The long awaited new Commercial Companies Law (Federal Law No.2 of 2015) (the "New Law") will completely replace Federal Law No. 8 of 1984 (the "Old Law") when it comes into force on 1 July 2015. The New Law has a similar look and feel to the Old Law. Many provisions are the same but some new provisions will impact the way that deals are structured and the level of corporate due diligence normally undertaken by lenders. Notably, the much anticipated removal of the current foreign ownership restriction has not taken place. This note aims to get you up to speed with the headline points of the New Law for lenders, including:

  • the good news for you as a lender;
  • things to be aware of;
  • what you need to do to ensure that borrowers are complying with the New Law; and
  • what we are doing to protect you as lenders under the new regime.


  1. Lenders will now able to take security over the shares of limited liability companies ("LLC"). The New Law allows shareholders to pledge[1] or assign up to 100% of their shares in a LLC to another shareholder or third party. Any assignment or pledge will only be valid against the company and third parties if it is registered[2]. However, it is not clear how registration will work in practice. Enforcement will be by way of attachment and if the shareholders, the debtor and the company cannot agree on the sale terms, a court may order a public auction – the same as for other security.
  2. There have been some changes to the provisions relating tojoint stock companies ("JSC") which may open up new opportunities for lenders, including new provisions which:  
    1. permit the share capital of JSC to be increased by converting bonds or sukuk into shares, without having to comply with the pre-emption rights provisions; and
    2. allow directors to sell or pledge movable and immovable properties, where is it is specifically permitted in the memorandum and articles of association ("Articles").


  1. There is an absolute prohibition on financial assistance so that any loans, gifts, donations or security given or extended by the company or its subsidiaries to a shareholder or in support of the shareholder to hold, shares, bonds or Sukuk issued by the company will be completely prohibited[3].
  2. Borrowers with minority shareholder(s) (who hold 5% or more of the shares in a company) will enjoy greater protection because they will be able to apply to the Securities and Commodities Authority ("SCA") where they believe that the affairs of the company have been conducted to the detriment of the interests of any of the shareholders, or the company has done or omitted to do (or intends to do or omit doing) anything that may cause damage to a shareholder; and this can be referred to the UAE Courts if required.  
  3. Unless stated otherwise in the New Law, the provisions relating to public JSCs will apply to LLCs. While this part of the New Law is not clear, until we receive guidance to the contrary, we interpret this to mean that where the New Law on LLCs is silent (or the provision expressly only applies to JSCs), provisions which relate to JSCs will equally apply to LLCs. So, for example, an LLC may also be required to change its auditors every three years and related party transactions for LLCs may be prohibited unless shareholder approval is sought.

 You need to ensure that companies[4]  subject to the New Law, who are currently or prospectively borrowing from you, have amended their existing Articles so that they are compliant with the New Law. This is a mandatory requirement and it is essential because companies that fail to do so by 30 June 2016 will be deemed dissolved[5]  and liable to a fine of AED 2,000 per day until they comply.

We have set out below a non-exhaustive guide to some of the important changes which should be reflected in the Articles of any company borrowing from you.


  • For quorum of a general assembly to be met, partners representing at least 75% of shares must be present[6].
  • Resolutions may only be passed by the majority (in number) of the partners present or represented at the meeting, NOT a majority by reference to percentage "shareholding".
  • Managers must not undertake the management of a competing company without the consent of the general assembly. 
  • The valuation of shares contributed in kind must be assessed by financial experts rather than the company's auditor.


  • The size of the board of directors must not be more than 11 directors. 
  • The issued share capital of a public JSC must be at least  AED 30 million. 
  • Resolutions that contravene the Articles, or the law, or prejudice/benefit particular shareholders/class of shareholder or related parties, without consideration of the best interests of the company, will be invalid.
  • The auditors must be changed every three years. 
  • Related party transactions are prohibited unless the consent of the board of directors and general assembly is given or the transaction is assessed by an assessor appointed by the SCA. 


We have amended our suite of lender documents to account for the New Law.New provisions include new representations and warranties requiring borrowers to give adequate assurances that they have complied with the New Law and amendments to existing representations to account for the New Law (such as no change in auditors for the term of the loan).