The Abu Dhabi Global Market (ADGM) has been operating for almost eighteen months. As it seeks to establish itself as a credible financial zone in the region, there has been a recent focus on highlighting its Special Purpose Vehicle (SPV) as a regional and international structuring vehicle.
The ADGM has implemented a comprehensive, costeffective and flexible SPV regime, which is becoming an increasingly popular choice for investors in the UAE and the wider MENA region.
A SPV is a corporate vehicle established for the purpose of isolating financial and legal risk by ring-fencing assets and liabilities. SPVs can be established as subsidiaries, project or joint venture vehicles, to ensure that only those assets related to a transaction are exposed to the liabilities associated with that transaction.
As the ADGM continues to attract both financial and nonfinancial firms, to act as a platform for growth in the capital and diversify away from Abu Dhabi's traditional income streams, we are seeing an increase in the number of SPVs being incorporated in the ADGM.
SPVs are being established in the ADGM for a variety of purposes, including, for example:
- Holding companies: SPVs can be used to hold interests in other entities, including onshore in the UAE (subject to compliance with foreign ownership restrictions).
- Real Estate Investments: SPVs may acquire title to real property onshore in the UAE, including the rights to Islamic-compliant property agreements such as Musatahas.
- Financing: SPVs can be used to ring-fence assets and investments and to facilitate securitisations.
- Intellectual Property: SPVs can be used to separate valuable IP into a stand-alone company with minimal liabilities which can be used to raise funds and enter into license agreements with third parties.
A SPV in the ADGM may be established either as a standard private company limited by shares or as a "restricted scope company" (RSC).
A RSC is required to make more limited information available on the ADGM public register (although full disclosure must be made to the ADGM Registrar). This makes it suitable for the structuring of entities where confidentiality is key, such as family offices. A RSC may only be incorporated as a subsidiary of an existing company which publishes group account or of a government company, or as a family office. If shares in a RSC are subsequently transferred such that the RSC no longer satisfies these ownership requirements, the RSC must be re-registered as a standard private company, at which point it will become subject to the usual disclosure regime.
Key attractions to setting up a SPV in the ADGM include:
- the set-up process is via an online portal;
- the ADGM's separate civil and commercial legal regime and court system, based on English common law;
- in most cases, there is no requirement to have corporate documents attested and legalised;
- no physical office space is required. SPVs are only required to provide to the ADGM Registrar a registered address. This can be the address of an agent, an existing company, a holding company or a virtual office. This considerably reduces set-up costs;
- there are no restrictions on nationality of share ownership;
- there is no minimum share capital, no maximum number of shares or shareholders and different classes of shares are permitted.
The DIFC has for some time offered a "special purpose company" (SPC) form. Unlike other DIFC companies, a SPC is not required to lease physical office space in the DIFC and is subject to reduced disclosure and filing requirements.
The following should, however, be noted in relation to SPCs:
- the use of SPCs is effectively limited to structured finance transactions - SPCs cannot be used as general corporate holding companies or to operate a trading business;
- SPCs may have a maximum of three shareholders and only a single class of shares; and
- a licensed Corporate Services Provider must be appointed to supply a registered office and the majority of the SPC's directors.
The DIFC has recently introduced a more flexible SPV offering, to allow "intermediate SPVs" for both regulated and non-regulated entities that already have a substantive presence in the DIFC. Intermediate SPVs benefit from an expedited, less expensive application process compared to the formation of standard DIFC companies and will not be required to enter into a new lease or acquire additional office space. Given their "intermediate" nature, however, DIFC SPVs may not act as either ultimate holding companies nor as operating entities.
The SPV regime in the ADGM appears to be well structured and flexible. However, only time will tell whether this will encourage the use of ADGM entities in regional and international investments and structuring.