A Dubai civil court has ruled that a debt waiver exchanged between two companies is legally unenforceable after finding it was deliberately structured to prevent a third company from collecting money owed to it.
The court said the waiver was issued without any consideration and at a time when enforcement proceedings were already under way—factors that demonstrated a clear attempt to undermine the legal rights of a creditor.
The case involved three companies. The claimant held a final and enforceable judgment ordering one company to pay Dh1.87 million. That debtor, however, was itself owed more than Dh47 million by a second company. To protect its position, the claimant sought to attach the funds owed by the second company, a standard legal step to prevent assets from being transferred out of reach.
While the court initially approved the attachment and ordered the company holding the funds to disclose its liabilities, the company failed to comply. Soon after, the debtor issued a written declaration waiving its entire Dh47 million claim against the second company, without receiving anything in return. The move effectively halted the claimant’s enforcement action.
The claimant returned to court, arguing that the waiver was a sham transaction intended to defeat creditors. The second company attempted to block the case on procedural grounds, claiming it related only to enforcement. Judges rejected this argument, ruling that the dispute concerned the substance and legality of the waiver itself.
After reviewing the evidence, the court found that the claimant’s debt existed before the waiver, that the debtor failed to prove it had sufficient assets to meet its obligations, and that the timing and nature of the waiver showed clear bad faith.
The court noted that under the law, a debtor who is insolvent—or rendered insolvent by its actions—cannot dispose of assets in a manner that harms creditors, whether through gifts or disguised commercial arrangements.
Judges also highlighted inconsistencies in the record. The company holding the funds had initially denied owing any money, yet later accepted a waiver of a debt it claimed did not exist. This contradiction, the court said, pointed to coordination between the two companies and stripped the waiver of legal protection.
As a result, the court declared the waiver ineffective against the claimant and restored the debt to the debtor’s asset pool, allowing enforcement to proceed. The company holding the funds was ordered to pay Dh1.8 million, plus statutory interest at five per cent from the date of judicial demand until full settlement, along with court costs and legal fees.
