Collateral Sharing Agreement Template for the United Arab Emirates

When multiple creditors provide financing secured by the same collateral in the United Arab Emirates, a Collateral Sharing Agreement becomes essential to establish clear legal frameworks and prevent disputes. This sophisticated legal document coordinates the rights and obligations of various parties including primary lenders, security agents, facility agents, and borrowers while ensuring compliance with UAE commercial and civil law requirements.

When do you need this document?

You need a Collateral Sharing Agreement in complex financing arrangements where multiple creditors hold security interests over the same assets. This commonly occurs in syndicated lending facilities where several banks provide different tranches of financing, project finance transactions involving senior and subordinated debt, and restructuring scenarios where new lenders join existing secured arrangements. The document is particularly crucial when dealing with Islamic finance providers alongside conventional lenders, as their differing legal structures require careful coordination. Corporate guarantors and hedge counterparties also rely on these agreements to establish their respective positions in the security waterfall.

Key legal considerations

Several critical legal elements must be carefully structured in your Collateral Sharing Agreement. The ranking of claims establishes the priority order for different creditors, which directly impacts recovery in enforcement scenarios. Enforcement procedures must clearly define when and how security can be realised, including the role of the security agent and required consents. Distribution waterfall provisions determine how proceeds flow between creditors, accounting for fees, senior debt, and subordinated obligations. The agreement must also address intercreditor restrictions, including limitations on individual enforcement actions and requirements for collective decision-making. Sharing of information between creditors and coordination of enforcement actions require careful legal drafting to balance transparency with confidentiality obligations.

Legal requirements in United Arab Emirates

Under UAE law, your Collateral Sharing Agreement must comply with multiple regulatory frameworks that govern security interests and commercial transactions. The UAE Civil Code provides the foundational contract law principles for formation, validity, and enforcement of the agreement. Federal Law No. 18 of 1993 governing Commercial Transactions establishes specific requirements for commercial pledges and security arrangements, including registration and perfection procedures. The UAE Commercial Companies Law affects corporate capacity to provide collateral and guarantees, particularly for UAE companies acting as security providers. Federal Law No. 9 of 2016 on Bankruptcy significantly impacts creditor rights and security enforcement in insolvency scenarios, requiring specific provisions for workout situations. Additionally, Central Bank of UAE regulations may apply when banks or financial institutions participate as creditors, particularly regarding exposure limits and risk management requirements. The agreement must also consider Federal Law No. 20 of 2016 regarding mortgages and its interaction with other security interests over real estate collateral.