The UAE has recently passed a new commercial companies law and approved some key changes to its public takeover regime.
1. New UAE Commercial Companies Law
UAE Federal Law No. (2) of 2015 Concerning Commercial Companies (2015 CCL) was published in the Official Gazette on 31 March 2015 and comes into force on 1 July 2015.
The 2015 CCL is substantially similar to the 2013 draft of the Commercial Companies Law (2013 Draft CCL). The key differences from the 2013 Draft CCL are:
- Decrease in shareholding required for directors and employees to be related parties to companies in which they hold shares from 35% to 30%
- Clarification that transactions between joint stock companies and related parties in excess of 5% of the company’s share capital require board and general assembly approval
- Express provisions which provide for shareholders to elect directors of joint stock companies by way of cumulative voting
- Increases in several fines for breaching the 2015 CCL, including an increase from AED100,000 to AED1,000,000 for participating in transactions for the purpose of influencing the price of securities.
More generally, the 2015 CCL represents an evolution rather than a revolution for the UAE’s existing commercial companies law. In particular, the rules on foreign ownership remain unchanged. The 2015 CCL retains an odd provision from the 2013 Draft CCL, which provides that all provisions applicable to joint stock companies also apply to limited liability companies. This provision is likely to create much uncertainty – e.g. on the face of this provision, the new prohibition on joint stock companies providing financial assistance would also apply to limited liability companies.
2. New Mandatory Offer Rule
Following reviews conducted by the Emirates Competitiveness Council, the Board of the UAE Securities & Commodities Authority (SCA) has approved changes to several instruments in order to raise the competitiveness of the UAE on the minority investor protection index.
The most significant change is SCA Board approval for a new article to be added to the Disclosure and Transparency Regulations requiring a mandatory offer to all shareholders in accordance with procedures determined by the SCA for any shareholder (or associated parties) in a listed public joint stock company who owns 50% or more and wishes to increase their level of ownership.
The mandatory offer rule and other changes approved by the Board of the SCA are not expected to come into force until June 2015.
The mandatory offer rule would have had a greater impact on the UAE takeover landscape if the threshold had been set at a lower level, such as 30%, which is common in many other jurisdictions. In addition, it is not yet clear what procedures the SCA will require offerors to follow.
Click here to read more about the new UAE Corporate Law reform.