Spotlight: UAE Share Pledges – A Secure Solution?

Whether or not a pledge over shares in an onshore LLC is worth the paper it is written on is a question that has troubled UAE practitioners and their clients for years. In this article we examine the previous legal position and analyse what will change now that the new Companies Law (Law No. 2 of 2015) (the New Law) has come into effect.

Introduction

Share pledges are an important topic to banks and other financial institutions in that, in theory, they allow a lender to take control of a company.  Pledges are also of significance to foreign investors choosing to incorporate an LLC in the UAE.  The foreign investor will often lend the amount of the capital to the UAE national shareholder to enable it to acquire its 51% interest.  The foreign investor usually wants to secure that loan, and its investment more generally, by careful structuring, which may include taking security.