DIFC court-appointed receiverships: A new means of effective asset recovery and enforcement of a foreign judgment in the Dubai International Financial Centre

Background

The judgment creditor had successfully obtained a judgment against a defendant in proceedings before the English High Court in a complex commercial dispute involving multiple jurisdictions in which, ultimately, the high-profile defendant was found to have committed fraud The judgment creditor succeeded in obtaining a freezing order in England prohibiting the defendant from transferring or otherwise dealing in certain assets, but the defendant was alleged to have breached the order and to have taken steps to dissipate and conceal his assets to escape having to satisfy the English judgment.

One of the judgment debtor’s alleged assets was a DIFC company, which in turn owned and operated a valuable business including a high-end restaurant business in the DIFC. Despite an ongoing dispute over ownership of this asset (which was determined at trial by the DIFC courts), the judgment debtor obtained DIFC freezing orders and secured the recognition and enforcement of the English judgment in both the DIFC and, on the back of that judgment, in onshore United Arab Emirates. The DIFC court was satisfied that a receiver should be put in place based on the arguments put forward both by way of equitable execution and to preserve property in the circumstances of the case.

Receivership

The enforcement of foreign judgments in the United Arab Emirates has long been a difficult and uncertain process.  The use in this case of an equitable receivership through an action in the DIFC has been shown to add a useful tool to a judgment debtor’s armoury. In this particular case, the independent receiver was appointed over the shares in the DIFC company and as manager of the business until such time as the judgment was satisfied or the assets of the company could be sold and the proceeds of sale applied against the judgment debt.

While receivership is most often thought of in the context of bankruptcy or insolvency, the DIFC court also has express powers to appoint receivers in other contexts, for example:

• pursuant to a general power to appoint a receiver and to give them “any powers the Court of First Instance considers necessary” (DIFC Court Law, Article 25); and
• for the purposes of enforcing a judgment (DIFC Law of Damages and Remedies, Article 42(1)(d).

Part 49 of the DIFC court rules further sets out the criteria for the appointment of a receiver.  As there had been no reported cases in which the DIFC courts have appointed a receiver, reference to English case law was of assistance. There are broadly two classes of cases in which the English courts typically appoint receivers outside the insolvency context, being: (a) to enable persons to enforce their rights including enforcement of judgments by way of equitable execution; and (b) to preserve property from a threat.

The DIFC court found that where it is necessary for a business to continue trading, a receiver and a manager should be appointed.

Equitable execution

Appointing a receiver usually requires there to be some difficulty in using normal processes of execution, and the key example of this is where the judgment debtor’s interest in the property in question is merely equitable (such as the beneficial ownership of shares/property). In the present case, the DIFC court found at trial that the judgment debtor was the beneficial owner of the shares in the DIFC company. RDC 49.6 and 49.10 expressly address the requirements where receivership is sought by way of equitable execution. For example, there is a requirement under DIFC Court Rules 49.10(4) for the applicant to explain the position if it is seeking the court to appoint a receiver either without security or before security has been given. In the present case, the DIFC court decided that the receiver having adequate insurance was sufficient security.

To preserve property

Receivers can also be put in place where there is a need to preserve property from a threat such as the risk of dissipation or damage to an asset. To fall into this category, the application needs to show a measurable risk that a freezing order would be insufficient.  In this case, the DIFC court found that the was a risk that the judgment debtor might take steps to dissipate assets, potentially in breach of any freezing order.

Benefits of receivership

The powers which can be given to a receiver can be wide-ranging and can greatly assist in enforcement efforts:

• Power to sell assets: In this case, the court ordered the transfer of the shares to the receiver so that, regardless of the declaration of beneficial ownership not yet being determined by the court at trial, the receiver was given the legal title to be able to sell the shares in order to satisfy the judgment debt.
• Access to information: Receivers can be given access to company information which may have been concealed by defendants. This was useful in this case because it was only through the receivership accounts, which were required to be filed with the DIFC court, that the true value of the assets available to enforce against became apparent.

Key takeaways

 This case demonstrates that the use of a court-appointed receivers in the DIFC can be a strong and flexible tool for the effective enforcement of a foreign judgment.  In employing this tool to great effect, the DIFC court has again demonstrated its strong track record as a pro-enforcement jurisdiction, particularly given that enforcement can present significant challenges in the region.   The Court has shown that, in circumstance where the appointment of a receiver can be demonstrated to serve a useful purpose in obtaining a substantial recovery, and is proportionate remedy in view of the sums in dispute, the court can provide a swift, pragmatic and effective remedy.  The court has also been impressive in recognising its role in preventing a recalcitrant party from seeking to make itself judgment proof by having regard to the findings of foreign courts in what amounted to a global recovery effort.

This case also showcases the importance of taking proactive and innovative steps to preserve assets even where powerful weapons such as freezing order are in place before and after trial. In this case, the receiver was able to safeguard the value of assets and ensure that as much value as possible was extracted to help satisfy the judgment debt against the background of fast-moving and complex developments.