Sean Hird, director of DIFC wills and probate registry warns that hoteliers ignoring the future do so at their company’s peril…
Expat hoteliers must ensure their wills are registered with the DIFC Courts, warns the director of DIFC wills and probate registry, Sean Hird.
Failure to do so could result in severe complications for the business ̶ in some cases leading to the closure of the property.
“If you don’t have a will registered with us then you are subject to Sharia Law, therefore when you pass away your estate will be distributed in accordance with those laws,” he says.
“That’s fine to a degree, but it gives you a distribution that most people wouldn’t want to have.”
He gives the example of a hotelier who passes away – leaving behind a wife, son, daughter and possibly parents.
“If you were to pass away under Sharia Law, your wife gets one eighth of what you have, your parents if they are living would get one sixth each and your son will get twice as much as your daughter,” he says.
Part of the issue for expats, he adds, is that while there is provision for foreign wills in UAE Federal Law, the local courts are staffed by judges who are trained in Sharia Law and will look to implement that law.
“If you’re turning up with a will you executed back in Ireland, the UK, India or wherever, and you are trying to take that to the local courts, you have got some challenges,” he says.
“These range from the will not being upheld or taking huge lengths of time to be implemented̶ maybe years in some cases and incurring huge costs along the way.”
Hird says it is not uncommon for hotels to be family-owned, which can create complications when a shareholder passes away.
“Maybe one of those shareholdings will not go where everyone else thought it was going to go,” he says.
“If those shareholdings go where you didn’t want them to go, you could have issues with voting, you could have lost a major shareholder ̶ that shareholding may be split up and it changes the dynamics in terms of passing special resolutions.”
Because hotels are often family-owned,there is often a delicate balance to how it is operated. It could be the case, says Hird, that a major shareholder was inactive but when their shares are distributed, the new shareholder or shareholders could take an active interest in the running of the business.
The doomsday scenario, says Hird, is the hotel being forced to close because of a will not being registered with the DIFC Courts.
“When it comes to signing salary cheques, the person who passes away might be the authorised signatory for the monthly payroll, so what happens then?” he asks.
“You might not be able to replace that signatory. There is the issue of paying salaries and loans. What about the renewal of business licences? When the renewal is up, when the forms have to be completed and suddenly someone is not there to do it?”
In this instance, you might find the licence cannot be renewed during this period due to confusion over who owns shares, says Hird.
“You could even have a bank account frozen, over here you have bank accounts in joint names but when one party passes away that account is frozen,” he says.
“If a husband and wife ran a hotel business paying salaries from a joint bank account and suddenly that bank account is frozen and the surviving partner can’t access it, it doesn’t matter if most of the money is theirs.”
Hird says there have been many cases of businesses having to close over frozen accounts because they are not able to pay creditors and the creditor then sues the company.
Hird’s department was set up in 2015 to provide a registration service for non-Muslims to register their wills and have those wills enforced in the DIFC Courts.
“We were set up because prior to our establishment there was a huge amount of uncertainty over what would happen to the estates, assets and children of non-Muslims living here in the event they passed away,” he says.
“The government wanted to set us up because of the uncertainty over inheritance ̶foreign investment can go anywhere, it doesn’t have to go here. The government is looking to make sure Dubai is as attractive a prospect as possible for foreign investors.”
Another reason was that the legal community was calling for an end to the uncertainty over expat wills in Dubai.
There needed to be a service, says Hird, in the English language to respect the wishes of non-Muslims and enable their wills to be enforced in DIFC Courts
“You can go with Sharia Law and uncertainty, yes there is a low cost, but it’s not necessarily the outcome you want. The second option is trying to force it through the Dubai courts and face all sorts of delays and uncertainties,” he says.
“We are the third option, which is a simple system registered in the English language and enforceable in DIFC Courts. It’s about levelling the playing field so investors can come from all over the world to Dubai – safe in the knowledge their wishes will be upheld once they have passed away.”
Hird says it is perfectly understandable for investors to want peace of mind when investing in the hotel industry.
“It provides certainty from an investment point of view and gives confidence,” he says.