Ras Al Khaimah Court of Cassation, Commercial Appeal No. 4 of 14 JY, judgment of 3 March 2019
A loan term falls due early if the borrower becomes insolvent, can no longer pay, or the security is lost, and generally whenever the creditor risks losing its security (Article 431(3) of the Civil Transactions Law). A partner in a limited liability company is liable for its debts only up to his share in the capital, and limited liability is lost only through fraud, gross error or misuse of company funds. Joint and several liability is never presumed; it must rest on a statute or an agreement, and a judgment imposing it must state its basis.
Under a loan agreement of 26 June 2016, sums of about AED 8.37 million transferred from one company to another were treated as a loan owed by the recipient company, with later transfers to be added to it. The lender sued in 2016 in Ras Al Khaimah to confirm a precautionary attachment and for payment of AED 11,847,856.90, jointly against the borrowing company and the two appellants, who were partners in that limited liability company and had signed the agreement. The lower courts held the loan due and ordered all of them, including the appellants, to pay jointly. In cassation the Court upheld the finding that the loan had fallen due: under Article 431(3) of the Civil Transactions Law a debtor loses the benefit of the term if the security is lost through his act, or in any case where the creditor risks losing its security, and the trial court reasonably found that risk to the creditors' general security. On the partners, it held that under Article 71 of the Commercial Companies Law (Federal Law No. 2 of 2015) a partner in a limited liability company is liable only up to his share in the capital, so the company's assets alone answer for its debts; under Article 84(1) that limit cannot be used to cover fraud, gross error or misappropriation of company funds. Joint liability is never presumed and must rest on a statute or an express or implied agreement. The appellants had signed the loan as representatives of the borrowing company, not personally, and the Public Prosecution had dropped a breach-of-trust allegation against the first appellant because management had been shared with another partner. Holding them liable for the company's debt was an error of law. The judgment was quashed on that point, and the Court ordered the appellants to pay only within the limit of their share in the company's capital.
Decided under the 2015 Companies Law, the ruling protects LLC shareholders who sign financing documents for the company: signing as representatives does not make them guarantors, and joint liability needs a clear basis. Lenders who want personal recourse need personal guarantees.
| Article 431 of Federal Law No. 5 of 1985 (Civil Transactions Law) — text of article 431 Decided under this law; it has been replaced by Civil Transactions Law 2025. |
| Articles 71, 84 of Federal Law No. 2 of 2015 on Commercial Companies Decided under this law; it has been replaced by Commercial Companies Law. |
“سقوط أجل القرض بإعسار المقترض أو ثبوت انعدام قدرته على الوفاء أو استحالة تنفيذ التزامه.”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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