UAE Guarantees After the New Civil Transactions Law: What Creditors and Guarantors Should Review
The new Civil Transactions Law changes how creditors and guarantors should assess enforcement, timing and liability.
Guarantees often sit behind larger commercial transactions, supporting loans, shareholder obligations, supply arrangements and other payment commitments. Their wording may receive less attention than the principal agreement until a default occurs and the creditor needs to determine what can actually be recovered.
Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law has been in force since 1 June 2026. For transactions governed by onshore UAE law, its reorganised suretyship provisions introduce important considerations for creditors, debtors and sureties.
The legal character of the security document matters. A document described commercially as a guarantee is not necessarily a suretyship under the Civil Transactions Law. Personal and corporate suretyships, independent guarantees and bank letters of guarantee may operate under different rules.
Article 1006 Creates a More Specific Six-Month Requirement
The six-month rule is not entirely new. Article 1092 of the former Civil Transactions Law already provided protection to a surety where the creditor failed to claim the debt within six months from maturity.
Article 1006 is more specific. It provides that the surety is released from the suretyship if the creditor does not initiate judicial proceedings to claim the debt against both the debtor and the surety within six months commencing from the day following the maturity date.
This makes the maturity date particularly important. Demand letters, restructuring discussions and settlement negotiations should not be treated as substitutes for the judicial proceedings expressly required by Article 1006.
The wording also raises questions where the underlying dispute is subject to arbitration. Whether commencing arbitration satisfies the requirement to initiate judicial proceedings has not yet been conclusively established under the new regime. Creditors dealing with arbitration clauses should therefore assess the issue before the six-month period approaches expiry.
Article 1009 Changes the Default Order of Recourse
Article 1009 also affects how a creditor may proceed against a surety. As a general rule, the creditor may not have recourse against the surety alone before first having recourse against the principal debtor.
The creditor may also not levy execution against the surety’s property until the debtor’s property has been exhausted. However, this restriction does not apply where the surety is jointly and severally liable with the debtor, or where the law or agreement provides otherwise. The surety must raise the protections provided by Article 1009 before the court.
Guarantee drafting therefore has direct enforcement consequences. Parties should identify whether joint and several liability has been expressly established and whether the agreement contains provisions that alter the default statutory position.
Commercial Debt Does Not End the Classification Question
Article 994 provides that a suretyship securing a commercial debt is considered a civil act even where the surety is a merchant. Article 994(2) separately provides that a suretyship arising from an aval in respect of commercial instruments is always considered a commercial act.
This provision must be considered alongside Article 70 of Federal Decree-Law No. 50 of 2022 on Commercial Transactions. Article 70 provides that a guarantee is commercial where it secures a debt considered commercial for the debtor, unless the law or agreement provides otherwise, or where the guarantor is a merchant with an interest in guaranteeing the debt.
Article 994 now contains a specific rule concerning suretyship of commercial debt, while Article 70 remains part of the Commercial Transactions Law. The practical interaction between these provisions under the new regime has not yet been fully tested. The nature of the underlying commercial transaction should therefore not be treated as the only factor when classifying the security.
Bank Guarantees Remain a Separate Category
A civil suretyship should not automatically be treated in the same way as a bank letter of guarantee.
The Commercial Transactions Law contains a separate statutory framework for bank guarantees. Article 413 provides that a bank guarantee is a commercial activity regardless of the capacity of the guaranteed person or the purpose for which it is issued.
Article 414 defines a letter of guarantee as an undertaking issued by a guarantor bank, at its customer’s request, to pay a specified or determinable amount to the beneficiary. The payment obligation is generally unconditional and unrestricted unless the letter itself is conditional, with the demand required within the period specified in the instrument.
Article 1006 sits within the Civil Transactions Law provisions governing suretyship. It should therefore not be assumed, without analysing the particular instrument, that every independent or on-demand bank guarantee is subject to the same six-month rule.
Older Guarantees Require Transitional Analysis
Guarantees entered into before 1 June 2026 require particular care.
Article 4 establishes the general rule that the new Civil Transactions Law applies from its commencement and does not operate retrospectively in relation to preceding facts and acts unless otherwise provided. It also confirms the principle that a special legal provision is not repealed or amended by a later general provision unless expressly stated.
Articles 6 and 7 contain transitional provisions relating specifically to periods for barring claims by lapse of time. Article 1006, however, is framed as a rule releasing the surety where the required judicial claim is not commenced within six months. It should not automatically be assumed that the general transitional rules for limitation periods resolve every question concerning Article 1006.
Where a suretyship was signed before 1 June 2026 but maturity, default or enforcement occurred around or after that date, the guarantee terms and relevant events should be reviewed individually.
Future and Time-Limited Suretyships Need Clear Terms
Article 992 permits different forms of suretyship, including arrangements connected to future obligations and those operating for a limited period. It also provides circumstances in which a surety may withdraw before the relevant future debt arises.
For a time-limited suretyship, liability applies to obligations arising during the period covered by the suretyship.
Article 1000 separately provides that the suretyship cannot exceed the amount owed by the debtor or impose conditions more onerous than the secured debt. It may cover an equal or lower amount on identical or more lenient terms.
These provisions make the scope of the guarantee important from the outset. The secured obligation, amount, duration, maturity date and circumstances giving rise to liability should be clear from the transaction documents.
Review the Position Before Enforcement Becomes Urgent
Creditors should establish what type of security they hold, when the underlying debt matures, whether Article 1006 applies, whether joint and several liability has been agreed and which dispute-resolution mechanism governs the transaction.
Sureties should carry out the same review to understand the extent of their exposure and whether the protections under Article 1009 are available in the circumstances.
Cross-border transactions can raise additional questions concerning governing law, jurisdiction, arbitration, recognition and enforcement, and the location of the debtor’s and surety’s assets.
Conclusion
The UAE’s new Civil Transactions Law makes the wording and classification of suretyships increasingly important to enforcement strategy.
Article 1006 establishes a specific six-month requirement to commence judicial proceedings against both the debtor and the surety. Article 1009 changes the default order of recourse while recognising exceptions where the surety is jointly and severally liable or the law or agreement provides otherwise. Articles 992, 994 and 1000 further affect the duration, classification and scope of suretyship obligations.
These provisions should not be applied automatically to every document labelled a guarantee. Bank guarantees, independent instruments and guarantees spanning the 1 June 2026 commencement date may require separate analysis.
Reviewing the security before a default becomes an enforcement dispute can identify deadlines, drafting issues and procedural risks while options remain available.
An early review can identify the nature of the security, maturity dates, liability provisions and potential enforcement considerations before a recovery issue becomes more difficult.
Consult with Dr Sunil Ambalavelil about the corporate, commercial and financing aspects of UAE and cross-border transactions.
FAQs
1. What does Article 1006 of the UAE Civil Transactions Law require?
Article 1006 provides that a surety is released from the suretyship if the creditor does not initiate judicial proceedings to claim the debt against both the debtor and the surety within six months commencing from the day following the date on which the debt falls due.
2. Is the six-month rule completely new?
No. The former Civil Transactions Law already contained a six-month protection for sureties. Article 1006 is more specific because it expressly requires judicial proceedings against both the debtor and the surety.
3. Can a creditor always proceed directly against a surety?
No. Article 1009 generally requires the creditor to have recourse against the debtor before proceeding against the surety alone. Execution against the surety’s property is also restricted until the debtor’s property has been exhausted, unless the surety is jointly and severally liable or the law or agreement provides otherwise.
4. Do the new suretyship provisions automatically apply to guarantees signed before 1 June 2026?
No. The new law is generally prospective, while Articles 6 and 7 contain particular transitional rules for periods relating to the barring of claims. Guarantees and enforcement events spanning 1 June 2026 should be considered according to their specific facts and dates.
5. Is a bank letter of guarantee treated in the same way as a civil suretyship?
No. Bank guarantees are separately regulated under the Commercial Transactions Law, including Articles 413 and 414. The legal character of the instrument should be identified before the Civil Transactions Law suretyship provisions are applied.
6. Does joint and several liability affect enforcement against a surety?
Yes. Article 1009 expressly recognises an exception where the surety is jointly and severally liable with the debtor. The wording of the security document should therefore be reviewed before determining the creditor’s enforcement route.
