Personal Guarantees in the UAE: A Detailed Guide

A personal guarantee is a legal agreement where an individual (the guarantor) agrees to be responsible for a debt if a company (the principal debtor) fails to repay it. This is a common practice in the UAE for securing loans, leases, or other financial agreements.

Types of Personal Guarantees

• General Guarantee: This is the most common type, where the guarantor is liable for the full amount of the debt.
• Limited Guarantee: The guarantor’s liability is limited to a specific amount or under certain conditions.

Legal Framework

Personal guarantees in the UAE are governed by the Civil Code, specifically Article 1057. This article outlines the rights and obligations of both the guarantor and the creditor.

Key Considerations

• Risk: Signing a personal guarantee can be risky, as you may be personally liable for the debt.
• Understanding the Terms: Carefully review the terms of the guarantee agreement to understand your obligations and the consequences of default.
• Seek Legal Advice: Consult with a lawyer to ensure you fully understand the implications of a personal guarantee and to protect your interests.

Rights and Obligations

• Guarantor’s Obligations: The guarantor is generally obligated to pay the debt if the principal debtor defaults.
• Creditor’s Rights: The creditor has the right to pursue legal action against both the principal debtor and the guarantor to recover the debt.
• Discharge of Liability: The guarantor may be discharged from their obligations under certain circumstances, such as if the principal debtor repays the debt or if the creditor releases the guarantor.

Best Practices

• Negotiate Terms: Try to negotiate favorable terms for the personal guarantee, such as limiting your liability or obtaining collateral from the principal debtor.
• Obtain Documentation: Ensure that you have a written agreement that clearly outlines the terms of the guarantee.
• Monitor the Debt: Keep track of the principal debtor’s financial situation and the status of the debt.
• Seek Legal Help: If you’re facing difficulties with a personal guarantee, consult with ARM Legal Consultants to understand your options and protect your rights.

By understanding the intricacies of personal guarantees and taking appropriate steps, you can minimize the risks and protect your financial interests.

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