Dubai Firewall Provisions – Introduction
Dubai has enhanced its trust and foundations laws through significant amendments to Law Nos. 3 and 4 of 2018, which govern the operations within the Dubai International Financial Centre (DIFC).
These changes, specifically designed to add robust ‘firewall’ or ring-fencing provisions, affirm the supremacy of DIFC laws by preventing the enforcement of foreign judgments that conflict with local statutes.
Overview of the Amendments
The newly implemented provisions make it clear that DIFC laws take precedence over foreign judgments, ensuring that trusts and foundations under DIFC jurisdiction are protected from external legal influences that do not recognize or respect DIFC’s legal framework.
A key component of the amendments requires trust officers or foundation managers to discontinue acting under foreign judgments that conflict with DIFC laws.
This safeguard effectively prevents them from exercising asset management powers that could undermine DIFC statutes.
These provisions seem set to position DIFC among the first-tier financial centres with the most potent legal protections for settlors and founders of trusts and foundations.
The provisions also allow these individuals to reserve powers without exposing the trust or foundation to legal challenges as shams.
Enhanced Roles and Responsibilities
The amendments expand the role of registered agents, allowing them more flexibility to collaborate with the Registrar of Companies.
This change permits registered agents to fulfill certain compliance-related duties on behalf of foundations, aligning their responsibilities with those of corporate service providers under DIFC’s prescribed company and family office regimes.
Additional Safeguards
Further enhancements include stringent safeguards regarding the transfer of property to a trust or foundation.
Now, a creditor must prove that the transfer was intended to defraud them and that it rendered the settlor or founder insolvent.
Without such proof, the liability of the trust or foundation to settle claims is limited to the interest previously held by the settlor or founder.
Another critical update is the introduction of a three-year statute of limitations on legal proceedings related to property transfers to a foundation, adding an extra layer of security and stability for these transactions.
Conversion Provisions
The new amendments also introduce provisions that allow for the conversion of a DIFC foundation into a company.
Previously, the conversion was only possible from a DIFC company to a foundation, not the other way around.
This change offers greater flexibility in structuring and managing corporate and charitable entities within the DIFC.
Dubai Firewall Provisions – Conclusion
These legislative updates significantly bolster the legal framework surrounding trusts and foundations in Dubai’s DIFC, offering enhanced protection against external legal pressures and providing a more stable and secure environment for asset management.
For settlors, founders, and financial professionals engaged with DIFC trusts and foundations, these changes necessitate a thorough understanding and strategic planning to align with the new legal standards.
The DIFC continues to demonstrate its commitment to maintaining a competitive and legally secure financial center with these progressive amendments.
Final thoughts
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