Carlton Hotel Company Ltd & Hospitality Management Ltd [2022] DIFC CFI 002

The dispute involved an alleged "Novation Agreement" under which one company purported to transfer contractual rights, obligations and liabilities to another.

The Court held that the purported transfer could not bind the relevant parties because the necessary consent of the contractual counterparty had not been obtained.

The judgment expressly distinguished assignment from novation and emphasised that a novation requires the participation/consent of the parties whose contractual rights and obligations are being replaced.

Importance: It provides a strong illustration of why a private agreement between transferor and transferee may be insufficient to change the creditor's or counterparty's legal position.

Case 7: Sociedad de Inversiones y Desarrollo Playa Leona S.A. v Gold CA FZ LLC [2022] DIFC CFI 095

The dispute concerned an alleged assignment arrangement involving an obligation to repay approximately AED 3.7 million.

The agreement purported to transfer the obligation to repay to another party, but the Court examined the contractual documentation and identified significant problems, including the absence of a clearly established consideration arrangement.

The case illustrates the importance of carefully establishing:

the debt;

the parties;

the consideration, where relevant;

the mechanism of assumption;

the legal effect intended by the parties.

Importance: Debt-transfer documents should be sufficiently precise to establish exactly what obligation is being transferred and what legal consequences are intended.

Case 8: Egan & Eggert v Eava & Efa [2013] DIFC ARB 002

This case involved security arrangements under which rights were assigned as security for indebtedness.

The DIFC Court examined whether the assignment was an absolute assignment or an assignment by way of security.

The Court recognised that the assigned rights were conditional upon the secured indebtedness and relevant default circumstances.

Importance: The case is useful for distinguishing:

absolute transfer;

security assignment;

conditional assignment;

transfer of contractual rights;

transfer of the underlying debt.

It demonstrates why the legal effect of the transaction must be determined from the actual contractual structure rather than from the label placed on the document.

14. Debt Transfer and Security

A debt transfer frequently occurs in secured financing.

For example:

Bank A → original debtor

with:

mortgage;

pledge;

guarantee;

corporate guarantee.

If the debt is transferred to a new debtor, lawyers must examine separately:

whether the principal debt transferred;

whether the original debtor was released;

whether the mortgage remains effective;

whether guarantees continue;

whether consent of guarantors is necessary;

whether registration is required;

whether the security secures the new debtor's obligation.

A debt-transfer agreement should therefore contain a detailed security schedule.

15. Debt Transfer in Banking Transactions

Banks are particularly sensitive to debt transfers because debtor identity affects credit risk.

A bank may require:

financial statements of the new debtor;

KYC documentation;

corporate approvals;

board resolutions;

guarantees;

revised security;

updated insurance;

evidence of authority;

confirmation of existing defaults;

revised repayment schedule.

The creditor may refuse the transfer where the proposed new debtor does not satisfy the bank's contractual or regulatory requirements.

16. Debt Transfer in Corporate Acquisitions

Suppose:

Company A owes Bank B AED 50 million.

Company C acquires Company A's business.

The parties cannot simply assume that Company C automatically becomes the debtor.

The acquisition documents should specify whether:

Structure 1 — Debt remains with A

C purchases the business but A continues owing B.

Structure 2 — C assumes the debt

C agrees to assume A's obligation.

Structure 3 — Novation

B, A and C execute a novation replacing A with C.

Structure 4 — Refinancing

C obtains new financing and uses the proceeds to discharge A's debt.

These structures have different legal consequences.

17. Debt Transfer and Contractual Clauses

Before transferring a debt, parties should examine:

anti-assignment clauses;

change-of-control provisions;

consent requirements;

governing-law clauses;

jurisdiction clauses;

arbitration clauses;

security provisions;

acceleration clauses;

default provisions;

confidentiality provisions.

A debt transfer document that ignores these provisions can generate disputes over whether the transfer is effective.

18. Debt Transfer and Arbitration Clauses

A particularly important issue arises where the underlying debt agreement contains an arbitration clause.

A transfer of the debt does not necessarily mean that every contractual provision can be ignored.

The parties should determine:

whether the arbitration agreement travels with the transferred claim;

whether the new debtor becomes bound;

whether a separate novation is required;

whether the original arbitration agreement survives;

which law governs the arbitration clause.

The DIFC authorities demonstrate the importance of distinguishing transfer of contractual rights from transfer of the entire contractual relationship. In Egan & Eggert, the Court considered arbitration as a mechanism attached to the recovery of assigned contractual rights.

19. Debt Transfer and Insolvency

Debt transfers become particularly significant when the original debtor is financially distressed.

A transfer may be examined for:

fraudulent preference;

prejudice to creditors;

undervalue;

concealment of assets;

sham transactions;

related-party transactions;

improper dissipation of assets.

Accordingly, a debt transfer executed shortly before insolvency should be carefully documented.

The parties should demonstrate:

genuine commercial purpose;

proper consideration;

creditor consent;

accurate valuation;

corporate authority;

absence of fraudulent purpose.

20. Evidentiary Requirements

A party claiming that a debt has been transferred should ordinarily be prepared to produce:

original debt agreement;

debt-transfer agreement;

creditor consent;

new debtor's acceptance;

original debtor's consent where required;

board resolutions;

payment records;

security documents;

correspondence;

account statements;

notices of transfer;

amended financing documents.

The Federal Supreme Court authority discussed above demonstrates the importance of proving actual acceptance rather than merely asserting that the parties intended a debt transfer.

21. Common Legal Problems

Problem 1: No creditor consent

A and C agree to transfer the debt but B does not accept.

Result: The agreement may govern the internal relationship between A and C, but it does not automatically release A from liability to B.

Problem 2: Ambiguous documentation

The agreement says:

"C will settle all obligations of A."

This may be insufficient to establish whether C:

guarantees A's debt;

assumes the debt;

becomes co-obligor;

becomes sole debtor;

merely agrees to make payment.

Clear drafting is essential.

Problem 3: Debt transfer confused with guarantee

If A remains liable while C promises to pay B, the arrangement may be a guarantee rather than a true debt transfer.

Problem 4: Transfer without security analysis

The debt is transferred but the parties fail to address the mortgage or guarantee.

This may create disputes over the continuing scope of security.

Problem 5: Wrong characterisation as novation

A document labelled "assignment" may actually constitute a novation if it replaces the entire contractual relationship.

Courts examine substance and contractual intention.

22. Practical Debt Transfer Structure

A properly drafted UAE debt-transfer agreement should normally identify:

Parties

original debtor;

new debtor;

creditor.

Existing debt

principal amount;

interest/profit;

maturity;

default;

existing disputes.

Transfer

exact obligation transferred;

effective date;

creditor consent;

release of original debtor.

Security

mortgage;

pledge;

guarantee;

insurance;

collateral.

Contractual provisions

governing law;

jurisdiction;

arbitration;

notices;

confidentiality.

Closing documents

creditor consent;

corporate approvals;

payment evidence;

amended security;

updated account information.

23. Difference Between Important Transfer Mechanisms

24. Legal Significance of Creditor Consent

The creditor's position is the central protective mechanism in debt transfer.

The creditor is not merely receiving payment; it is potentially losing its claim against the original debtor and acquiring a claim against another debtor.

Consequently, creditor consent protects against:

deterioration of credit quality;

loss of security;

inability to enforce;

unexpected jurisdictional issues;

change in guarantors;

change in insolvency risk.

The UAE statutory structure therefore treats debt transfer differently from ordinary assignment of a creditor's right.

25. Current-Law Qualification

There is an important temporal issue.

Most traditional UAE cases concerning Hawalat al-Dayn were decided under the former 1985 Civil Transactions Law, particularly its Articles 1106–1132.

The new 2025 Civil Transactions Law became effective on 1 June 2026 and introduced a reorganised framework for transfer of rights and obligations.

Therefore, older UAE authorities should not automatically be cited as if they directly interpret Articles 418–424 of the new Code.

Similarly, the DIFC cases discussed above are DIFC authorities, governed by DIFC legislation and common-law-influenced principles. They are persuasive/analogical for questions concerning novation, assignment and contractual substitution, but they should not be described as direct interpretations of the federal UAE Civil Transactions Law.

26. Key Principles

The principal rules can be summarised as follows:

Debt transfer changes the identity of the debtor.

The new debtor must consent to assuming the obligation.

Creditor consent is central to the effective substitution of the debtor.

An agreement between two debtors does not automatically release the original debtor toward the creditor.

Debt transfer must be distinguished from guarantee.

Debt transfer must be distinguished from assignment of creditor rights.

A complete contractual replacement may constitute novation rather than simple debt assignment.

Security arrangements must be separately examined.

Arbitration and jurisdiction provisions require specific analysis.

Clear documentary evidence is essential.

Corporate approvals and creditor consents should be preserved.

The 2025 Civil Transactions Law must now be considered for transactions governed by the federal UAE civil-law regime from 1 June 2026 onward.

27. Conclusion

UAE debt-transfer mechanisms are based on the fundamental principle that changing the debtor is legally different from merely transferring a creditor's claim.

A valid debt transfer normally involves:

Existing debt + new debtor's assumption + creditor acceptance + legally effective substitution.

The most important practical issue is proving that the creditor actually accepted the substitution and that the transaction genuinely released the original debtor where release was intended.

The UAE Federal Supreme Court authority demonstrates the importance of proving the statutory requirements of debt transfer, while the DIFC decisions such as Taaleem, Deyaar, Lakhan, Parking District Solutions, Sociedad de Inversiones, and Egan & Eggert illustrate the closely related principles of novation, assignment, contractual substitution and assumption of obligations.

Accordingly, in UAE civil-law practice, a debt transfer should never be assessed merely from the title of the document. The court is likely to focus on the identity of the obligation, the parties' actual agreement, creditor consent, intended release, contractual structure, and the evidence establishing the transfer.