Dubai FZ firms not to pay debts more than paid-up capital

Dubai Courts say that a facility in a free zone with the letters – 'FZCO' – symbolise it as a free zone company, to prevent any fraud or confusion. (File)

Owners of companies in free zones cannot be held liable for company debt in a personal capacity; also they cannot be held liable for company debts more than the paid-up capital, according to a new legal principle by the Dubai Court Of Cassation.

The court also added that creditors are not entitled to claim debts more than the paid-up capital of the company.

The court also pointed out that companies in free zones, to enjoy such legal principles, should show all of its work and contracts, including declarations, invoices, correspondence and publications, as a limited liability company.

Also a facility in a free zone with the letters – ‘FZCO’ – symbolise it as a free zone company, to prevent any fraud or confusion.

Based on these principles, the court abolished the provision of a lower court obliging a decoration company in a free zone to pay Dh231,000 as compensation in a case filed against it.

The court ordered the lower courts to reconsider the issue (other than those sentenced before), in the light of legal principles established by the Court of Cassation.

The details of the case concern the owner of an apartment who filed a lawsuit before a civil court in Dubai asking the owners of a decoration company  (jointly) to pay Dh250,000.

According to the plaintiffs, the requested amount was paid to the company for doing decoration work in the apartment.

The plaintiff asked the court to oblige the company to pay  a similar amount as compensation for damage suffered due to non-implementation of agreed decoration work.

They  said they were forced to stay in a hotel for the duration of the delay of the decoration work.

The Court of First Instance assigned an expert to prepare a report on the subject, and after the last report filed, ruled that the owners of the decoration company had to pay Dh231,000 to the owners of the apartment.

The company owners (defendants) didn’t accept the judgment and challenged the verdict in the Appellate Court, which upheld the verdict of the lower court.

The company didn’t accept the ruling and moved the Court of Cassation.

The Court of Cassation accepted the appeal where it issued its above judgment, based on the provisions of the Commercial Companies Law No. 8 of 1984.

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