Legal Status of Debt Assignment Concluded Between Assignor and Assignee Under Civil Transactions Law No. (25) of 2025

Assignment of Debt under UAE Civil Transactions Law No. 25 of 2025

Concept of Transfer of Obligations and the Legislative Framework for Assignment of Debt

Article 108 of Federal Civil Transactions Law No. 25 of 2025 provides that:

“A personal right is a legal relationship between a creditor and a debtor, under which the creditor may require the debtor to transfer a real right, perform an act, or refrain from performing an act.”

An obligation may be transferred from one person to another in accordance with the provisions prescribed by law, unless such transfer is prohibited by law, by agreement between the parties, or by the nature of the obligation itself.

The UAE legislator has regulated the transfer of obligations under the new law in a clearer and more structured manner than under the previous legislation. Articles 405 to 417 address the assignment of rights, while Articles 418 to 424 govern the assignment of debt within the broader provisions dealing with multiple parties to an obligation.

This represents a significant development compared with the former Civil Transactions Law No. 5 of 1985, which regulated assignment under a different framework combining the transfer of debt and the related claim within a single legal regime.

The main features of the new framework include:

• A clear legislative distinction between assignment of rights and assignment of debt.

• The application of the general rules governing obligations and contracts, together with the specific provisions contained in Articles 418 to 424.

• The omission of certain detailed requirements that appeared in the former legislation, including provisions previously contained in Article 1113 of the repealed law.

• A clearer distinction between assignment of debt and guarantee.

Assignment of debt differs fundamentally from a guarantee in both nature and legal effect. Where a valid assignment of debt is completed and accepted by the creditor, a new debtor replaces the original debtor and the latter is released from liability toward the creditor. By contrast, a guarantee generally adds the guarantor’s liability to that of the original debtor without releasing the original debtor.

This distinction is reflected in Article 986, which provides that a guarantee is a contract under which one person adds their liability to that of the debtor in performing an obligation.

The distinction is further reinforced by Article 999, which provides that:

“A guarantee subject to the release of the principal debtor constitutes an assignment, and an assignment subject to the non-release of the transferor constitutes a guarantee.”

Accordingly, the key criterion is whether the original debtor remains liable for the debt or is released as a result of the debt being transferred to another person.

Requirements for the Formation of an Assignment of Debt

Article 418(2) of the Civil Transactions Law provides that:

“An assignment of debt shall not be concluded except with the consent of the transferee and the creditor.”

Accordingly, the consent of both the new debtor, or transferee, and the creditor is required for the assignment of debt to be formed.

By contrast, the consent of the original debtor is not, according to the express wording of the provision, necessarily required in every case for the assignment itself to be validly concluded, although the original debtor may in practice be a party to the agreement giving rise to the arrangement.

This reflects the particular nature of an assignment of debt. A person cannot be made liable for another’s debt without their consent, and a creditor cannot be required to accept the substitution of one debtor for another without approval, given the potential differences in financial standing, security, and prospects of repayment.

For this reason, assignment of debt must be distinguished from payment by a third party. Payment by a person other than the debtor may result in discharge of the obligation, whereas assignment of debt involves the continuation of the same obligation with a change in the identity of the debtor.

Agreement Between the Original Debtor and the New Debtor

The original debtor may agree with another person that the latter will assume the debt or pay it to the creditor.

However, such an agreement does not, by itself, automatically transfer the debt against the creditor or release the original debtor.

Article 419 addresses this situation by making the legal effect toward the creditor dependent on the creditor’s position in relation to the assignment.

If the creditor accepts the assignment, the debt transfers to the transferee and the original debtor is released from liability toward the creditor.

If the creditor rejects the assignment, the original debtor is not released and remains liable for the debt.

The law also permits either the original debtor or the transferee to notify the creditor of the assignment and specify a reasonable period within which the creditor may indicate whether it is accepted. If that period expires without acceptance, the creditor’s silence is treated as a rejection of the assignment.

Accordingly, the law does not infer acceptance merely from silence. Positive consent from the creditor is required, while failure to respond within the specified period is treated as rejection.

Legal Characterisation of the Agreement Before the Creditor’s Acceptance

Reading Articles 418 and 419 together raises an important legal issue regarding the nature of an agreement concluded between the original debtor and the transferee before the creditor accepts the assignment.

Article 418(2) expressly provides that an assignment of debt is not concluded without the consent of both the transferee and the creditor. This means that the transfer of the debt, together with the release of the original debtor as against the creditor, does not occur until the creditor gives consent.

Nevertheless, the absence of the creditor’s acceptance does not necessarily mean that the agreement between the original debtor and the transferee has no legal effect whatsoever.

Article 420(1) provides that:

“The original debtor shall have the right to require the transferee to make payment to the creditor, unless otherwise agreed.”

This provision indicates that an agreement between the original debtor and the transferee may create legally binding obligations between those parties even before the assignment takes full effect against the creditor.

It is therefore appropriate to distinguish between two levels of legal effect.

The first concerns the internal relationship between the original debtor and the transferee, under which the transferee may be obliged to assume or discharge the debt.

The second concerns the transfer of the debt itself against the creditor, which does not occur unless the creditor consents in accordance with Article 418.

This framework differs from the former Civil Transactions Law No. 5 of 1985, which expressly provided that an assignment concluded between the transferor and transferee was suspended pending the acceptance of the creditor.

The new law no longer uses that characterisation and, more generally, has moved toward the concept of voidable contracts in circumstances specifically regulated by the law rather than relying on the traditional framework of suspended contracts.

Accordingly, it is more accurate not to characterise the agreement between the original debtor and the transferee as a “suspended assignment of debt.” Instead, it should be treated as an agreement capable of producing effects within the internal relationship between its parties, while the actual transfer of the debt and release of the original debtor toward the creditor do not arise until the creditor accepts the assignment.

Effect of the Assignment on the Original Debtor

Once the creditor accepts the assignment of debt, the obligation transfers to the transferee and the original debtor is released, subject to the applicable statutory provisions and the terms of the parties’ agreement.

At that point, the transferee becomes directly liable to the creditor rather than merely being obligated toward the original debtor to make payment.

If the creditor does not accept the assignment, the original legal relationship between the creditor and the original debtor continues, and the creditor may still pursue the original debtor for payment.

In such circumstances, the original debtor may nevertheless retain rights arising from the internal agreement with the transferee, including the right to require the transferee to perform its obligation to pay the creditor under Article 420, subject to the agreed terms.

Assignment of Debt and Guarantee

The distinction between assignment of debt and guarantee is particularly important when determining the extent of each party’s liability.

In an assignment of debt accepted by the creditor, the transferee replaces the original debtor, and the original debtor is generally released.

In a guarantee, the original debtor remains liable, while the guarantor assumes an additional obligation to secure performance.

Accordingly, the mere fact that one person agrees to pay another person’s debt is not sufficient by itself to determine whether the arrangement constitutes an assignment of debt or a guarantee. The substance of the agreement, the intention of the parties, and the intended legal consequences must be considered.

If the intention is that the original debtor should cease to be liable and another person should replace them, the arrangement is properly characterised as an assignment of debt.

If the original debtor remains liable and another person assumes an additional liability, the arrangement is more appropriately characterised as a guarantee.

Article 999 confirms this distinction by linking the legal characterisation of the transaction to whether or not the original debtor is released.

Effect of the Sale of Mortgaged Real Property on the Secured Debt

Article 424 of the Civil Transactions Law addresses the transfer of debt in the context of the sale of real property subject to a security mortgage.

The law establishes an important principle: the mere sale of mortgaged property does not automatically transfer the debt secured by the mortgage to the purchaser.

Ownership of the property and personal liability for the secured debt are legally distinct matters.

Accordingly, a purchaser of mortgaged real property does not become personally liable for the underlying loan or secured debt merely because the property has been sold to them.

For the debt itself to transfer, there must be a specific agreement to that effect in accordance with the rules governing assignment of debt.

Article 424 further provides that where the seller and purchaser agree that the debt will be transferred to the purchaser, the consent of the mortgage creditor must be obtained before registration of the sale contract, unless special legislation provides otherwise.

This protects the mortgage creditor against the substitution of the debtor without consent, particularly because the debtor’s identity and financial standing may have been important considerations when the financing or credit arrangement was originally granted.

Therefore, the acquisition of mortgaged property does not, by itself, mean that the purchaser assumes the related loan or secured debt. A specific agreement and the creditor’s consent are required in accordance with the law.

Practical Importance of the New Framework

The regulation of assignment of debt under Federal Civil Transactions Law No. 25 of 2025 reflects a broader effort to provide greater clarity regarding the legal positions of creditors, original debtors, and new debtors.

These provisions are particularly relevant in transactions involving:

• Debt restructuring.

• Transfers of liabilities in asset and corporate sale transactions.

• Sale of mortgaged real property.

• Debt assumption agreements between companies or partners.

• Mergers, acquisitions, and corporate reorganisations.

• Transfers of obligations arising from long-term commercial contracts.

In each of these situations, it is essential to distinguish between a person merely agreeing to pay another person’s debt and the legal transfer of the debt itself.

The former may create an internal obligation between the relevant parties, while the latter requires compliance with the statutory requirements for assignment of debt, principally the consent of the creditor and the transferee.

Conclusion

Federal Civil Transactions Law No. 25 of 2025 has reorganised the rules governing the transfer of obligations in a more structured manner and clearly distinguishes between assignment of rights and assignment of debt.

Under the new framework, an assignment of debt is not completed and the debt does not transfer against the creditor unless both the creditor and the transferee consent.

An agreement between the original debtor and the transferee before the creditor’s acceptance may still produce legal effects within the internal relationship between those parties, but it does not by itself release the original debtor or substitute the transferee as debtor toward the creditor.

The law also confirms that the sale of mortgaged real property does not automatically transfer the secured debt to the purchaser. Such transfer requires a specific agreement and the consent of the mortgage creditor in accordance with the applicable legal requirements.

Overall, the new framework seeks to balance the parties’ freedom to restructure their obligations with the creditor’s right not to have the identity of the debtor changed without consent, thereby promoting greater certainty in civil and financial transactions.