Introduction
The UAE banking sector remains fundamentally resilient. However, the current phase of regional instability is likely to influence the nature and complexity of disputes coming before the courts. As seen during previous periods of economic disruption, including the 2008 financial crisis and the COVID-19 pandemic, such conditions do not give rise to new legal principles. Rather, they tend to increase the frequency with which existing principles are tested, and the manner in which they are deployed by parties in contested proceedings.
Much has already been written about Article 121 bis of Federal Decree-Law No. 14 of 2018 (as amended). That provision has, over recent years, altered the structure of banking litigation in the UAE by introducing a threshold requirement that financial institutions obtain “sufficient guarantees” in respect of facilities extended to natural persons and sole proprietorships. The effect has been to shift the focus of disputes away from purely questions of indebtedness and default, and towards the adequacy of the security obtained at the time the facility was granted.
This article does not seek to revisit that analysis in detail. Instead, it considers how Article 121 bis is likely to operate in a more stressed economic environment shaped by ongoing regional conflict.
A threshold shift
Article 121 bis has introduced a structural shift in the way banking disputes are approached. By linking the adequacy of guarantees to the admissibility of claims, it requires lenders to demonstrate not only that a debt exists, but that the underlying facility was properly structured at inception.
This elevates compliance from a regulatory consideration to a litigation issue. In practice, disputes increasingly involve scrutiny of the security package itself, rather than focusing solely on questions of default or non-payment.
Retrospectivity
The most significant and, at present, unsettled issue arising from Article 121 bis concerns its temporal application.
In Abu Dhabi, guidance issued by the Abu Dhabi Judicial Department, including Circular No. 3 of 2023, has indicated that the provision may be applied to facilities entered into prior to its introduction. That approach has been reflected in a number of decisions in which borrowers have sought to challenge the enforceability of existing guarantees on the basis that they do not meet the standard of “sufficient guarantees”.
However, the position in Abu Dhabi cannot be regarded as settled. There are also decisions of the Abu Dhabi Court of Cassation which indicate that Article 121 bis should not be applied retrospectively. The result is a degree of tension between administrative guidance and judicial authority, leaving the issue open to further clarification.
In Dubai, the courts have taken a more restrained approach. The Dubai Court of Cassation has confirmed that Article 121 bis does not apply to corporate lending and has declined, in the cases considered to date, to extend its application to facilities predating its entry into force. While the precise limits of that reasoning will continue to develop, it points away from retrospective application.
The DIFC position
The position of the DIFC Courts reinforces this lack of uniformity. In Punjab National Bank DIFC Branch v NMC Healthcare LLC (CFI 079/2020), the DIFC Court of First Instance considered the relevance of Article 121 bis in the context of DIFC-regulated lending. The Court concluded that the provision did not apply on the facts before it, noting both the corporate nature of the facilities and the autonomy of the DIFC legal framework. The Court also proceeded on the basis that Article 121 bis does not apply to facilities created prior to its introduction.
Importantly, the DIFC Court also acknowledged the divergence in onshore approaches, referring to Abu Dhabi judicial circulars suggesting retrospective application, while also noting Cassation-level authority indicating the contrary. While fact-specific, the decision highlights the absence of a single, unified approach across jurisdictions.
Sufficient guarantees
The concept of “sufficient guarantees” remains central to the operation of Article 121 bis. In the absence of a statutory definition, the courts have adopted a fact-sensitive approach, assessing adequacy by reference to the overall structure of the facility and the relationship between the level of indebtedness and the security obtained.
Recent Abu Dhabi Court of Cassation authority has begun to articulate a more concrete framework in this regard. In a judgment dated 28 August 2025, the Court confirmed that a combination of salary evidence, loan-related insurance and a cheque for the full facility amount was sufficient to satisfy the requirements of Article 121 bis. The Court emphasised that admissibility turns on the existence of adequate security, rather than strict compliance with prudential metrics such as income multiples, which remain a matter for regulatory supervision rather than judicial enforcement. It further confirmed that, where adequate security exists, enforcement is to be confined to the guarantees accepted by the lender.
This development suggests that, while the concept of “sufficient guarantees” remains fact-sensitive, the courts are moving towards a more structured and predictable approach, one which both permits enforcement where adequate security exists and limits recovery to that security.
Stress and strategy
In a stable economic environment, these issues may arise only intermittently. In a more challenging environment, they are likely to become central.
Borrowers facing financial pressure are more likely to scrutinise the structure of their facilities and to rely on technical defences, including those arising under Article 121 bis. The experience of the COVID-19 period demonstrates that while arguments based on hardship or force majeure are rarely determinative on their own, they often form part of a broader strategy aimed at resisting or delaying enforcement.
Article 121 bis provides a more structured basis for such challenges, particularly where questions arise as to the adequacy of security at the time of lending.
Insolvency interplay
The interaction between Article 121 bis and insolvency frameworks is also likely to assume greater importance. As financial conditions tighten, more borrowers may seek protection under restructuring or bankruptcy regimes.
In that context, the adequacy of security will be directly relevant to creditor classification and recovery prospects. Lenders who are unable to demonstrate sufficient guarantees may face increased risk of being treated as unsecured creditors, with corresponding implications for enforcement and recovery.
A changing focus
What emerges from these developments is a gradual shift in the nature of banking litigation. The focus is no longer confined to questions of liability. It extends to admissibility, the adequacy of security, and the strategic positioning of claims within different jurisdictions.
The availability and effectiveness of a claim may depend not only on the underlying facts, but also on where and how it is pursued.
Conclusion
The current regional instability is unlikely to alter the underlying legal framework. However, as previous periods of disruption have shown, it will increase the number of disputes in which that framework is tested, and will bring into sharper focus the issues arising under Article 121 bis.
The question of retrospectivity, in particular, remains unsettled and subject to differing approaches across Abu Dhabi, Dubai and the DIFC. This divergence, coupled with the developing jurisprudence on what constitutes “sufficient guarantees”, ensures that Article 121 bis will continue to be a central feature of banking litigation in the UAE.
For financial institutions, the implication is not that enforcement has become inherently more difficult, but that it has become more dependent on careful structuring, regulatory compliance, and strategic consideration of forum. The strength of a claim will increasingly be measured not only by the existence of a debt, but by the robustness of the security and the legal environment in which enforcement is pursued.
Contact
For further information or advice in relation to any of the matters addressed above, please feel free to contact the Banking and Dispute Resolution team at Habib Al Mulla & Partners.