Special Purpose Vehicles (SPV) and the Architecture of Bankruptcy Remoteness: A Comparative Insolvency-Law Study of the UAE, the United States and Luxembourg

Abstract

A Special Purpose Vehicle (SPV) is a legal entity created for a single, narrowly defined purpose, most often to hold assets or receivables that support financing. Its commercial value depends on bankruptcy remoteness: the likelihood that those assets will stay beyond the reach of the originator’s creditors and that the vehicle itself will not be drawn into insolvency proceedings. This article asks whether UAE law secures that result when the originator becomes insolvent and identifies the insolvency-law mechanisms capable of undoing it: recharacterization of the transfer as a secured loan, avoidance of the transfer as a transaction at an undervalue or in fraud of creditors, substantive consolidation, and the refusal to enforce non-petition undertakings. Using doctrinal analysis and the functional method of comparative Law, it examines the three UAE tiers (the common-law financial free zones of ADGM and DIFC, the onshore federal regime, and the wider free zones) against the United States’ judicial-opinion model and Luxembourg’s statutory model. The UAE offers interest beyond its borders: by combining a civil-law onshore system with two common-law financial free zones under a single state, market and federal regulator, it shows how far bankruptcy remoteness depends on the common law’s trust and on the separation of legal from beneficial ownership, a question that confronts any civil-law jurisdiction seeking to host SPV structures. The UAE has no single SPV regime; it has three, each with a different structure. The free zones provide robust separation within English-derived insolvency law. Onshore, SCA Chairman’s Decision No. 25/RM of 2024 on Special Purpose Vehicles and Federal Decree-Law No. 31 of 2023 concerning Trusts have strengthened the separation of SPV and trust assets. Neither instrument, however, displaces the avoidance rules of Federal Decree-Law No. 51 of 2023 or gives statutory force to true sale, limited recourse and non-petition, as Luxembourg law does. The article proposes targeted reforms, including a safe harbour that treats an arm’s-length financing transfer as a transfer for full value.

1. Introduction

In a commercial context, a Special Purpose Vehicle serves as a legal instrument to mitigate risk. An originator seeking financing against a designated pool of assets, or seeking to isolate a single project from its group’s broader financial interests, transfers those assets to a separate entity whose sole purpose is to manage them. In project finance, the project company is such a vehicle, ring-fenced so lenders look to the project’s cash flows rather than its sponsors’ balance sheets (Yescombe 2002). The entity’s insolvency is intentionally structured, within the limits of the Law, to be improbable and to have no detrimental effects on the investors who rely on it (Ramos Muñoz and Bosque Argachal 2019). The entire framework of project finance and securitisation rests on the assumption that this separation will hold up under rigorous testing—particularly in the event of the originator’s insolvency. The legitimacy of this assumption depends on legal interpretation, which varies considerably across jurisdictions.

Two terms need definition at the outset, because practice uses them more loosely than the Law does. A Special Purpose Vehicle is a company, partnership or trust whose constitutional documents confine it to a single transaction or asset pool, which has no business of its own and, usually, no employees, and which exists so that particular assets and the liabilities financed by them are held apart from the rest of a group (Gorton and Souleles 2007; Ramos Muñoz and Bosque Argachal 2019). Bankruptcy remoteness is the quality of such a vehicle that makes two events unlikely: that the originator’s estate will claw back the assets if the originator becomes insolvent, and that the vehicle itself will enter insolvency proceedings (Phillips and Schwarcz 2022). Remoteness is a matter of degree. No structure is bankruptcy-proof, and in any jurisdiction the question is how far insolvency law allows the separation to be undone.

The study focuses on one use of the SPV: isolating productive, income-generating assets (receivables, project assets, and the assets underlying sukuk) so they can support financing on their own credit. It is not concerned with the hive-down of valuable assets into a new company, leaving an unprofitable remainder to be liquidated, although the two share the same mechanics. Insolvency law, chiefly through its avoidance rules, draws the line by asking whether the transferor received full value, was insolvent, and designed the transfer to defeat its creditors. That is why avoidance of transactions is one of the subject’s central problems.1 The device’s abusive potential is equally well documented. Enron used special-purpose entities that it controlled in substance but did not consolidate, keeping liabilities off its balance sheet and recognising gains on transactions with those vehicles (Healy and Palepu 2003). Its collapse prompted a sustained analysis of where legitimate use of such entities ends and abuse begins (Schwarcz 2002a).

The United Arab Emirates has emerged as a significant location for addressing this question. It is one of the oil-exporting economies whose growth path is being reshaped by digital transformation and the energy transition (Elhaj and Alofaysan 2024). This transition generates a pipeline of renewable-energy and infrastructure projects of the kind usually financed through project-company SPVs The legal environment matters as much for the energy and infrastructure projects these vehicles commonly finance, where statutory and permitting barriers can determine whether a project proceeds at all (Dobrowolski et al. 2025). As a regional financial hub with two common-law-based financial free zones and a civil-law federal system, the UAE now offers sponsors a diverse array of vehicles for project structuring and fund management. These include the Special Purpose Vehicle (SPV) of the Abu Dhabi Global Market (ADGM 2020), regulated by the ADGM Companies Regulations 2020; the Prescribed Company of the Dubai International Financial Centre (DIFC), governed by the DIFC Prescribed Company Regulations 2024; the onshore company established under Federal Decree-Law No. 32 of 2021 on Commercial Companies; the onshore SPV licenced by the Securities and Commodities Authority (SCA) under its Chairman’s Decision No. 25/RM of 2024 (Securities and Commodities Authority 2024a); and various international-business-company vehicles, such as those operated by the Ras Al Khaimah International Corporate Centre. Each of these entities operates within distinct legal traditions and insolvency regimes, thereby providing the SPV’s insulating function through diverse legal mechanisms and to varying extents. The adjudicative and market infrastructure has developed alongside these vehicles: the DIFC and ADGM Courts belong to the wider family of international commercial courts created to hear cross-border commercial disputes (Burianski and Fleckenstein 2025) and supply the forum in which disputes over free-zone SPV structures are resolved, while the onshore market has opened further to the international investors on whom bond and sukuk issuances by SPVs depend, as with the Dubai Financial Market’s introduction of omnibus accounts in March 2023 (MENA Report 2023).

The multiplicity has legal consequences. The financial free zones apply English common Law and are served by independent common-law courts, and they are governed by the ADGM Insolvency Regulations and the DIFC Insolvency Law, respectively; the onshore regime applies UAE civil law and Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy. The legal certainty of asset insulation, the reason an SPV exists, therefore varies across the federation. It varies with the tier in which the vehicle is incorporated. This article examines that variation.

The UAE case matters beyond its borders for two reasons. First, the federation contains, within a single state, a civil-law onshore system and two enclaves that apply English common Law. It therefore allows a question of general importance to be asked under something close to controlled conditions: holding the state, the market and the federal regulator constant, how much of bankruptcy remoteness depends on the property and equity concepts of the common Law, above all the trust and the separation of legal from beneficial ownership? Section 2 and Section 4 develop the answer that devices of enhanced remoteness presuppose those concepts, so a civil-law system must either import them or supply statutory equivalents. That finding bears on any civil-law jurisdiction that wishes to host securitisation, including those of the wider Arab region, and on the growing number of states that have created common-law financial centres inside civil-law legal orders; Kazakhstan’s Astana International Financial Centre, whose Law may be based on the principles, legislation and precedents of the Law of England and Wales, is a recent example (Kenzhaliyev 2024). Second, the UAE has legislated quickly across several layers of the relevant Law at once: a new Bankruptcy Law in force from 1 May 2024, a new Trust Law in 2023, a regulated onshore SPV in 2024, and a recodified Civil Transactions Law in force from 1 June 2026. It therefore illustrates how reform in one layer can leave gaps in another.

The research problem can be put in concrete terms. An SPV’s protection is tested at one moment: when the originator becomes insolvent, and its liquidator or creditors seek assets. At that moment, four insolvency-law mechanisms can defeat the structure. The transfer may be recharacterized as a loan secured on the assets, which then remain in the originator’s estate. A court may avoid it as a transaction at an undervalue, a preference, or a transfer in fraud of creditors. The SPV may be consolidated with the originator. Moreover, a creditor of the SPV may petition for its insolvency despite a non-petition undertaking. UAE law answers these questions differently across its three tiers, and in the onshore tier several have no settled answer. The central research question is therefore: to what extent does UAE law protect assets transferred to an SPV against each of these mechanisms when the originator is insolvent, and how does that protection compare with the protection afforded by the United States’ judicial-opinion model and Luxembourg’s statutory model? The sub-questions in Section 1.2 break this question down.

1.1. Literature Review and the Research Gap

The scholarship addressing this problem falls into three streams, none of which addresses the question posed here. The first is the foundational law-and-finance literature on securitisation and bankruptcy remoteness, inaugurated by Schwarcz (1994). His account of the “alchemy” of asset securitisation established the analytical vocabulary of the true sale and the bankruptcy-remote entity that this article employs. He developed it in his later synthesis of bankruptcy-remote structuring as a reallocation of risk through Law (Schwarcz 2023) and in Phillips and Schwarcz’s (2022) summary analysis of the doctrine. This literature is doctrinally rich but is written from and about the United States; it does not consider the UAE or any civil-law-plus-common-law federation of the UAE’s kind.

The second scholarly stream concerns comparative and cross-border insolvency research on delocalised SPV structures, exemplified prominently by Ramos Muñoz and Bosque Argachal (2019). This work distinguishes between fundamental and advanced concepts of bankruptcy remoteness and examines how insolvency jurisdictions treat SPVs. It provides the analytical framework for Section 2. Nonetheless, it does not specifically analyse the United Arab Emirates (UAE), nor does it address a single jurisdiction with multiple structurally diverse SPV regimes. The third scholarly stream draws on the Islamic finance literature on SPV use in sukuk, including empirical analyses such as Zaheer and van Wijnbergen’s (2025) study of sukuk defaults and Ali et al.’s (2022) evaluation of enforceability and SPV incorporation in Gulf sukuk. This stream directly engages with the UAE; however, it does so narrowly through the lens of sukuk, without extrapolating to the SPV framework as a whole or situating it within the broader international bankruptcy remoteness models. Complementing these academic disciplines is a descriptive practitioner-based literature focusing on the formation of the ADGM SPV and the DIFC Prescribed Company (for example, Szadkowska and Al Khafaji 2019 on the 2019 Prescribed Company Regulations, and El Khoury 2024 on the 2024 Regulations). While procedurally accurate, this literature tends to treat each free zone in isolation; neither guide cited discusses insolvency, true sale, limited recourse, or non-petition.

The gap is therefore clear. No study analyses the UAE’s coexisting SPV regimes as a single, three-tier problem of bankruptcy-remoteness reception, nor does any measure that reception against the two dominant international models. The general project-finance literature (Gatti 2018) explains why bankruptcy matters commercially but assumes a settled legal foundation; the UAE raises the prior question of how secure that foundation is and how it varies within one federation. This article addresses that gap through the research question stated above.

1.2. Research Questions

The article examines four principal questions. Firstly, by what legal mechanisms does each of the three tiers within the United Arab Emirates (UAE) implement the Special Purpose Vehicle (SPV)’s function of protecting assets from the insolvency of the originator, and how robust is this protection against recharacterization, avoidance, consolidation and a creditor’s petition in each instance? Secondly, what are the two predominant international frameworks for achieving bankruptcy remoteness, and what are their respective analytical representations? Thirdly, how does the UAE’s tiered approach to bankruptcy remoteness compare with these models, and what are its potential vulnerabilities? Fourth, what specific reforms could enhance legal certainty regarding asset insulation in UAE-related structures without compromising the flexibility that makes free-zone vehicles attractive?

1.3. Contribution

This article makes three contributions. First, it reinterprets the UAE SPV landscape as a cohesive, three-tiered issue centred on bankruptcy remoteness, rather than a series of unrelated formation regimes. It further shows that the security of asset insulation depends on the specific tier involved. Second, it situates the UAE within an original analytical framework that contrasts the judicial opinion model of bankruptcy remoteness, exemplified by the United States, with the statutory model, exemplified by Luxembourg. The article argues that the UAE has adopted the common-law approach characteristic of the former but has not incorporated the codified safe-harbour provisions typical of the latter. Third, it translates this analysis into a tangible reform agenda for federal and free-zone legislators. The methodological approach combines doctrinal analysis of primary legal instruments with the functional method of comparative Law, which considers asset insulation—rather than any individual rule—as the primary unit of comparison, employing functional equivalence to select appropriate comparators: the United States and Luxembourg are compared with the UAE because each answers the same problem, keeping assets transferred to an SPV out of the originator’s insolvency estate, by a different legal technique (see Section 2).

1.4. Structure

The article proceeds as follows. Section 2 sets out the method and establishes the analytical framework, isolating the SPV’s function, the legal techniques used to achieve bankruptcy remoteness, and the insolvency-law mechanisms those techniques must withstand. Section 3 analyses the three UAE tiers in turn, including the recent onshore instruments on SPVs and trusts and the avoidance rules that could catch a transfer to an SPV. Section 4 compares the UAE against the United States and Luxembourg models. Section 5 draws the reform implications and concludes.

2. Materials and Methods

This study employs a doctrinal and functional-comparative legal methodology. The doctrinal component identifies, interprets, and systematises the primary legal instruments governing Special Purpose Vehicles in the United Arab Emirates, reading each instrument on its own terms and in light of its place within the relevant insolvency regime. The functional-comparative component, following the established method of comparative Law, treats the legal problem—here, the insulation of designated assets from the insolvency of their originator—rather than any particular rule or institution, as the unit of comparison, on the premise that legal systems addressing the same social and economic need may be compared through the different techniques by which they meet it (Zweigert and Kötz 1998; Michaels 2019). The premise holds especially strongly for securitisation. Schwarcz (2002b) shows that cross-border structures can be analysed through a small set of questions common to every legal system: whether the transfer is a sale or a loan, whether the vehicle’s interest is protected against the originator’s creditors, and whether the transfer is exposed to preference or fraudulent-transfer challenge.

The method requires explaining three features. The first is the tertium comparationis, the common reference point against which the systems are compared. Here it is the set of insolvency-law mechanisms identified in the Introduction and developed in Section 2.3: recharacterization, avoidance, consolidation, the petition against the SPV, and cross-border recognition. For each mechanism, the same question is asked: if the originator is insolvent, does the mechanism allow the assets transferred to the SPV to be reached, and on what legal basis? The second is what functional equivalence means. Rules are treated as equivalent when they perform the same task in response to the same problem, even when they differ in form: a US non-consolidation opinion, a Luxembourg statutory compartment and an SCA licencing condition can therefore be compared, although one is a professional opinion, one a statutory rule and one a regulatory condition. The third is the method’s limit. Functionalism is open to criticism for presuming similar outcomes and neglecting legal culture (Michaels 2019). The study responds by recording differences in the source and timing of certainty (ex ante statute, ex post adjudication, regulatory licencing) as a finding in its own right, and by using Luxembourg as a source of drafting models, without proposing a wholesale transplant.

The materials analysed fall into two categories. The first comprises the primary UAE instruments across the three tiers of the federation: at the financial-free-zone tier, the ADGM Companies Regulations 2020, the ADGM Insolvency Regulations 2022, the DIFC Prescribed Company Regulations 2024, and the DIFC Insolvency Law (DIFC Law No. 1 of 2019); at the onshore federal tier, Federal Decree-Law No. 32 of 2021 on Commercial Companies and Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy; and, at the wider free-zone tier, the international-business-company frameworks exemplified by the Ras Al Khaimah International Corporate Centre. The second category comprises the comparator instruments: for the United States, the Bankruptcy Code (11 U.S.C.), in particular §§ 541 (property of the estate), 544(b), 547 and 548 (avoidance) and Chapter 15 (cross-border insolvency), together with the leading federal decisions on recharacterization and substantive consolidation; for Luxembourg, the Law of 22 March 2004 on securitisation as amended by the Law of 25 February 2022 (read in the coordinated English text published by the CSSF), the Law of 27 July 2003 on trusts and fiduciary contracts, the suspect-period provisions of the Commercial Code, Regulation (EU) 2015/848 on insolvency proceedings and the case law of the Court of Justice under it; together with the UNCITRAL Model Law on Cross-Border Insolvency (1997). The UAE materials also include SCA Chairman’s Decision No. 25/RM of 2024 on the Regulation of Special Purpose Vehicles, Federal Decree-Law No. 31 of 2023 concerning Trusts, and the civil-law action for the non-enforceability of a debtor’s dispositions. We consulted all legislative instruments in their official or authoritative published versions, and we drew secondary literature from peer-reviewed sources.

We selected the two comparator jurisdictions based on functional equivalence rather than convenience. We chose the United States because it developed the modern architecture of bankruptcy remoteness (Schwarcz 1994; Gorton and Souleles 2007) and delivers that remoteness through legal characterisation and reasoned opinion—the “judicial” pole (Phillips and Schwarcz 2022). Luxembourg was chosen because it is a major civil-law securitisation domicile (at the end of 2025 it hosted 31.9% of the euro area’s financial vehicle corporations, according to ECB data reported by PwC Luxembourg 2026) that has codified the same techniques by statute in the Law of 22 March 2004—the “statutory” pole—and because, as a civil-law system, it offers the UAE a more transferable reform model than a common-law comparator alone would. The two therefore bracket the range of available techniques and locate the UAE’s position between them. The analysis proceeds by first constructing, in the remainder of this section, the analytical grid against which each system is assessed—the defining function of the SPV and the four legal techniques of enhanced remoteness—and then applying that grid consistently to the UAE tiers (Section 3) and to the comparators (Section 4).

2.1. The Defining Function: Asset Insulation

An SPV is a corporation, limited liability company, or trust established for a specific, typically financial purpose, defined by its insulation of particular assets or cash flows from external risks (Ramos Muñoz and Bosque Argachal 2019). The insulation runs in two directions. Outward insulation protects the SPV’s assets from the originator’s creditors. If the originator becomes insolvent, its creditors must not be able to reach assets transferred to the vehicle. Inward insulation protects the originator and the investors from the SPV’s own liabilities: the vehicle is confined to a narrow purpose so that it incurs no obligations beyond those contemplated by the transaction. Together, they produce what the financial market calls bankruptcy remoteness—the quality of being, as far as legal engineering permits, insulated from insolvency risk on both sides.

This economic rationale explains why its legal security matters so much. By confining a defined pool of assets within a vehicle whose insolvency risk is controlled, the structure lets investors and lenders price their exposure based on the quality of those assets alone, independent of the originator’s general credit. This enables an originator of modest or sub-investment-grade standing to raise finance at rates reflecting the isolated asset pool, and it is the source of the efficiency gains that securitisation and project finance deliver (Schwarcz 1994; Gorton and Souleles 2007; Gatti 2018). The gain is entirely contingent, however, on the insulation surviving the originator’s insolvency: if a court can reach through the vehicle to the assets, recharacterize the transfer, or consolidate the vehicle with the originator, the premium investors paid for isolation is lost when it is needed. Moreover, legal separation that is not matched by an economic transfer of risk is exactly what recharacterization and consolidation doctrines look for. In the asset-backed commercial paper conduits that preceded the 2007–2009 financial crisis, sponsoring banks guaranteed their conduits, so that most losses remained with the banks and securitisation concentrated risk rather than dispersing it (Acharya et al. 2013). The SPV’s value proposition is the legal robustness of bankruptcy remoteness, and the comparative treatment of the four techniques below carries this article’s argument.

Following Ramos Muñoz and Bosque Argachal (2019), it helps to distinguish between basic and enhanced bankruptcy remoteness. Basic remoteness is achieved simply by placing the assets in a separate legal person: the doctrine of separate corporate personality means that, in principle, the vehicle’s assets are not its shareholders’ assets, and one creditor cannot claim against another. Enhanced remoteness goes further, using corporate and contractual devices designed to make it improbable that the vehicle will ever enter insolvency proceedings—restrictions on the vehicle’s purpose and borrowing, independent directors, and, above all, contractual undertakings of limited recourse and non-petition. The distinction matters for comparison because the UAE’s free zones deliver basic remoteness robustly through separate personality. In contrast, enhanced remoteness—the harder problem—depends on the enforceability of the contractual devices, and the legal systems diverge on this point.

A further structural device, the orphaning of the vehicle, illustrates how enhanced remoteness is engineered in practice. To reduce the risk that the vehicle will be consolidated with, or treated as the alter ego of, its originator, the shares of the SPV are frequently held not by the originator but by an independent party—in common-law structures, a charitable trust or a foundation—so that the vehicle has, in substance, no parent whose insolvency could draw it in (Schwarcz 1994). The orphan structure shows that enhanced remoteness is a package of mutually reinforcing devices—separateness covenants, restricted objects, independent directors, and orphaned ownership—each of which presupposes legal concepts, above all the trust, that are native to the common Law and absent or attenuated in civil-law systems (the Hague Convention of 1985 describes the trust as “a unique legal institution” developed “in courts of equity in common law jurisdictions”; HCCH 1985, preamble). This dependence on common-law property and equity concepts is the hinge on which the comparison in this article turns, because it explains why a civil-law jurisdiction seeking to offer competitive SPV structures must either import those concepts, as the UAE has done in its free zones, or supply functional statutory equivalents, as Luxembourg has done, and why the onshore position, which has only recently begun to supply such equivalents (Section 3.3), has left the insulation weaker.

2.2. The Legal Techniques of Enhanced Remoteness

Four legal techniques recur across all developed SPV structures, forming the analytical grid against which the following sections assess each jurisdiction (Phillips and Schwarcz 2022). The first is the true sale: the transfer of the assets from the originator to the vehicle must be characterised as an outright sale, not as a secured loan, so that no residual ownership interest remains in the originator to be clawed back into its insolvency estate; the conditions under which a court will respect the conveyance as a sale, rather than recharacterize it as a secured loan, are the subject of a substantial and contested jurisprudence (Schwarcz 1994; Kettering 2008). Where the transfer is instead recharacterized as a financing secured on retained assets, the insulation fails at its foundation.

The second technique is protection against substantive consolidation—the risk that an insolvency court will disregard the vehicle’s separateness and pool its assets with the originator’s. In the common-law world, separateness covenants, observance of corporate formalities, and the appointment of independent directors address this risk, but they are opinions, not guarantees. The third and fourth techniques are contractual: the limited-recourse provision, under which a creditor agrees that its claim is confined to the vehicle’s assets and is extinguished once that pool is exhausted; and the non-petition provision, under which creditors undertake not to initiate insolvency proceedings against the vehicle. Together, limited recourse and non-petition convert basic remoteness into enhanced remoteness because they remove both the incentive and the means to push the vehicle into insolvency.

The decisive comparative question—and the organising insight of this article—is how a legal system treats these four techniques. A system may leave them to contract and to the reasoned opinion of counsel, enforcing them only to the extent that general principles of company and insolvency law permit; or it may codify them, conferring statutory force on true sale, limited recourse, and non-petition so that their enforceability does not depend on litigation after the event. These two approaches define the two international models examined in Section 4, and the argument’s analytical destination is the UAE’s position between them. The security of an SPV structure is best measured by the legal force these four techniques have when the originator fails, the moment for which the structure exists; the flexibility of the formation regime is a secondary consideration.

2.3. The Insolvency-Law Problems That Bankruptcy Remoteness Must Survive

The four techniques are defensive. Each answers a specific power that insolvency law gives to a liquidator, a trustee, or a court, and those powers define the subject’s scientific problem. Five can be identified, and they serve as the common reference point for comparison.

The first is recharacterization. If the transfer to the SPV is treated as a loan secured on the assets, the assets remain property of the originator’s estate (in the United States, 11 U.S.C. § 541), and investors become secured creditors exposed to the moratorium and the insolvency’s distribution rules. The second is avoidance. Even a genuine sale may be set aside if it was made at an undervalue, preferred one creditor over others, or was intended to put assets beyond creditors’ reach. Every system examined here has such rules: the United States in 11 U.S.C. §§ 544(b), 547 and 548; Luxembourg in the suspect-period provisions of Article 445 and following of the Commercial Code and in the Paulian action; the DIFC in Articles 132 to 135 of the DIFC Insolvency Law; the ADGM in the avoidance provisions of its Insolvency Regulations 2022; and the UAE onshore regime in Federal Decree-Law No. 51 of 2023 and the civil-law action for the non-enforceability of a debtor’s dispositions (Section 3.2). Avoidance is where the legitimate and the abusive uses of an SPV meet. A structure that transfers assets for full value, from a solvent originator, without intent to defeat creditors, is financing; one that fails those tests is asset stripping. How far avoidance rules reach through corporate intermediaries is itself contested: in El-Husseiny v Invest Bank PSC [2025] UKSC 4, a case arising from the enforcement of UAE judgments in England, the UK Supreme Court held that the English rule on transactions defrauding creditors can apply where the assets transferred belonged to a company controlled by the debtor rather than to the debtor personally.

The third problem is substantive consolidation and its civil-law analogues, such as extending bankruptcy to a controlled entity or piercing the corporate veil, which disregard the SPV’s separateness. The fourth is the petition against the SPV itself: whether a creditor’s statutory right to open insolvency proceedings can be waived by contract, and whether the SPV’s own directors can be prevented from filing. The fifth is cross-border recognition: which court opens proceedings against an SPV whose assets, originator and investors are located in different states, and whether its decisions are recognised elsewhere. The analysis that follows asks how each UAE tier, and each comparator, answers these five questions.

3. Findings (I): The Three Tiers of the UAE SPV Framework

This section applies the Section 2 framework to the UAE. It analyses in turn the three tiers through which an SPV may be established—the common-law financial free zones, the onshore federal regime, and the wider free-zone vehicles—and assesses the security of the asset insulation each delivers against the four techniques of enhanced remoteness. The central finding is that these tiers are not interchangeable: they deliver the SPV function by different legal means and to materially different degrees.

3.1. The Financial Free Zones: ADGM SPV and DIFC Prescribed Company

The two financial free zones offer the UAE’s most developed SPVs, and both operate within a common-law framework served by independent courts. The ADGM Special Purpose Vehicle is incorporated under the ADGM Companies Regulations 2020, typically as a private company limited by shares or, where limited public disclosure is desired, as a Restricted Scope Company. Its defining feature is the separate legal personality identified in Section 2, which, in ADGM’s own guidance, means the claims of the SPV’s creditors cannot attach to the assets of its shareholders or sister companies. The vehicle is confined to passive activity; it may not trade operationally, employ staff, or hold physical premises, and—for non-exempt vehicles incorporated on or after 12 July 2021—it must at all times appoint a licenced Company Service Provider under Rule 296A of the Companies Regulations. It must also satisfy a “nexus” requirement, demonstrating an appropriate connection to ADGM, the UAE, or the GCC.

The DIFC counterpart is the Prescribed Company, governed by the DIFC Prescribed Company Regulations 2024, which took effect on 15 July 2024 and replaced the Prescribed Company Regulations 2019 (themselves the successor to the earlier DIFC Special Purpose Company Regulations). The Prescribed Company is also a private company limited by shares, limited to holding activities and prohibited from employing staff. It benefits from reduced incorporation fees and is exempt from filing annual audited accounts. The 2024 Regulations broadened the eligibility criteria markedly: whereas the vehicle was previously available only to applicants with a defined GCC nexus or to authorised firms, it may now be established by any person worldwide, provided a director is appointed who is an employee of a DFSA-registered Company Service Provider that has entered into an anti-money-laundering arrangement with the DIFC. The permitted purposes were also streamlined to aviation, crowdfunding, intellectual property, maritime structures, and structured financing. A further liberalisation is under consultation: DIFC Consultation Paper No. 1 of 2026, published on 30 April 2026, proposes to remove the remaining purpose and nexus restrictions and to make the appointment of a Company Service Provider mandatory for all non-exempt Prescribed Companies; as at the time of writing, this remains a proposal and not enacted Law, and it is treated as such throughout this article.

The Company Service Provider and nexus requirements common to both free zones carry substantive weight; they reflect the substance and anti-money-laundering considerations that now condition the international acceptability of any SPV regime. By requiring that a non-exempt vehicle be administered at all times by a licenced provider and demonstrate a genuine connection to the jurisdiction, the free zones seek to ensure their SPVs are not perceived as purely nominal shells. This perception would expose them to challenge under the economic-substance and beneficial-ownership standards that the UAE has progressively adopted. For bankruptcy remoteness, this effect is ambivalent. On the one hand, robust administration and demonstrable separateness support the resistance to substantive consolidation analysed in Section 2, because a properly administered, genuinely separate vehicle is harder to characterise as the originator’s alter ego. On the other hand, passivity and nexus constraints limit the range of transactions the vehicle may undertake. Sponsors weigh how quickly it can be deployed against the superior legal certainty the free zones offer. These requirements therefore shape the remoteness calculus, and any reform must preserve their protective function while minimising the friction they impose. The underlying idea, that disciplined governance shields an entity from the financial failure of those connected to it, has also been examined in the context of UAE family businesses (Aldabousi 2025).

Measured against the four techniques of enhanced remoteness, the free-zone vehicles perform strongly on the first two and less certainly on the last two. Separate legal personality, robustly recognised in both zones and supported by independent common-law courts, delivers basic remoteness and provides a sound foundation for resisting substantive consolidation, since the vehicle’s separateness is a matter of statute rather than of factual inference alone. True-sale characterisation is available in principle, because both zones apply English common-law concepts of property transfer under which an outright assignment passes title. The same English inheritance brings English-style avoidance rules: the DIFC Insolvency Law provides for transactions at an undervalue and preferences (Articles 132 and 133) within defined relevant times (Article 135), and the ADGM Insolvency Regulations 2022 contain equivalent provisions. A transfer to an SPV by a free-zone originator that is insolvent, or is made insolvent by the transfer, is therefore exposed to challenge on much the same terms as in England. The weaker point concerns limited recourse and non-petition. Neither the ADGM Companies Regulations nor the DIFC Prescribed Company Regulations codify these contractual undertakings or confer statutory immunity on them; their enforceability rests on the general common Law of contract as received in each zone and on the insolvency regimes—the ADGM Insolvency Regulations and the DIFC Insolvency Law—rather than on a bespoke securitisation statute. The free-zone vehicles thus deliver enhanced remoteness through common-law reception and careful drafting, not through a codified guarantee. This foundation differs materially and is less certain than the statutory model examined in Section 4, even though the practical outcome often coincides.

3.2. The Onshore Federal Regime

The onshore position is markedly different. The UAE has no dedicated onshore SPV or securitisation statute; the SCA Decision of 2024, discussed in Section 3.3, is a regulatory instrument and does not fill that role. An onshore SPV must be constituted as an ordinary commercial company under Federal Decree-Law No. 32 of 2021 on Commercial Companies—most commonly a limited liability company—or through a joint-venture structure, or, since 2024, as an SPV licenced by the SCA, and it takes its insolvency treatment from the general Law, principally Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy, which came into force on 1 May 2024 and which, significantly, does not extend to the ADGM or DIFC free zones, each of which retains its own insolvency regime. This carve-out structurally confirms the tiered landscape this article describes: the onshore bankruptcy statute and the free-zone insolvency regimes are distinct legal orders, and an SPV is subject to whichever governs the tier in which it sits. This has three consequences for the security of asset insulation. First, there is no statutory true-sale safe harbour: whether a transfer of receivables to an onshore vehicle is respected as an outright sale, or recharacterized as a secured financing, falls to be determined under the general civil Law of assignment and the insolvency avoidance provisions, without the certainty that a dedicated regime would supply. Second, the 2023 Bankruptcy Law’s transaction avoidance and clawback rules apply to transfers made in the suspect period preceding the originator’s insolvency, and the extent to which a genuine asset transfer to an SPV is protected from those rules remains unsettled; the following paragraphs examine these rules. Third, general contract and insolvency principles govern the enforceability of limited-recourse and non-petition undertakings against an onshore vehicle’s creditors, and this remains untested in this context.

The avoidance rules deserve closer attention, because they are the mechanism most likely to be used against an onshore SPV structure when the originator fails. Two bodies of onshore Law could catch a transfer to an SPV. The first is the Bankruptcy Law. Under Federal Decree-Law No. 51 of 2023, the Bankruptcy Court sets a cessation-of-payments date, which may not be set more than two years before the decision opening the proceedings. The court may declare transactions the debtor concluded in the six months before that date unenforceable against the body of creditors, and the period extends to two years when the counterparty is a related party (Akin Gump Strauss Hauer & Feld LLP 2024; Dechert LLP 2024). The transactions exposed include gifts other than customary ones; transactions in which the debtor’s obligations materially exceed those of the counterparty, including a sale at a marked undervalue; payment of a debt before it falls due or otherwise than in the agreed manner; and security given for a pre-existing debt, subject to an exception where commercial considerations justify the act. The court may also declare other transactions unenforceable if it considers them harmful to creditors (Akin Gump Strauss Hauer & Feld LLP 2024). The definition of related party in Article 1 of the Decree-Law is broad, extending to board members, significant shareholders, and entities associated with the debtor, so an SPV that is a subsidiary of the originator will ordinarily attract the two years. Whether an orphan SPV owned by an independent trust or foundation falls outside the definition, and thus within the shorter six-month period, depends on the definition’s control tests. The point shows that the orphan structure discussed in Section 2.1 has a concrete insolvency-law function in the UAE: it may shorten the period during which the transfer is exposed.

The second body of Law is the civil-law action to challenge the enforceability of a debtor’s dispositions (the action paulienne of the civil-law tradition). Under Article 396 of the former Civil Transactions Law (Federal Law No. 5 of 1985), a debtor whose debts equal or exceed the value of its property is prohibited from making gratuitous dispositions, and a creditor may ask the court to declare such a disposition unenforceable against it; the action is available to individual creditors outside any collective proceeding (BSA Ahmad Bin Hezeem & Associates 2025). The 1985 Law has been replaced, effective 1 June 2026, by Federal Decree-Law No. 25 of 2025 promulgating the Civil Transactions Law, and dispositions made after that date must be assessed under the corresponding provisions of the new Code. Where the SPV structure uses an onshore trust, a third rule applies: the Federal Trust Law permits the nullification of a trust whose purpose is the settlor’s evasion of debts, taxes or other financial obligations (Federal Decree-Law No. 31 of 2023, Art. 39(1)(b)).

Onshore Law lacks a rule telling the court how these tests apply to a financing transfer. A sale of receivables at a discount to their face value is normal in securitisation; the discount reflects credit risk, servicing cost and the time value of money. Unless the court accepts that a price set on those factors is full value, a discounted sale by an originator that later fails could be characterised as a sale at a marked undervalue. Neither the Bankruptcy Law nor the SCA Decision of 2024 addresses the question, and the author has found no published onshore judgement on it. United States law meets the same problem with the “reasonably equivalent value” test of 11 U.S.C. § 548(a)(1)(B), applied within a two-year look-back period, and with a body of case law on its meaning. The comparison with Luxembourg, discussed in Section 4.2, shows that even a statutory model does not immunise the transfer itself from avoidance.

Until 2024, this was the weakest of the three tiers for the purpose for which an SPV exists. The onshore vehicle enjoys separate legal personality and therefore basic remoteness. Still, it lacks both the common-law reception of the free zones and the codified protections of a statutory model. For structures demanding a high degree of insulation—securitisations, capital-market issuances, structured project financings—the onshore regime is, in the current state of the Law, the least secure option, and market practice has responded accordingly by routing such structures through the free zones or through offshore jurisdictions. Section 3.3 considers how far two recent instruments change that assessment.

3.3. Recent Onshore Developments: The SCA SPV Regime and the Federal Trust Law

Two recent onshore instruments qualify the conclusion that the onshore tier offers only basic remoteness. The first is SCA Chairman’s Decision No. 25/RM of 2024 on the Regulation of Special Purpose Vehicles, issued in July 2024. It creates a licenced onshore SPV for credit operations, borrowing, securitisation, bond issuance, and the transfer of risks associated with insurance, reinsurance, and derivatives (Securities and Commodities Authority 2024b; Hadef & Partners 2024). The Decision forms part of a wider body of SCA regulation of the onshore securities market, whose protective function has been examined in other contexts (Aldabousi and Ali 2025). The Decision provides that the SPV’s obligations and assets are separate from those of its founder and manager, restricts the charging, lending, and attachment of its funds to its stated purposes, and states that the bankruptcy of the founder or manager does not trigger the SPV’s bankruptcy. The vehicle is confined to its licenced purpose, may have no more than three shareholders, and is licenced for renewable one-year terms; the Decision does not apply in the financial free zones (Hadef & Partners 2024). These provisions give onshore SPVs, by Regulation, the separateness and purpose restrictions that common-law practice achieves through constitutional documents, and they directly address one form of consolidation risk.

Their limits are as significant as their content. The Decision is secondary legislation issued by a regulator, and it cannot displace the avoidance provisions of a federal decree-law; nor does it purport to. It says nothing about how a transfer of assets from the founder to the SPV is to be characterised, whether such a transfer is protected from avoidance in the founder’s insolvency, or whether limited-recourse and non-petition undertakings bind the SPV’s creditors. Its bar on bankruptcy contagion protects the SPV from being drawn into its founder’s bankruptcy; it does not protect the founder’s transfer to the SPV from being unwound.

The second instrument is Federal Decree-Law No. 31 of 2023 concerning Trusts, which repealed Federal Decree-Law No. 19 of 2020 and gives onshore UAE trusts statutory personality. The trust acquires legal personality from its registration (Art. 3(1)). Neither the settlor nor the trustee owns the trust property, and that property does not enter either of their estates in bankruptcy or liquidation (Art. 3(2)). The Decree-Law applies outside those financial free zones that have their own trust legislation (Art. 2(1)), such as the DIFC under its Trust Law (DIFC Law No. 4 of 2018), and professional trustees must be licenced (Art. 13(3)). The statute supplies the onshore property concept, whose absence the sukuk literature identified as the principal obstacle to asset-backed structures (Ali et al. 2022), and it makes an onshore orphan structure possible in principle, with the SPV’s shares held by a registered trust. Two features limit their effect. The onshore trust is a legal person, so it operates as a segregated patrimony with its own personality. It does not reproduce the common-law division between legal and beneficial ownership, and its use as a security or investor trust in structured finance is untested. Moreover, as noted above, the trust may be nullified where its purpose is to evade the settlor’s debts (Art. 39(1)(b)).

The net effect is that the onshore tier now offers more than basic remoteness. It offers what may be called regulated separateness: statutory separation of the SPV’s assets, statutory purpose restrictions, a regulatory bar on bankruptcy contagion, and statutory trust. It still lacks the three elements that define the Luxembourg model: a rule that the transfer is effective against third parties and the transferor’s creditors from the moment it is agreed, statutory force for limited recourse and non-petition, and clarity on how avoidance applies to financing transfers. Table 1 reflects this revised assessment.

Table 1. Comparative delivery of bankruptcy remoteness across the UAE tiers, the United States, and Luxembourg.

Technique/Feature	UAE Free Zones (ADGM/DIFC)	UAE Onshore	United States	Luxembourg
Basis of remoteness	Separate personality; common-law reception	Separate personality; SCA-licenced SPV with statutory asset separation (Decision 25/RM/2024); statutory trust (DL 31/2023)	Characterisation + reasoned opinion (11 U.S.C. § 541)	Securitisation statute (2004/2022)
True sale	Common-law transfer; no statutory safe harbour	General civil Law; recharacterization risk untested	True-sale opinion; case-law driven	Statutory: assignment effective on agreement
Non-consolidation	Statutory separate personality aids resistance	SCA Decision: founder’s bankruptcy does not trigger SPV’s; untested in court	Non-consolidation opinion; equitable doctrine (Augie/Restivo; Owens Corning)	Compartment ring-fencing codified (Arts. 5, 62(2))
Limited recourse/non-petition	Enforceable by contract; not codified	Untested	Enforceable by contract; not codified	Statutory force conferred (Arts. 62(1), 64(3)–(4))
Source/timing of certainty	Ex post; young courts	Ex post; general insolvency law	Ex post; mature jurisprudence	Ex ante; statutory
Vehicle constraint	Passive only; CSP; nexus	General company (CCL 2021) or SCA SPV: purpose-restricted, ≤3 shareholders, annual licence	Flexible (corp/LLC/trust)	Broad; compartments permitted
Avoidance of the transfer	English-style undervalue/preference rules (DIFC Arts. 132–135; ADGM IR, 2022)	DL 51/2023: 6 months, 2 years for related parties; civil-law non-enforceability action; no financing safe harbour	11 U.S.C. §§ 544(b), 547, 548; reasonably equivalent value	Commercial Code Art. 445 et seq.; 2004 Law Art. 61(4) exempts security only
Cross-border recognition	Model Law adopted (DIFC Sch. 4; ADGM Sch. 10): inbound recognition; outbound recognition depends on the recognising state’s law	Model Law not adopted; general enforcement route	Chapter 15 (2005): mainly inbound; outbound relief depends on foreign law (§ 1505)	Within the EU only: Regulation 2015/848 (COMI; Eurofood), automatic recognition. Model Law not adopted; third-country recognition under national private international law.

3.4. The Wider Free-Zone Vehicles

Between the two poles sits a third tier: the international business companies offered by vehicles such as the Ras Al Khaimah International Corporate Centre (RAK ICC). These vehicles occupy an intermediate position. Unlike the passive-only ADGM SPV and DIFC Prescribed Company, a RAK ICC company may carry on active international business and—significantly for asset insulation—may elect the ADGM or DIFC Courts to resolve disputes, importing a measure of common-law adjudication into a lower-cost vehicle. The insulation such a vehicle delivers therefore depends on two choices: the substantive Law governing the transfer and the security package, and the forum elected for disputes. This flexibility is commercially valuable, but it compounds the central difficulty identified in this article because it adds another permutation to a landscape where asset insulation already varies by tier.

3.5. An Applied Illustration: The Sukuk Market

The tier-dependence of asset insulation is clearest in the single most important application of SPVs in the UAE: sukuk issuance. A sukuk issuance is built around an SPV—the issuer—to which the originator transfers assets and which issues certificates to investors, and its integrity depends on the same true-sale and bankruptcy-remoteness questions analysed above. The market divides sharply into two structures. In an asset-backed sukuk, the originator effects a genuine sale of the underlying assets to the SPV, so that investors have recourse to those assets on the originator’s insolvency; in an asset-based sukuk, the originator transfers only beneficial ownership, and investors have recourse in substance to the originator’s creditworthiness rather than to the assets. Asset-based structures dominate the market. In its rating methodology, Moody’s observed that the majority of sukuk structures in use reduce, in risk and return, to the equivalent of a conventional bond, and it rates them on the credit of the originator; structured-finance methodology is applied only where investors have recourse to a segregated asset pool (Moody’s Investors Service 2009). The author is not aware of published data isolating the UAE share of each structure, and therefore uses the global position as the best available indicator.

This is directly connected to the article’s argument. A principal obstacle to true asset-backed structures onshore has been that UAE onshore law did not, before the Federal Trust Law, recognise the common-law concepts of trust and beneficial ownership, creating enforcement uncertainty over the separation of assets from the originator’s estate (Ali et al. 2022). The empirical study of sukuk defaults by Zaheer and van Wijnbergen (2025) reinforces the point from the resolution side: their case studies show that where sukuk were structured to resemble conventional bonds and did not transfer real title to the underlying assets, investors relying on limited-recourse provisions found, on default, that they had no assets to which to resort, and that the certainty of the outcome turned on the legal institutions of the jurisdiction in which ownership was contested. The sukuk market thus supplies concrete confirmation of the central thesis: the security of asset insulation in the UAE depends on the legal tier and the property-law concepts available within it, and the absence onshore of a common-law true sale and of a statutory safe harbour pushes issuers towards the free zones or towards beneficial-ownership structures that dilute the remoteness the SPV is meant to provide. The same questions of ownership and enforceability arise, in a different forum, where Islamic-finance disputes are referred to arbitration (Aldabousi et al. 2025).

The cumulative picture is one of structural fragmentation. A sponsor seeking to insulate assets in the UAE must choose among three tiers that deliver the same economic function through materially different legal means: a common-law free-zone vehicle offering strong basic remoteness and reception-based enhanced remoteness; an onshore vehicle offering regulated separateness, but untested protection against recharacterization and avoidance under a civil-law insolvency regime; and an intermediate free-zone vehicle whose insulation depends on elected Law and forum. In short, the degree of bankruptcy depends on the tier. Whether that fragmentation is a defect or a feature depends on comparison with international models, to which the analysis now turns.

3.6. The Cross-Border Dimension: Recognition of Insolvency Proceedings

A dimension that sharpens the tier-dependence identified above concerns cross-border recognition of insolvency proceedings, which is critical to an SPV structure because the assets, the originator, and the investors are frequently located in different States. The decisive instrument is the UNCITRAL Model Law on Cross-Border Insolvency (1997), which aims to authorise cooperation and the recognition of foreign proceedings between adopting jurisdictions, leaving substantive insolvency law to each state (Mevorach 2018). On this point, the UAE tiers diverge as sharply as they do on remoteness itself. The two financial free zones have enacted the Model Law: Schedule 4 to the DIFC Insolvency Law and Schedule 10 to the ADGM Insolvency Regulations incorporate tailored, expanded versions of it, so that foreign insolvency proceedings are, in principle, afforded recognition and judicial cooperation within the free zones. By contrast, the onshore federal regime has not adopted the Model Law; onshore recognition of a foreign insolvency judgement proceeds instead through the general enforcement route of the Civil Procedure Law and through reciprocal arrangements such as the Riyadh Arab Agreement and the GCC Convention.

The consequences of asset insulation are significant, yet practitioners’ formation guides for free-zone vehicles omit insolvency entirely (for example, Szadkowska and Al Khafaji 2019; El Khoury 2024). An SPV whose remoteness must be tested in a multi-jurisdictional insolvency will find that the relevant proceedings are not recognised. Hence, the practical enforceability of the ring-fencing on which investors rely is more secure when the vehicle sits onshore than when it sits in a free zone that has adopted the Model Law.

Adopting the Model Law has a specific and limited meaning. The Model Law is not a treaty and creates no network of mutual obligations; it is a template that each state enacts unilaterally to give its own courts a toolkit of access, recognition and assistance. A foreign representative gains direct access to the courts of the enacting state (Art. 9), may apply for recognition of the foreign proceeding as a main or non-main proceeding (Arts. 15–17), obtains an automatic stay on recognition of a main proceeding (Art. 20), and may seek further discretionary relief, cooperation and standing to bring local avoidance actions (Arts. 21, 23 and 25–27). The Model Law imposes no reciprocity requirement, although some enacting states, including South Africa and Mexico, have added one (Chakraborty 2020). Chapter 15 of the US Bankruptcy Code, enacted in 2005 “to incorporate the Model Law on Cross-Border Insolvency” (11 U.S.C. § 1501(a)), shows both the reach and the limit of that design. It operates mainly in inbound cases, that is, requests made to US courts by foreign representatives, and it is open to representatives from any foreign state, whether or not that state has enacted the Model Law. For outbound cases, it does little more than authorise a US trustee to act abroad, and such a trustee “may act in any way permitted by the applicable foreign law” (11 U.S.C. § 1505). Whether relief is granted abroad therefore depends on the private international law of the state in which it is sought, and reciprocity, public policy, and other factors come into play there. As noted above, the DIFC and ADGM have also adopted the Model Law, and their enactments are subject to the same limit. They secure inbound recognition and cooperation within the free zones. For an SPV that cuts both ways: investors gain a predictable procedure, but the foreign office-holder of an insolvent originator can also obtain recognition in the free zone and, with it, a route to challenge the transfer of assets to a free-zone vehicle. Recognition abroad of a DIFC or ADGM proceeding concerning the SPV itself turns on the law of the recognising state: on that state’s own enactment of the Model Law where it has one, and otherwise on its general rules on foreign judgments, including any reciprocity requirement. The free-zone advantage in outbound cases is therefore indirect. It lies in proceedings conducted before a court that applies an internationally recognised standard and, where the recognising state tests reciprocity, in the ability to point to an equivalent recognition regime at home, which an onshore office-holder can do only by reference to the general enforcement route. Subject to that qualification, the cross-border analysis confirms, from a second and independent direction, the article’s central thesis: the security of the SPV’s insulating function in the UAE varies systematically with the tier of incorporation. No single-tier description of the UAE framework captures this structural feature, strengthening the case for the coordinating reforms proposed in Section 5.

The United States, the first comparator, shows how a Model Law enactment operates once an SPV is actually before the recognising court, and three features of Chapter 15 bear directly on the structures examined in this article. First, recognition turns on substance rather than on the place of incorporation. Section 1516(c) presumes that the debtor’s registered office is its centre of main interests “[i]n the absence of evidence to the contrary”, but the presumption yields quickly where the vehicle’s only link with that place is its registration. In In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd., 374 B.R. 122 (Bankr. S.D.N.Y. 2007), aff’d, 389 B.R. 325 (S.D.N.Y. 2008), the court refused to recognise the Cayman liquidations of two investment vehicles as either main or non-main proceedings, because their manager, their administrator and their liquid assets were in the United States and they had no establishment in the Cayman Islands. The Second Circuit has since fixed the relevant date as that of the Chapter 15 petition, while permitting the court to examine the intervening period for manipulation and to ask whether the COMI was ascertainable by third parties (Morning Mist Holdings Ltd. v. Krys, 714 F.3d 127 (2d Cir.) 2013). A DIFC or ADGM vehicle that is administered, serviced and directed from outside the free zone is exactly the kind of entity whose free-zone proceeding a US court may decline to treat as a main proceeding, or to recognise at all. Second, Chapter 15 imports foreign avoidance law. Section 1521(a)(7) withholds from the foreign representative the Code’s own avoidance powers, yet the Fifth Circuit held in In re Condor Insurance Ltd., 601 F.3d 319 (5th Cir. 2010), that it does not bar avoidance actions brought under the law of the foreign main proceeding. Because a US court requires no reciprocity, the office-holder of an insolvent onshore UAE originator could seek recognition there and invoke the avoidance rules of Federal Decree-Law No. 51 of 2023 against assets transferred to a vehicle-holding property in the United States; the suspect periods examined above thus travel with the recognised proceeding. Third, that exposure is cut back by the market safe harbours. Section 561(d) applies the Code’s protections for securities contracts and related financial contracts in Chapter 15 cases, and the Second Circuit has held that the Section 546(e) safe harbour bars foreign-law claims to unwind transfers made in connection with a securities contract, other than claims of actual intent to defraud (In re Fairfield Sentry Ltd., 147 F.4th 136 (2d Cir. 2025)); the Supreme Court denied certiorari on 5 October 2026. The US position therefore combines open inbound access with a substance-based test of COMI and a statutory shield for capital-markets transfers. For a UAE structure, the consequence is that Model Law enactment in the free zones confers no formal advantage before a US court, which recognises onshore and free-zone proceedings on the same terms. What decides the outcome is where the vehicle is in fact managed and whether the transfers that make up the transaction fall within the safe harbours. Seen from the United States, the insulating function of a UAE SPV cannot be inferred from its tier of incorporation alone; it has to be built into the transaction.

Luxembourg, the second comparator, has not adopted the Model Law. Within the European Union (European Parliament and Council of the European Union 2015), Regulation (EU) 2015/848 governs recognition, under which main proceedings are opened where the debtor has its centre of main interests (COMI), presumed to be its registered office (Art. 3(1)). For SPVs, the leading authority is Eurofood IFSC Ltd. (Case C-341/04, EU: C:2006:281) (Eurofood IFSC Ltd. 2006), which concerned an Irish financing subsidiary of the Parmalat group: the presumption can be rebutted only by factors that are objective and ascertainable by third parties, and the fact that a parent in another Member State controls the subsidiary’s economic choices is not sufficient. The Regulation also protects a transaction from avoidance under the Law of the opening state where the Law of another Member State governs the transaction that allows no means of challenging it (Art. 16), a rule of direct relevance to cross-border true sales.

The contrast with the EU Insolvency Regulation is marked, and it matters for SPV structures. The Regulation is binding EU law, not a model for unilateral enactment. It allocates international jurisdiction to open main proceedings to the Member State in which the debtor has its COMI (Art. 3(1)), subjects the proceedings and their effects to the law of that state (Art. 7(1)), and requires the other Member States to recognise the opening judgement from the moment it takes effect, so that it produces the same effects there “with no further formalities” (Arts. 19(1) and 20(1)). Recognition is neither applied for nor discretionary, and reciprocity does not arise, because every participating Member State is bound. The Regulation also contains protective rules with no counterpart in the Model Law: the opening of proceedings does not affect rights in rem over assets situated in another Member State (Art. 8(1)), and Article 16 shields acts governed by the law of another Member State that allows no means of challenging them. Its reach, however, stops at the Union’s external border. The Regulation applies only where the debtor’s COMI is located in the Union (Recital 25); it does not bind Denmark (Recital 88), and it governs recognition only among the participating Member States. Recognition of a Luxembourg proceeding in a third state, such as the United States or the UAE, and recognition in Luxembourg of a third-state proceeding fall under the national law of the relevant state. For SPV structures, the consequence is twofold. A Luxembourg securitisation vehicle whose COMI is at its registered office can predict, before the transaction closes, which court will open any main proceedings, which law will govern them, and that the opening judgement will be recognised throughout the Union; that ex ante predictability is part of what the statutory model offers investors, and it matches the model’s approach to remoteness itself. Outside the Union, the same vehicle stands where any other foreign debtor stands. A UAE vehicle has no regional equivalent. Neither the Model Law’s free-zone enactments nor the onshore route through the Riyadh Arab Agreement and the GCC Convention allocate insolvency jurisdiction or secure automatic recognition abroad. The cross-border robustness of a UAE structure must therefore be engineered transaction by transaction through the vehicle’s COMI, the governing law of the transfer and the security, and a recognition analysis in each state where assets or investors are located. A full comparison of the three recognition regimes, including the treatment of an SPV whose COMI is disputed, would require its own study. This article records their main contours and identifies the question as a direction for further research (Section 5.2).

4. Findings (II): Comparative Models—The Judicial and Statutory Poles

This section applies Section 2 framework to two mature systems. They are functionally equivalent to the UAE tiers in the sense explained in Section 2: each confronts the same problem, keeping assets transferred to an SPV out of the originator’s insolvency estate, with its own legal technique, so that their rules can be compared as alternative answers to one question. The United States is examined first, as the paradigm of the judicial-opinion model, in which bankruptcy remoteness is delivered through legal characterisation and reasoned opinion. Luxembourg follows as the statutory model, in which the same result is codified. The two represent the poles between which the UAE must be located, and the analysis applies the four techniques of enhanced remoteness to keep the comparison disciplined.

4.1. The United States: Bankruptcy Remoteness by Opinion

The United States is the jurisdiction in which the modern architecture of bankruptcy remoteness was developed, and it delivers that remoteness through legal characterisation rather than a dedicated securitisation code (Schwarcz 1994, 2023). Asset insulation rests on two reasoned legal opinions. The first is the true-sale opinion, which addresses whether the transfer of the assets from the originator to the vehicle will be respected as an outright sale, so that no interest remains to be drawn back into the originator’s bankruptcy estate, or instead recharacterized as a loan secured on retained assets. The characterisation turns on the transaction’s substance—the allocation of risks and rewards, the degree of recourse, and the treatment of any retained interest—and has generated substantial jurisprudence and commentary (Kettering 2008). The leading appellate example is Major’s Furniture Mart, Inc. v. Castle Credit Corp., 602 F.2d 538 (3d Cir. 1979), in which a transfer of accounts under which the transferor retained the risk of non-payment through full recourse was treated as a secured financing rather than a sale. If the transfer is recharacterized, the assets form part of the originator’s estate under 11 U.S.C. § 541. A transfer that survives characterisation may still be avoided as a fraudulent transfer under § 548, which reaches transfers made within two years before the petition with actual intent to hinder, delay or defraud creditors, or for less than reasonably equivalent value while the debtor was insolvent or inadequately capitalised; § 544(b) allows the trustee to invoke state fraudulent-transfer law as well.

The second is the non-consolidation opinion, which addresses the risk of substantive consolidation—the equitable power of a bankruptcy court to pool the vehicle’s assets and liabilities with those of the originator. Federal courts apply substantive consolidation sparingly. In Union Savings Bank v. Augie/Restivo Baking Co., 860 F.2d 515 (2d Cir. 1988), the Second Circuit identified two critical factors: whether creditors dealt with the entities as a single economic unit and did not rely on their separate identity in extending credit, and whether their affairs are so entangled that consolidation will benefit all creditors. In In re Owens Corning, 419 F.3d 195 (3d Cir. 2005), the Third Circuit reversed an order consolidating a group that had used subsidiary guarantees, holding that consolidation requires either pre-petition disregard of separateness so significant that creditors relied on the breakdown of entity borders, or post-petition commingling so severe that separation is prohibitive, and describing the remedy as one of last resort. In re General Growth Properties, Inc., 409 B.R. 43 (Bankr. S.D.N.Y. 2009), then showed both the strength and the limit of SPV structuring: the court allowed solvent, bankruptcy-remote property-owning SPEs to file with their insolvent parent. Still, it stated that nothing in its opinion implied that their assets and liabilities could be consolidated with those of any other entity. The case law on the SPV’s own filing is similarly mixed. In In re Kingston Square Associates, 214 B.R. 713 (Bankr. S.D.N.Y. 1997), involuntary petitions orchestrated by management to circumvent an independent-director consent requirement were not dismissed, whereas in In re Franchise Services of North America, Inc., 891 F.3d 198 (5th Cir. 2018), a charter provision requiring the consent of a bona fide equity holder before a bankruptcy filing was upheld. Because the consolidation tests turn on reliance on separateness and the absence of entanglement, the separateness covenants, narrow-purpose provisions, and independent-director requirements in SPV documentation are drafted to meet them, and non-consolidation opinions are reasoned by reference to them (Phillips and Schwarcz 2022). The decisive feature of the United States model, for present purposes, is that both are reasoned, limited opinions reflecting counsel’s professional judgement; neither is a statutory guarantee. Bankruptcy remoteness in the United States is therefore probabilistic and litigated ex post: its certainty is the certainty of a well-reasoned prediction about how a court would rule, not of a rule that forecloses the question.

4.2. Luxembourg: Bankruptcy Remoteness by Statute

Luxembourg represents the opposite pole. Its Law of 22 March 2004 on securitisation, substantially modernised by the Law of 25 February 2022, codifies the techniques the United States leaves to opinion and, in doing so, converts bankruptcy remoteness from a probabilistic outcome into a statutory entitlement. The securitisation undertaking may be established in a range of corporate forms and may divide itself into compartments, each ring-fenced from the others so that the assets and liabilities of one compartment are insulated from another’s creditors (Arts. 5; 62(2)). The statute confers legal certainty on the standard contractual tools of structured finance: it gives statutory force to limited-recourse, non-petition, and subordination provisions (Arts. 62(1) and 64), so that a creditor who has agreed to limit its recourse to a defined asset pool cannot validly petition for the vehicle’s bankruptcy based on the unpaid balance once that pool is exhausted; proceedings opened in breach of a non-petition undertaking are declared inadmissible (Art. 64(3)–(4)).

On the true-sale question, the Luxembourg statute again provides certainty where the United States offers only opinion: the assignment of receivables to a securitisation undertaking is effective between the parties and against third parties from the moment it is agreed, subject to the assignment’s terms (Art. 55(1)). The claim becomes part of the undertaking’s property from that date, even if the assignor undertakes to reassign it (Art. 56(1)), which directly addresses the recharacterization argument. Sums an assignor or servicer collects before insolvency belong to the securitisation undertaking, not the servicer’s other creditors (Art. 61(2)). The protection against avoidance is narrower. The Law disapplies Article 445 of the Commercial Code only for security interests granted no later than the issuance of the financial instruments (Art. 61(4)); it does not exempt the transfer itself from the suspect-period rules or from the Paulian action. The statutory model therefore protects the characterisation of the transfer but leaves its avoidance to the general Law. Luxembourg also supplies a civil-law substitute for the trust. Under the Law of July 27 2003, fiduciary property is segregated from the fiduciary’s personal property and does not form part of it in the fiduciary’s bankruptcy (Art. 6(1)). As a result, three of the four techniques of enhanced remoteness receive statutory force. Luxembourg has become one of the two principal securitisation domiciles in the euro area: at the end of 2025 it hosted 1705 financial vehicle corporations, or 31.9% of the euro-area total, narrowly ahead of Ireland (PwC Luxembourg 2026, reporting ECB statistics). Both systems achieve reliable bankruptcy remoteness; they differ in legal technique and, therefore, in the source and timing of certainty: ex ante and statutory in Luxembourg, ex post and opinion-based in the United States.

The compartment mechanism deserves particular attention, because it is the feature of the Luxembourg model most directly relevant to the UAE’s reform options. A single securitisation undertaking may create multiple compartments, each corresponding to a distinct transaction or asset pool, with each compartment’s assets and liabilities segregated by statute from the others. Hence, creditors of one compartment have no recourse to another compartment’s assets. This achieves, within one legal entity and by operation of statute, the same insulation that a common-law structure would achieve only by incorporating a separate orphan vehicle for each transaction and supporting each with its own opinions. The economy and certainty of the compartment device explain much of Luxembourg’s pre-eminence, and they indicate the direction a civil-law reformer should take: rather than importing the trust and orphan structure wholesale, the legislator can confer, by statute, the segregation, limited-recourse, and non-petition protections those common-law devices deliver. The UAE federal legislator has the same option, and the reform proposals in Section 5 develop it.

4.3. Comparative Synthesis

The comparison yields a clear analytical map. Two techniques can deliver bankruptcy remoteness. The judicial-opinion model, exemplified by the United States, achieves it through transaction characterisation and counsel’s reasoned opinion, enforced ex post by courts applying general company and bankruptcy law. The statutory model, exemplified by Luxembourg, achieves this by codifying true sale, limited recourse, non-petition, and ring-fencing, so the securitisation statute itself confers ex ante certainty. Both are coherent; each has costs and benefits: the opinion model offers flexibility, and the statutory model offers certainty.

Against this map, the UAE’s position becomes legible. The common-law free zones sit closest to the United States pole: they deliver remoteness through separate personality and common-law characterisation, enforced by independent courts, but without a codified securitisation safe harbour—indeed, with less supporting jurisprudence than the mature United States market, since the free-zone courts are comparatively young. The onshore regime sits apart from both poles. Since 2024, it offers regulated separateness through the SCA SPV regime and the Federal Trust Law. Still, the transfer to the vehicle remains exposed to recharacterization and avoidance under general civil and insolvency Law. The UAE conspicuously lacks, at every tier, the Luxembourg element: a statute that confers ex ante certainty on the four techniques. The UAE has, in effect, adopted the common-law shell of the judicial model without either the deep supporting jurisprudence that makes that model reliable in the United States or the codified safe harbour that makes the statutory model reliable in Luxembourg. Table 1 summarises the comparison across the four techniques and the two dimensions of certainty and vehicle constraint.

A structural fault line underlies this entire comparison. It deserves to be made explicit, because it explains why the UAE’s onshore tier is so much weaker than its free-zone tier. The techniques of enhanced remoteness were developed in common-law systems that recognise the trust and the separation of legal from beneficial ownership, and much structured-finance practice—the orphan vehicle, the holding of assets on trust for investors, the security trustee—presupposes those concepts (Schwarcz 1994; Gorton and Souleles 2007; Phillips and Schwarcz 2022). Civil-law systems have traditionally not recognised the trust in the same way (HCCH 1985, preamble); the UAE onshore regime introduced a statutory trust only in 2020, and it now takes the form of a legal person under Federal Decree-Law No. 31 of 2023, which is why the reception of the bankruptcy-remoteness technique is uneven at the civil-law tier and why the common-law free zones, which do apply these concepts, deliver a materially stronger product. Luxembourg’s achievement was to supply, by statute, functional equivalents to the trust-based devices—the compartment, the statutory limited-recourse and non-petition regime, the fiduciary arrangement—so that a civil-law jurisdiction could deliver common-law-grade remoteness without importing the trust wholesale (Law of 22 March 2004, Arts. 5, 62 and 64; Law of 27 July 2003, Art. 6(1)). The UAE has begun this move onshore with the Federal Trust Law and the SCA Decision of 2024 but has not completed it, because neither instrument addresses the characterisation of the transfer, limited recourse or non-petition. Completing it is the model its reform should follow.

5. Discussion, Reform Implications, and Conclusions

The comparative analysis supports a targeted reform agenda and directly answers the questions posed at the outset. This concluding section first sets out the recommendations, then answers each research question, and finally states the study’s limitations and directions for further research.

5.1. Reform Recommendations

Five recommendations follow from the analysis. They are calibrated to increase the legal certainty of asset insulation without sacrificing the flexibility that has made free-zone vehicles successful.

First (to the federal legislator): enact a statutory true-sale and avoidance safe harbour for onshore financing transfers. The weakest link in the UAE framework remains the onshore transfer. The SCA Decision of 2024 separates the SPV’s assets once they are in the vehicle. Still, as secondary legislation, it cannot protect the transfer into the vehicle from recharacterization or from the avoidance provisions of Federal Decree-Law No. 51 of 2023 and the Civil Transactions Law. A federal decree-law should state three things. First, a transfer of assets to a licenced SPV is effective between the parties and against third parties, including the transferor’s creditors, from the moment it is agreed, notwithstanding any obligation to reassign (following Articles 55 and 56 of the Luxembourg Law of 22 March 2004). Second, for the undervalue tests under the Bankruptcy Law and the Civil Transactions Law, a price agreed on arm’s-length terms and reflecting credit risk, servicing costs, and the time value of money constitutes full value. Third, the safe harbour does not extend to transfers made with intent to defeat creditors or, within the related-party period, to transfers to a related party that fail the arm’s-length test. The provision would protect genuine financing while leaving the avoidance rules fully available against asset stripping.

Second (to the financial free zones): codify the enforceability of limited-recourse and non-petition provisions. The ADGM and DIFC deliver strong basic remoteness but leave the two contractual techniques of enhanced remoteness to the general common Law. A short provision in the ADGM Companies Regulations and the DIFC Prescribed Company Regulations—or in the respective insolvency regimes—conferring statutory force on validly agreed limited-recourse and non-petition undertakings would move the free zones from the judicial pole towards the more certain statutory pole, at little cost to flexibility.

Third (to federal and free-zone legislators jointly): clarify how cross-tier and cross-border structures are treated. Because the security of insulation varies by tier, and because vehicles such as RAK ICC companies may elect a free-zone forum while sitting outside a free-zone insolvency regime, the interaction between the tiers should be clarified—in particular, which insolvency law governs, and which court has jurisdiction, where a structure spans more than one tier. Legal certainty at the seams of the three-tier system is currently the greatest doctrinal risk.

Fourth (to sponsors and arrangers): select the tier by reference to the required degree of remoteness. Until the Law is reformed, the practical implication is that the choice of tier determines insulation security, as well as cost and convenience. Structures demanding a high degree of bankruptcy remoteness should be routed through the common-law free zones and supported by carefully drafted limited-recourse and non-petition provisions and, where appropriate, independent directors; the onshore regime should be approached with caution for insulation-critical transactions until a statutory safe harbour exists.

Fifth (to the federal legislator): consider adopting the UNCITRAL Model Law on Cross-Border Insolvency onshore. The analysis in Section 3.6 showed that the free zones have adopted the Model Law. Meanwhile, the onshore regime has not, so recognition of foreign insolvency proceedings—and thus the practical enforceability of an SPV’s ring-fencing in a multi-jurisdictional insolvency—is less secure onshore. Adoption of the Model Law at the federal level, following the example already set within the federation by the DIFC and ADGM and by the United States in Chapter 15 of its Bankruptcy Code, would give onshore courts the inbound toolkit of access, recognition and assistance that the free zones already have, narrow the gap between the tiers and enhance the international credibility of onshore structures (Mevorach 2018). It would not, by itself, secure recognition of onshore proceedings abroad, which would still depend on the law of each recognising state (Section 3.6).

5.2. Answers to the Research Questions and Conclusions

The four research questions may now be answered directly. The first asks what legal mechanisms each UAE tier protects assets from the originator’s insolvency, and how robust that protection is against recharacterization, avoidance, consolidation, and a creditor’s petition. Common-law free zones provide robust basic remoteness through separate legal personality and reception-based enhanced remoteness through common-law contract, within English-style avoidance rules. Since the SCA Decision of 2024 and the Federal Trust Law of 2023, the onshore regime provides regulated separateness. Still, the transfer into the vehicle remains exposed to recharacterization and to the avoidance rules of the Bankruptcy Law and the Civil Transactions Law, with no rule on how those rules apply to financing transfers. Wider free-zone vehicles provide variable insulation, depending on the elected Law and forum.

The second question asked what the two dominant international frameworks for bankruptcy remoteness are. They are the judicial-opinion model of the United States, in which remoteness is delivered by characterisation and reasoned opinion enforced ex post against a body of case law on true sale and substantive consolidation, and the statutory model of Luxembourg, in which true sale, compartment segregation, limited recourse and non-petition are codified, and certainty is conferred ex ante; neither model exempts the transfer itself from the general avoidance rules.

The third question asked how the UAE’s tiered approach compares with these models and where it is vulnerable. The UAE sits closest to the United States pole at its free-zone tier but lacks mature supporting case law and, at every tier, the Luxembourg element of a codified safe harbour. Its principal vulnerability is that asset-insulation security is tier-dependent and, onshore, untested at the point of transfer.

The fourth question asked what reforms could increase legal certainty without sacrificing the flexibility of the free-zone vehicles. The reforms set out in Section 5.1 answer it: an onshore true-sale and avoidance safe harbour enacted at the federal level; codified limited-recourse and non-petition enforceability in the free zones; clarified cross-tier rules; tier selection by reference to the required degree of remoteness; and onshore adoption of the Model Law.

This article reframes the UAE SPV landscape as a single, three-tier problem of bankruptcy-remoteness reception. It locates it within an original dichotomy between the judicial and statutory models of achieving that remoteness. The central finding—that the UAE has adopted the common-law shell of the judicial model without the codified safe harbour of the statutory model, that its recent onshore instruments protect the vehicle but not the transfer into it, and that the degree of insulation therefore varies by tier—is offered as both a diagnosis and a reform agenda.

Three limitations delineate the scope of these findings. The analysis adopts a doctrinal and prospective approach: several governing instruments, including the DIFC Prescribed Company Regulations 2024, the SCA Decision of 2024, the Civil Transactions Law of 2025, and the 2026 consultation, are recent or unsettled, and no substantial body of UAE judicial interpretation exists on SPV insolvency isolation. Consequently, the conclusions rely primarily on statutory texts and their comparative context rather than on established case law. The comparison is limited to two international models selected as analytical benchmarks and does not encompass every securitisation jurisdiction. Additionally, the study focuses on the legal framework of asset insulation rather than its empirical prevalence, which future quantitative research could elucidate. The following four avenues for further research are proposed: first, an empirical investigation into the tiers of sponsors selected in practice and the rationale behind these choices; second, a doctrinal analysis of how the transaction-avoidance provisions of Federal Decree-Law No. 51 of 2023 would address genuine asset transfers to an onshore SPV; third, a comparative analysis of the treatment of non-petition and limited-recourse clauses across the GCC financial free zones; and fourth, a comparative study of the recognition of insolvency proceedings concerning SPVs under the Model Law as adopted in the DIFC, the ADGM and the United States, under Regulation (EU) 2015/848, and under the onshore UAE enforcement regime. Each would test the framework proposed here against a different body of evidence.