Julia Ofer gives a brief outlook on some key changes expected under the proposed new DIFC Companies Law.
In a briefing session provided by the DIFC on 13 June 2017, both DIFC and DFSA representatives have provided insight into the proposed new DIFC Companies Law and its content.
One key driver behind DIFC replacing the existing legislation is to stay abreast of the development of DIFC entities, the UAE and the region generally. The general premise being that the region is becoming a more sophisticated place for business in general, and the DIFC are keen to provide a suitable platform for its customers with that in mind.
The DIFC will also draft new Companies Regulations, as well as regulations for specific corporate entities to enable a comprehensive and harmonious set of legislation. It is expected the DFSA will also review its rules and modules and propose amendments as and when needed to take into account the changes under the new DIFC Companies Law.
The DIFC intends to enact the new legislation as soon as possible. Based on comments received in the current consultation period, and being optimistic that all parties involved will keep up continued efforts to finalise the new law, the new Companies Law could be in effect as early as September 2017.
Key changes under the proposed new DIFC Companies Law include the following:
- A new company classification system, providing for private and public companies limited by shares, but no longer including the limited liability company (“LLC”) as a corporate form. We envisage that for the majority of LLCs currently incorporated in the DIFC, the suitable new corporate structure will be a so-called “Small Private Company”, being a corporate form proposed for a private company limited by shares with up to 20 shareholders and an annual turnover of not more than USD 5,000,000. The draft law includes transition and grandfathering provisions to allow affected companies a transition period into a new corporate form. In addition, it is expected that a specific period of time, potentially 12 months, will be given to DIFC LLCs to take all necessary actions to change the corporate structure;
- Enhanced director duties are proposed to be implemented by way of provision for seven explicit directors’ duties built into the proposed DIFC Companies Law, that are based on UK legal principles allowing to take UK jurisprudence into account. It is intended for these duties to be enforced through private actions, rather than by the Registrar of Companies (“RoC”). However, this will not alter the mandate of the RoC to monitor compliance and regulated entities will remain under the supervision of the DFSA;
- A new merger & acquisition scheme is being introduced to cater for the more sophisticated business environment. Having seen a more active M&A market in recent times, this will be a welcome change in the legislation at time to further foster investment into the DIFC;
- The account and audit obligations are proposed to be enhanced by way of imposing a duty for every company, with some exceptions for Small Private Companies, to prepare and file audited accounts meeting international standards with the RoC. Compliance with such obligations will be monitored and violations could be sanctioned;
- The proposed new DIFC Companies Law provides more powers to the RoC. Its rights are outlined in more detail and aspects such as the obligations on the RoC to reason its decisions, and provide options for the subject company to challenge decisions, illustrate the DIFC’s intention to adopt best practice policies and provide high standards of regulation to its underlying customers.
- While relevant details will be part of the new DIFC Companies Regulations, the RoC shall have enhanced flexibility in terms of licensing options, e.g. to provide short term licenses for specific projects or events, or exempt specific activities from license requirements. Not only could this provide investors with greater cost efficient solutions, but might also reduce time-consuming administrative tasks;
- In line with global developments, the proposed new DIFC Companies Law includes a whistle-blower protection regime, which we anticipate will contribute to a first-class business environment attractive to sophisticated investors and businesses, adding value to the DIFC and Dubai more broadly;
- The proposed dropping of par value restrictions and allowing for private companies to be incorporated without minimum capital requirement restrictions will be welcome changes, particularly where flexibility in this regard is an important criterion for new businesses to attract VC or private equity funding for growth.
The current draft of the proposed new DIFC Companies Law appears well considered and will, once adopted, assist DIFC companies to develop and grow in a business environment with greater certainty and international standard regulation. Existing DIFC entities may wish to start analysing the proposed changes and what impact the new laws may have on the company. Certain company policies and procedures may require amendment, and changes in corporate structures could be preferable for shareholders and new investors in the near future.