In Brief:
- On 1 June 2026, a new civil transactions law (New Civil Code) came into effect in the UAE, replacing the previous Civil Code.
- The new Civil Code has reshaped several key aspects of the legal treatment of guarantees for commercial debts, marking a departure from the approach adopted under the previous Civil Code.
- The principal changes concerning the six-month limitation period, joint and several liability and all-monies guarantees are discussed below.
1. Introduction
Guarantees are a particularly important component of financing transactions. Obtaining a guarantee from an entity with greater creditworthiness than the borrower can enhance the viability of a financing transaction from a credit risk perspective and, in some cases, reduce financing costs. This benefits both lenders and borrowers, as well as guarantors, who are often entities or individuals affiliated with the borrower.
On 1 June 2026 (the Effective Date), the Federal Decree-Law No. 25/2025 Issuing the Civil Transactions Law (the New Civil Code) came into effect in the UAE, replacing the Federal Law No. 5/1985 Issuing the Civil Transactions Law (the Previous Civil Code). The New Civil Code has introduced some important changes to the legal treatment of guarantees for commercial debt, which are summarised below.
2. Guarantees under the New Civil Code
(a) The six-month limitation
Article 994(1) of the New Civil Code provides that a guarantee of a commercial debt is deemed to be a civil act, even where the guarantor is a merchant. This appears to be inconsistent with Article 70 of the Federal Decree-Law No. 50/2022 On the Promulgation of the Commercial Transactions Law (the Commercial Code), which characterises such guarantees as commercial acts.
In addition, Article 1006 of the New Civil Code, which closely mirrors Article 1092 of the Previous Civil Code, requires a creditor to commence proceedings against the debtor and/or guarantor within six months of the relevant due date. A combined reading of Articles 994(1) and 1006 casts significant doubt on what had generally been regarded as a settled position under UAE law, namely that guarantees of commercial debts were not subject to the six-month limitation period contained in the Civil Code.
Given the unequivocal language of Article 994(1), the legislative intent appears to be that guarantees of commercial debts should be subject to the relevant provisions of the New Civil Code, including Article 1006. If that interpretation is followed, guarantees of commercial debts may now be subject to the six-month limitation period notwithstanding their linkage to a commercial debt or obligation. The introduction of Article 994(1) also creates greater uncertainty as to the continued effectiveness of contractual provisions purporting to exclude or disapply the six-month requirement, provisions that have historically been a common feature of guarantees granted by UAE entities and individuals or governed by UAE law.
(b) Joint and several liability
Article 1009 of the New Civil Code provides that a creditor may not have recourse against a guarantor except after having recourse against the principal debtor, nor may a creditor execute against the guarantor's property except after exhausting the debtor's property, unless the guarantor is jointly and severally liable with the debtor or unless the law or the parties’ agreement provides otherwise.
By contrast, Article 69 of the Commercial Code establishes the principle of joint and several liability both between multiple guarantors of a commercial debt and between a guarantor and the principal debtor. On its face, Article 69 would therefore appear to fall within the "unless the law ... provides otherwise" qualification in Article 1009 - such that a creditor of a commercial debt could proceed directly against the guarantor without first pursuing the debtor.
However, Article 994(1) introduces a degree of uncertainty into that analysis. As discussed above, Article 994(1) suggests that the legislature intended guarantees of commercial debts to be subject, at least to some extent, to the guarantee regime contained in the New Civil Code notwithstanding their connection to commercial transactions. While Article 69 of the Commercial Code may continue to operate as an exception to Article 1009, the re-characterisation of guarantees of commercial debts as civil acts raises questions as to the extent to which the Commercial Code regime can be assumed to apply automatically in all circumstances.
Accordingly, although the position is not free from doubt, it may no longer be prudent to rely solely on Article 69 as establishing the joint and several nature of guarantees of commercial debts. Express contractual provisions providing for joint and several liability therefore assume increased importance and should continue to be included in guarantees where direct recourse against the guarantor is intended without joining, or taking action against, the principal debtor.
(c) All monies guarantees
Article 1061 of the Previous Civil Code was often interpreted as requiring a guarantee to relate to a known and existing debt. On that interpretation, questions arose as to the enforceability of continuing guarantees and all-monies guarantees, which are commonly used in financing transactions to secure present and future obligations of a borrower.
Although there was no uniform view on this issue, an alternative interpretation of Article 1061 was that it merely required the guaranteed obligation to be legally valid, ascertainable and capable of determination, rather than existing or being quantified at the time the guarantee was entered into.
Article 992 of the New Civil Code appears to resolve any uncertainty that may have existed. The provision expressly contemplates guarantees of future debts, thereby providing a stronger statutory basis for the validity and enforceability of continuing and all-monies guarantees. From a lender's perspective, this is a welcome development, as it seems to remove any doubt that may have existed under the Previous Civil Code regarding the effectiveness of guarantees intended to secure fluctuating, contingent or future indebtedness.
The express recognition of guarantees of future obligations also reflects commercial reality and aligns the statutory framework more closely with common financing structures, where guarantees are frequently intended to secure all present and future liabilities owed by a borrower to a lender under one or more financing arrangements. As a result, lenders can take greater comfort that appropriately drafted continuing and all-monies guarantees will be recognised and enforced in accordance with their terms.
3. What this means for lenders
Pending further judicial or legislative clarification, lenders should proceed on the basis that guarantees of commercial debts may be subject to the guarantee provisions of the New Civil Code notwithstanding their connection to commercial transactions. Accordingly, lenders should review their guarantee documentation carefully, consider including express provisions addressing matters such as interest, limitation periods and the preservation of rights against guarantors and ensure that claims and demands are made promptly and within any applicable statutory timeframe.
In addition, given the uncertainty arising from Article 994(1) and its interaction with the Commercial Code provisions applicable to guarantees of commercial debts, lenders should continue to include clear and unequivocal joint and several liability provisions in their guarantees.
Article 992 provides welcome certainty by expressly recognising guarantees of future debts, thereby strengthening the statutory basis for continuing and all-monies guarantees.
This article is intended for general informational purposes only and does not constitute legal advice. Readers should seek independent legal counsel in relation to their specific circumstances.