Guide to lending and taking security in the Middle East

Middle East lending and taking security May 2014 LEGAL GUIDE second ED ITION

Contents 02 Preface 03 Overview 04 Bahrain 07 Dubai International Financial Centre 11 Egypt 14 Iran 18 Iraq 22 Jordan 25 Kuwait 30 Lebanon 34 Oman 38 Pakistan 43 Qatar 46 Saudi raAbia 51 United raAb mEirates 56 Yemen 59 Contributor contact details 60 Herbert mSith reFehills eyk onctacts 02 HERBERT SMITH FREEHILLS PREFACE This is the second edition of the Herbert Smith Freehills "Guide to lending and taking security in the Middle East" – an initiative sprung from our successful "Guide to lending and taking security in Asia". The guide is intended to provide business people and lawyers with a concise overview of the practical issues relevant to lending and taking security across some of the key jurisdictions in the Middle East. The guide owes much to the co-operation of the leading law firms who have contributed chapters on their respective jurisdictions. We would like to express our gratitude to them for their input. We hope that the guide will be a useful resource for understanding the fundamentals on lending and taking security across this important part of the world. As always, we welcome any feedback from readers. Please contact me if you have any suggestions or comments. Nadim Khan Partner Head of finance, Middle East Herbert Smith Freehills LLP T ƒ„…†‡ˆ‡ˆ‰Š‡‹ŒŽ‘‡ [email protected] PREFACE MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 03 UKRAINE GROUP TOKYO SYDNEY SINGAPORE SHANGHAI SEOUL SAUDI ARABIA GROUP PERTH PARIS NORDIC GROUP NEW YORK MOSCOW MELBOURNE MADRID LONDON LATIN AMERICA GROUP KAZAKHSTAN GROUP JAKARTA INDIA GROUP HONG KONG FRANKFURT DUBAI DOHA BRUSSELS BRISBANE BERLIN BELFAST BEIJING BANGKOK AFRICA GROUP ABU DHABI OVERVIEW OUR INTERNATIONAL PRESENCE We are one of the world's leading law firms. We advise many of the biggest and most ambitious organisations across all major regions of the globe. Our clients trust us with their most important transactions, disputes and projects because of our ability to cut through complexity and mitigate risk. We can help you thrive in the global economy. With 2,800 lawyers in offices spanning Asia, Australia, Europe, the Middle East and the US, we can deliver whatever expertise you need, wherever you need it. Because technical ability alone is not enough, we seek to build exceptional working relationships with our clients. By doing so, we are able to develop a deeper understanding of your organisation, give you commercially astute, innovative advice and deliver better business outcomes for you. In the Middle East, Herbert Smith Freehills has over 50 lawyers, including 11 partners, based in offices in Abu Dhabi, Doha and Dubai. OVERVIEW Herbert Smith Freehills oce Associated oce Group Legal services are provided in Indonesia, in Jakarta, through Herbert Smith Freehills LLP's ("HSF") association with Hiswara Bunjamin & Tandjung ("HBT"). HSF and HBT are two independent firms which have a formal association in Indonesia. 04 HERBERT SMITH FREEHILLS BAHRAIN BAHRAIN ZU'BI & PARTNERS Zu'bi & Partners (a new firm arising from a merger of Hatim S. Zu'bi & Partners and Qays H. Zu’bi Attorneys & Legal Consultants) provides a full range of legal services in Bahrain, other Gulf Cooperation Council countries and internationally, through its connections and associations in other parts of the world. The firm advises and acts for a wide range of local and foreign clients: corporate, institutional and private. Its offices are divided into groups, each specialising in a separate area of law. Each group liaises closely with other groups to provide each individual client and each particular case with the expertise required. The lawyers of the firm combine their expertise in their respective areas of specialisation with awareness of the needs of their clients. The firm was involved in redrafting the Commercial Companies Law No. 21 of 2001 and conducting a review of the draft Central Bank of Bahrain Financial Services and Markets Law. The firm has been engaged in general civil and commercial laws relating primarily to foreign investment, banking (including Islamic), insurance, shipping, corporate, commercial agencies, telecommunications, international trade, construction, intellectual property, joint ventures, labour, local and international litigation and arbitration. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    Bahrain    (the    borrower)?    Are    there     any    exemptions    available? Any person wishing to carry out regulated banking services in Bahrain on a commercial basis (which includes operating as a lender bank within Bahrain) requires a licence from the Central Bank of Bahrain (CBB). Exemptions may be granted only in very limited circumstances, for instance if a specific product is not available in Bahrain or by royal decree. Lending on a cross-border basis does not require a licence. ‰      What    are    the    consequences    of    making    a    loan    to    a     borrower    in    Bahrain    without    aŽlicence? Under the CBB Law, unlicensed banking activity (including lending) results in penal consequences: a fine of up to BD1 million confiscation of the proceeds of the crime any contract entered into will be void ‘      Will    a    borrower    based    in    Bahrain    have    to    deduct     amounts    for    withholding    tax    on    interest    payments     made    to    an    overseas    lender? There is no withholding tax in Bahrain. ’      Is    there    any    limit    to    the    level    of    interest    that    can    be     charged    on    loans    made    in    Bahrain? There is no prescribed maximum rate of interest, but in extreme cases the court would order a reduction in the rate. “      Is    it    possible    for    one    lender    to    agree    that    a    second     lender    may    be    preferred    over    the    first    lender    for     repayment    of    debt    irrespective    of    when    that    debt    was     incurred?    If    it    is    possible”    how    would    you    document     such    an    arrangement? This would be achieved by a subordination agreement. TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    Bahrain    or    a    guarantee     from    an    entity    incorporated    in    Bahrain? A lender does not necessarily have to be licensed or registered, but it is advantageous to appoint a local entity to hold security; there is no difficulty in receiving a guarantee. ˜      Does    the    taking    of    security    in    Bahrain    result    in    a     lender    being    liable    to    tax    in    Bahrain? No tax liability would arise. ™      Can    a    security    interest    be    taken    in    Bahrain    over    the     following    assets?  ­ Land It is possible to take security over land. The mortgage must be registered with the Survey and Land Registration Bureau. €­ Shares in a Bahraini company Shares may be mortgaged, but the mortgage must be registered: if a BSC (Bahraini shareholding company), with the share registrar if a WLL (limited liability company), with the Ministry of Industry and¨Commerce …­ Bank accounts All accounts may be charged by a document of charge. IRAN BAHRAIN SAUDI ARABIA KUWAIT IRAQ PAKISTAN SYRIA LEBANON TURKEY INDIA EGYPT BAHRAIN SAUDI ARABIA SAUDI ARABIA JORDAN KUWAIT MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 05 BAHRAIN ‡­ Receivables (rights under contracts) Receivables may be assigned, and notice of the assignment must be given to the debtor(s) for the assignment to be binding. Š­ Insurance Insurance proceeds may be assigned, and notice given to the insurer; an endorsement must be issued. Œ­ Floating charge over all assets There is no concept of a floating charge, as such, but creditors may enter into a business mortgage by which the debtor charges the business, including all assets, machinery, stock in trade and goodwill. The mortgage must be registered with the Ministry of Industry and Commerce and is valid for five years (renewable). š      Are    trusts    recognised    in    Bahrain?    If    not”    how    can     the    common    law    concept    of    a    security    trust    be catered    for? The Financial Trusts Law provides for the establishment of financial trusts; the trustee must register with the CBB, and the trust itself must also be registered. However, this concept of trust is different to the English law concept of trust and, in practice, is followed only when a trust is required for a substantial financing operation (eg, a sukuk issuance). Normally, parties rely on the agency concept, and a security agent (not trustee) is appointed. ›     Can    a    company    incorporated    in    Bahrain    (the     guarantor)    give    a    guarantee    for    the    debt    of    the     borrower?    If    the    borrower    is    incorporated    in    a    different     country”    would    the    guarantor    still    be    able    to    give    the     guarantee? A company incorporated in Bahrain may give a guarantee for the debt of a borrower if the granting of a guarantee is permitted by its articles of association. It makes no difference whether the borrower is incorporated in Bahrain or elsewhere.

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? Secured assets will be protected, but the following debts are preferred: certain costs relating to the declaration of bankruptcy employees' wages for 30 days before the declaration of bankruptcy amounts due to the General Organization for Social Insurance (the government department which administers private sector pensions for¨Bahraini employees and industrial injury compensation for all¨employees) claims resulting from payments made by the bankruptcy trustee personally (or a third person) towards the settlement of the above¨amounts ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or    does     a    lender    need    a    court    order    to    enforce    itsŽsecurity    or     claim    under    a    guarantee?    If    aŽcourt    order    or    court     involvement    is    required    for    security    enforcement    or     aŽguarantee    claim”    how    long    will    it    approximately    take     to    complete    an    enforcement    of    security    or    a     guaranteeŽclaim? In respect of shares and other papers, a chargee that is a financial institution licensed by the CBB may enforce without a court order. For all other securities, a court order is required. Proceedings may take six to twelve months. ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? A liquidator may not prevent payment unless "personal considerations" are proven. This expression is not defined in the law but has in the past been applied only to family disposition. ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving     guarantee    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? There are no such laws in Bahrain. “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    government    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? Mortgages of land, shares and the business of the mortgagor must be registered. In the absence of registration, they are not valid. —     Does    any    security    or    guarantee    give    riseŽto    any     stamp    dutyœtaxesœregistration    fees? No taxes or stamp duty are payable. A nominal fee is payable on registration of a mortgage in the Survey and Land Registration Bureau. ˜      Is    it    possible    to    grant    a    lender    security    over    an     asset    which    has    already    had    security    granted    over    it    to     another    person?    If    it    is    possible”    how    would    you     normally    document    such    an    arrangement? It is possible to grant second, third, etc. chargees, but the previous chargees must give consent. REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries?   ­ Oil/gas These are under government control.  €­ Electricity Electricity generation is, to some extent, privatised, but acquisition is subject to approval of the government.  …­ Natural resources/mines All natural resources, mines, etc. belong to the Kingdom.  ‡­ Telecoms These companies are regulated by the Telecommunications Regulatory Authority under statutory powers. š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    the    industries    listed    above? There are no specific laws on taking security in these industries. Electricity generation is, in part, privatised, and telecoms are all in the private sector – shares and assets of such companies are subject to the same security procedures as those of any other company. All natural resources, mines, etc. belong to the Kingdom. It is possible to take security over such assets, but it is not possible to execute judgment over such assets which are immune from execution. GOVERNING LAW 06 HERBERT SMITH FREEHILLS BAHRAIN ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    Bahrain? English law will be recognised and applied by the Bahrain courts if: the relevant provisions of English law are proved to the satisfaction of the Bahrain court such provisions do not conflict with any mandatory provision of Bahrain law, or with Bahrain public policy or ethics An English court judgment will not be enforceable in Bahrain as there is no reciprocity. Zu'bi & Partners GBCorp Tower, 16th Floor Building 1411, Road 4626, Block 346 Bahrain Financial Harbour District PO Box 2397 Manama Kingdom of Bahrain T ƒ„…Œ‡†‡…‘Œ‡Š‹ŽŽ F ƒ„…Œ‡†‡…‘Œ‡‰Œˆ‰ [email protected] www.zubipartners.com 07 DUBAI INTERNATIONAL FINANCIAL CENTRE (DIFC) DUBAI INTERNATIONAL FINANCIAL CENTRE (DIFC) The United Arab Emirates (UAE – see separate chapter in this guide) has a large number of free zones which are located throughout the country. Entities established in a free zone are normally granted tax advantages and may be wholly owned by foreign (non-UAE) nationals but are generally restricted to operating within that free zone only. One of these free zones is the Dubai International Financial Centre, which is established as an onshore financial centre in Dubai. The DIFC was established in 2004 after a change in the UAE’s Constitution and the enactment of a number of federal laws on the creation and establishment of financial free zones in the UAE. The DIFC has its own civil and commercial laws although UAE law is applicable in certain cases. Its legislative system is largely consistent with the English common law system. An independent judicial system provides for court jurisdiction and an arbitration centre. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    the    DIFC    (the    borrower)?    Are    there     any    exemptions    available? As a general rule, a lender based in the DIFC who carries on the activity of providing a credit facility to a borrower based in the DIFC, where that activity is carried on by way of business, must hold a Category 2 licence to carry on financial services from the Dubai Financial Services Authority (DFSA). Overseas lenders providing a credit facility to a borrower based in the DIFC do not require a licence. ‰      What    are    the    consequences    of    making    a    loan    to    a     borrower    in    the    DIFC    without    aŽlicence? Where a loan is made to a borrower based in the DIFC in circumstances where the lender is not licensed to do so and a licence is required under the regulations, a number of remedies are available to the DFSA under the Regulatory Law and the DFSA’s Enforcement (ENF) Rulebook. These include the following: a fine of US$100,000 per contravention compensation or restitution injunctions and restraining orders unlimited fines through the Financial Markets Tribunal (the FMT) a DIFC banning order through the FMT Unauthorised lenders in breach of the Financial Services Prohibition section of the Regulatory Law will also face censure by way of publication of any enforcement action. Finally, any lending agreement made in breach of the Financial Services Prohibition will be rendered unenforceable. ‘      Will    a    borrower    based    in    the    DIFC    have    to    deduct     amounts    for    withholding    tax    on    interest    payments     made    to    an    overseas    lender? No withholding tax is levied in the DIFC on interest payments made by a DIFC-based borrower to an overseas lender. ’      Is    there    any    limit    to    the    level    of    interest    that    can    be     charged    on    loans    made    in    theŽDIFC? No specific DIFC laws or regulations put an express limit on the amount of interest that can be charged on commercial loans made in the DIFC – the DIFC courts may refer to English law precedents in case of a dispute in relation to the level of interest. The DIFC Contract Law provides that interest for failure to pay money (ie, default interest) will be calculated in line with the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, as well as additional damages where¨applicable. “      Is    it    possible    for    one    lender    to    agree    that    a    second     lender    may    be    preferred    over    the    first    lender    for     repayment    of    debt    irrespective    of    when    that    debt    was     incurred?    If    it    is    possible”    how    would    you    document     such    an    arrangement? This is possible and may be documented by way of a subordination agreement. TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    the    DIFC    or    a    guarantee     from    an    entity    incorporated    in    the    DIFC? There are no licensing or registration requirements in the DIFC for a lender wanting to take security over DIFC assets or to receive a guarantee from a DIFC entity. HERBERT SMITH FREEHILLS MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY IRAN SAUDI ARABIA KUWAIT OMAN IRAQ PAKISTAN SYRIA LEBANON TURKEY YEMEN UNITED ARAB EMIRATES DUBAI EGYPT 08 HERBERT SMITH FREEHILLS DUBAI INTERNATIONAL FINANCIAL CENTRE (DIFC) ˜      Does    the    taking    of    security    in    the    DIFC    result    in    a     lender    being    liable    to    tax    in    the    DIFC? The creation of security in the DIFC would not result in a lender being liable to tax in the DIFC. ™      Can    a    security    interest    be    taken    in    the    DIFC    over     the    following    assets?  ­ Land Security over land can be created in accordance with the DIFC Real Property Law. The mortgage must be registered. To be registered, a mortgage must include: a description sufficient to identify the real property a description sufficient to identify the interest to be mortgaged a description of the debt or liability secured by the mortgage €­ Shares in a DIFC company It is possible to take security over shares in a DIFC-incorporated entity in accordance with the DIFC Law of Security. The Law of Security takes a generic approach. It does not distinguish between forms of security interest based on the asset secured although the Real Property Law makes it clear that this law does not apply to real property. The Law of Security applies, subject to certain exceptions, to: (i) “a transaction, regardless of its form, that creates a security interest in personal property or real property by contract”, and (ii) “a sale of receivables or promissory notes”. A security interest created under the Law of Security needs to “attach” to become effective. Attachment occurs on fulfilment of the following conditions: value has been given the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party one or both of the following conditions is met: (i) the debtor is bound by a security agreement that provides a description of the collateral, and/or (ii) the collateral is a negotiable instrument of title, a negotiable instrument, money, deposit account or financial property, and the secured party has control under the debtor’s security agreement Please see Question 15 for perfection requirements. …­ Bank accounts Security can be taken over bank accounts. In addition to the general rules of the Law of Security (see 8.2 above), the Security Regulations (issued under the Law of Security) set out further requirements for Financial Collateral (defined as “financial property held in an Investment Account and money held in an Investment Account or a Money Claim of, or against, an Intermediary”) in relation to perfection and priority. ‡­ Receivables (rights under contracts) Security can be taken over receivables in accordance with the Law of¨Security. Š­ Insurance Security can be taken over insurances in accordance with the Law of¨Security. Œ­ Floating charge over all assets It is possible to create a security interest that has some advantages similar to those of an English law floating charge. The Law of Security provides for the creation of security over after-acquired collateral or future advances, along with the debtor’s ability or right to use, commingle or dispose of all or part of the collateral or its proceeds. š      Are    trusts    recognised    in    the    DIFC?    If    not”    how    can     the    common    law    concept    of    a    security    trust    be catered    for? The trust concept is recognised in the DIFC and has been codified in the DIFC Trust Law. The Trust Law stipulates that a foreign trust will be enforceable in the DIFC, unless: it purports: (i) to do anything which is contrary to DIFC law or (ii) to confer any right or power, or impose any obligations, the exercise of which is contrary to DIFC law; or the DIFC court declares that the trust is immoral or contrary to DIFC¨policy ›     Can    a    company    incorporated    in    the    DIFC    (the     guarantor)    give    a    guarantee    for    the    debt    of    the     borrower?    If    the    borrower    is    incorporated    in    a    different     country”    would    the    guarantor    still    be    able    to    give    the     guarantee? A company incorporated in the DIFC may provide a guarantee for the debt of a borrower, whether the borrower is located inside or outside the DIFC or the UAE, if the granting of the guarantee is in accordance with the company’s articles of association and also after obtaining necessary approvals.

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? Secured assets do not form part of the pool of assets available to satisfy the claims of general creditors of the borrower and will be protected. An administrative receiver may obtain the permission of the DIFC court to dispose of a secured asset if the court is satisfied that this would lead to a more advantageous realisation of the company’s assets. However, the security holder will retain priority in the distribution of the net proceeds of disposal. According to the DIFC Preferential Creditors Regulations, preferential creditors are employees, and the preferential payments owed to them are contributions to pensions, service gratuity payments, remuneration in lieu of notice and compensation for accrued holiday leave. Expenses of a winding-up and preferential creditors take priority over debts secured by a security interest of all or substantially all of the undertakings or assets of a company but not over other secured creditors, who will be paid out of the realisation of the secured assets. ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or    does     a    lender    need    a    court    order    to    enforce    its    security    or     claim    under    a    guarantee?    If    a    court    order    or    court     involvement    is    required    for    security    enforcement    or    a     guarantee    claim”    how    long    will    it    approximately    take     to    complete    an    enforcement    of    security    or    a    guarantee     claim? Subject to compliance with the terms of the security, a lender can generally enforce its security freely after default by the borrower without the need to obtain a court order. The Law of Security stipulates that after a default, a secured party has the rights and remedies provided: (i) by the Law of Security and (ii) by agreement of the parties. First, the secured party must notify the obligor to pay or render performance. The secured party can take any proceeds it is entitled to under the Law of Security. 09 DUBAI INTERNATIONAL FINANCIAL CENTRE (DIFC) After a default, a secured party may take possession of the collateral (subject to any prior security interest) and dispose of it, such as through selling, leasing or licensing any or all of the collateral. The debtor and relevant other parties specified in the Law of Security must be notified by the secured party before disposal of the collateral. If the secured party holds a security interest in a deposit account perfected by control, it may apply or cause the bank to apply the balance of the deposit account to the obligation secured by the account. The registered mortgagee of real property has the following powers on default by the mortgagor (provided he has given notice in accordance with the Real Property Law): to sell the whole or part of the property (by tender, public auction or private sale) to sever and sell fixtures apart from the balance of the real property to sell easement, right or privilege of any kind in relation to the real property to enter into possession of the real property and receive rights and profits from it to foreclose (via a court order) It should be noted that the mortgagor is taken to have a right of redemption ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? A liquidator or creditor may seek to prevent the enforcement of a security interest only on the basis that the security was invalid, voidable or subject to a moratorium. Where a receiver, liquidator or provisional liquidator is appointed, they may apply to court to have a security interest or a guarantee set aside where it constitutes a preference or a transaction at undervalue and has been created within two years (for a connected party) or within six months (for an unconnected party) of insolvency. Where there is a company voluntary arrangement, an application may be made to the DIFC court, which, if granted, will restrict the enforcement of any security. The main limitations are that the company will not be eligible for a company voluntary arrangement if it: is already subject to insolvency proceedings has incurred a liability under an agreement of US$20 million or more is a party to a capital market arrangement ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving    a     guarantee    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? The DIFC Companies Law defines financial assistance to include, amongst other things, granting security and providing guarantees by a company limited by shares in relation to the acquisition of shares in itself or in a holding company. It prevents a company limited by shares from providing financial assistance, unless: the giving of the financial assistance does not materially prejudice the interests of the company or its shareholders, or the company’s ability to discharge its liabilities as they fall due, and the financial assistance is approved in a shareholders resolution; the company’s ordinary business includes providing finance, and the financial assistance is given in the ordinary course of business and on ordinary commercial terms; or the financial assistance is of a kind prescribed in the DIFC Company Regulations of 2009 as exempted Special purpose companies are allowed to give financial assistance. Under the DIFC Special Purpose Company Regulations (SPCoR), special purpose companies incorporated in the DIFC may only undertake Exempt Activities, which is defined in the Special Purpose Company Regulations to include “the obtaining of any type of financing, the granting of any type of security interest over its assets, the providing of any indemnity or similar support for the benefit of its shareholder(s) or any of its subsidiaries, or the entering into any type of hedging arrangements, in connection with and for the purpose of the transaction in connection with which the special purpose company has been incorporated.” “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    government    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? Land mortgage A real property mortgage must be registered with the Registrar of Real Property. It has to be filed without delay. Non-registration affects the enforceability of the mortgage. Other types of security A security interest is considered perfected if: (i) it has attached (see Question 8) and (ii) a “financing statement” on the security has been filed with the Security Registrar. A duly filed financing statement is effective for five years after the date of filing. After that, its effectiveness lapses unless a continuation statement is filed. There are a number of exceptions in relation to the filing of a financing statement, such as security over money held in an “Investment Account” (as defined in the DIFC Personal Property Law) and certain assignments of receivables or security of a kind as specified in the Security Regulations (perfected through possession or control of the collateral¨etc.). The time period for filing is 20 days (provided that the goods or the document of title representing the goods have been made available). The consequence of not filing within the required timeframe is that the security is not perfected. This would influence priority between two or more security interests in the same collateral. According to the business rules of NASDAQ Dubai, security over listed shares must be registered through the submission of a pledge instruction in favour of a pledgee to NASDAQ Dubai’s central securities depository. —     Does    any    security    or    guarantee    give    rise    to    any     stamp    dutyœtaxesœregistration    fees? The granting of security and guarantees does not give rise to stamp duty or taxes in the DIFC. However, registration fees are payable in connection with the granting of security. A land mortgage must be registered with the Registrar of Real Property. Mortgage registration documents are subject to a US$100 submission fee, unless the property has not yet been registered with the Registrar of Real Property. In such case, there will be an additional fee of 3.5% of the value of the property. Other types of security may be registered by submitting a financing statement to the Security Registrar. Submission of a financing statement is subject to a fee of one per mille of the value of the security perfected, with a minimum of US$250 and a maximum of US$5,000. Addenda or amendments to a submitted financing statement incur additional fees. MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 10 HERBERT SMITH FREEHILLS DUBAI INTERNATIONAL FINANCIAL CENTRE (DIFC) ˜      Is    it    possible    to    grant    a    lender    security    over    an     asset    which    has    already    had    security    granted    over    it    to     another    person?    If    it    is    possible”    how    would    you     normally    document    such    an    arrangement? Under the Law of Security, where there are two or more security interests, it is possible to have multiple security interests over the same collateral. The order of priority is determined by: (i) the existence and timing of perfection of the security interests and (ii) where the security interests have not been perfected, the existence and timing of attachment of the security interests. Conflicting security interests rank according to priority in time of perfection. A perfected security interest has priority over a conflicting unperfected security interest. The first security interest to attach has priority where there are unperfected conflicting security interests. Persons entitled to priority can subordinate this right by agreement. For real property (governed by the Real Property Law), a subsequent mortgage over real property can be registered only if all prior registered mortgagees have consented to the registration. REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries?   ­ Oil/gas  €­ Electricity  …­ Natural resources/mines  ‡­ Telecoms No specific laws in the DIFC prevent the acquisition of DIFC companies or assets in the above industries because: (i) the DIFC is a financial free zone, where these industries are not present at operating level and (ii) the DIFC’s free zone structure allows for 100% foreign ownership of DIFC-incorporated entities. However, a DIFC company, partnership or association that holds a licence as an “Authorised Person” (for example, a bank, asset manager, fund operator or financial adviser) requires DFSA pre-approval for any change of control in its shares or interests exceeding 10% (whereby there is an increase in holding). If the Authorised Person acts as a holding company for a UAE company, UAE foreign ownership restrictions may be applicable on a “look-through” basis. See Question 18 of the UAE country chapter for more information. Additional rules apply for acquisition of companies listed on NASDAQ¨Dubai. š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    the    industries    listed    above? No specific laws prevent the taking of or enforcement of security in relation to shares in or assets of companies incorporated in the DIFC. If the enforcement of security over DIFC shares or assets leads to a change in control or relates to listed shares, DFSA approval and/or the UAE foreign ownership restrictions may be applicable (see Question¨18¨above). GOVERNING LAW ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    the    DIFC? Judgments, awards and orders of any foreign court may be enforced within the jurisdiction of the DIFC. The enforcing party must apply to the DIFC court for ratification of the judgment or award, and execution by the judge. This application can be made without notice. Where enforcement is sought under the auspices of the Riyadh Convention, the Gulf Cooperation Council Convention or a bilateral treaty, the jurisdiction of the court that issued the judgment will not be open to review as the foreign judgment is directly enforceable. However, if there is no treaty in place, the court has the power to re-examine the merits of the case. The grounds for dismissing an application for ratification of an award (see below) also apply to foreign judgments (mutatis mutandis). In relation to arbitral awards, the UAE is a signatory to the New York Convention, and the DIFC is considered to fall within the UAE for this purpose. Those holding arbitral awards made in a contracting state to the New York Convention may apply to the DIFC court to enforce the award as if it were made within the DIFC. The DIFC court will, following receipt of an enforcement application, issue a ratification decree in English and in Arabic, unless: (i) the award has not yet become binding on the parties, (ii) the award has been set aside or suspended by a court in the jurisdiction in which it was made, or (iii) there are grounds of appeal under DIFC law (eg, that the award is contrary to the public policy of the UAE). Herbert Smith Freehills LLP Dubai Dubai International Financial Centre Gate Village 7, Level 4 PO Box 506631 Dubai, UAE T ƒ„…†‡ˆ‡ˆ‰Š‡‹ŒŽŽ F ƒ„…†‡ˆ‡Œ‹‘‡Œ†…† Herbert Smith Freehills LLP Abu Dhabi Level 23 Al Sila Tower Sowwah Square, Al Maryah Island PO Box 106178 Abu Dhabi, UAE T ƒ„…†‡‰‡Š†Œ‡‘ŽŽŽ F ƒ„…†‡‰‡Š†Œ‡‘†ŽŽ Herbert Smith Freehills Middle East LLP Doha Tornado Tower West Bay PO Box 24947 Doha, Qatar T ƒ„…ˆ‡ˆ‡ˆ‰„‡ˆŽŽŽ F ƒ„…ˆ‡ˆ‡ˆ‰„‡ˆŽŽ† Herbert Smith Freehills LLP is registered in Dubai with the Dubai International Financial Centre (DIFC) with professional licence number CL0330, in Abu Dhabi with the Department of Planning and Economy with professional licence number 1145121 and in Doha with the Qatar Financial Centre Authority with professional licence number 00149. Further information is available from www.herbertsmithfreehills.com MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 11 EGYPT Shalakany Law Office is a leading firm in Egypt and the Middle East, providing personalised quality legal services to a broad base of multinational, regional and premium local clients through its offices in Cairo, Alexandria and Dubai. Founded in 1912 by Abdel Fattah El Shalakany, the President of the Egyptian Bar Association in the 1950s, Shalakany Law Office is the longest established firm in Egypt. The firm's practices include banking, corporate, project finance, construction, intellectual property, insurance and labour law. Shalakany Law Office has one of the best dispute resolution teams in Egypt, handling over 800 ongoing cases annually before all levels and types of courts. The firm is the exclusive member for Egypt of Lex Mundi, a worldwide network of independent law firms covering more than 100¨countries. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    Egypt    (the    borrower)?    Are    there     any    exemptions    available? Whether or not a lender will require a licence depends on how the funds for lending are raised and for what purpose the loan is granted. The Egyptian Banking Law stipulates that an entity that is not established and licensed in accordance with the Banking Law is prohibited from carrying out banking activities such as accepting deposits and borrowing funds for the purposes of granting loans and credit facilities. In practice, foreign lenders (ie, lenders not established in accordance with the Egyptian Banking Law and without a branch in Egypt) do not require a licence to lend to an Egyptian entity. ‰      What    are    the    consequences    of    making    a    loan    to    a     borrower    in    Egypt    without    a    licence? According to the Egyptian Banking Law, a person or an entity, whether Egyptian or foreign, that carries out banking activities without a licence is subject to imprisonment and/or a fine of minimum EGP5,000 and maximum EGP50,000. ‘      Will    a    borrower    based    in    Egypt    have    to    deduct     amounts    for    withholding    tax    on    interest    payments     made    to    an    overseas    lender? Interest paid by Egyptian entities residing in Egypt or permanent Egyptian establishments to non-resident persons is taxable by 20%, which may be reduced under a tax treaty. Depending on the jurisdiction where the overseas lender is located, there may also be a taxation treaty in place that will reduce the withholding tax liability of the overseas lender. Interest on loans and credit facilities is exempt from this withholding tax if the loan or credit facility lasts three years or more. ’      Is    there    any    limit    to    the    level    of    interest    that    can    be     charged    on    loans    made    in    Egypt? Interest on loans regulated by the Civil Code cannot exceed 7%. Interest on loans regulated by the Commercial Code cannot exceed the rate set by the Central Bank of Egypt. Loans regulated by the Egyptian Banking Law allow a bank and its client to agree on any interest rate they see fit; typically, the interest on the loan is linked to the rate set by the Central Bank of Egypt. “      Is    it    possible    for    one    lender    to    agree    that    a    second     lender    may    be    preferred    over    the    first    lender    for     repayment    of    debt    irrespective    of    when    that    debt    was     incurred?    If    it    is    possible”    how    would    you    document     such    an    arrangement? Yes, this is possible. Typically, this arrangement is effected through an intercreditor agreement between the lenders. TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    Egypt    or    a    guarantee    from     an    entity    incorporated    in    Egypt? No, a lender does not have to be registered in Egypt to take security over assets or a guarantee from an entity incorporated in Egypt. However, some securities, such as fonds de commerce mortgages, can be granted to foreign banks after obtaining the Ministry of Trade's approval to be granted fonds de commerce mortgages in Egypt. ˜      Does    the    taking    of    security    in    Egypt    result    in    a     lender    being    liable    to    tax    in    Egypt? The taking of security does not result in tax liability in Egypt. ™      Can    a    security    interest    be    taken    in    Egypt    over    the     following    assets?  ­ Land Yes, by virtue of a real estate mortgage, which must be registered with the competent notary public office. EGYPT SHALAKANY LAW OFFICE IRAN SAUDI ARABIA OMAN IRAQ SYRIA LEBANON TURKEY YEMEN QATAR UNITED EGYPT 12 HERBERT SMITH FREEHILLS EGYPT €­ Shares in an Egyptian company Security over shares can be created by virtue of a share pledge. The pledgor is bound to deliver the pledged property to the creditor or to a third person (eg, a security agent) chosen by the contracting parties to hold the property on behalf of the creditors until the secured obligations are fully discharged. …­ Bank accounts Yes, by way of a pledge of accounts. However, accounts with a fluctuating balance such as current accounts cannot be pledged. ‡­ Receivables (rights under contracts) Yes, by way of an assignment of right, where the relevant agreement does not restrict such assignment. Š­ Insurance Yes, the borrower may execute insurance policies and name the lender as the beneficiary. Œ­ Floating charge over all assets The concept of a floating charge is not recognised under Egyptian law. š      Are    trusts    recognised    in    Egypt?    If    not”    how    can    the     common    law    concept    of    a    security    trust    be    catered     for? The common law concept of a security trust is not recognised in Egypt. However, it can be catered for through the use of a security agent, who can act and hold the secured assets on behalf of the lenders. It is uncertain how the Egyptian courts would interpret a parallel debt structure. ›     Can    a    company    incorporated    in    Egypt    (the     guarantor)    give    a    guarantee    for    the    debt    of    the     borrower?    If    the    borrower    is    incorporated    in    a    different     country”    would    the    guarantor    still    be    able    to    give    the     guarantee? Subject to any restrictions in its articles of association, an Egyptian company can guarantee the debt of a borrower, even if the borrower is incorporated in a different jurisdiction.

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? On insolvency, the secured lender has first priority over the secured assets. General creditors benefit from the proceeds of a secured asset only once the secured obligations of the secured lender have been fully discharged. Claims that have priority over the security are: all employee entitlements for the past six months alimony due by the debtor for the past six months judicial expenses relating to the preservation or sale of the debtor's assets have priority over the proceeds of these assets taxes, fees and other payments due to the national treasury ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or    does     a    lender    need    a    court    order    to    enforce    its    security    or     claim    under    a    guarantee?    If    a    court    order    or    court     involvement    is    required    for    security    enforcement    or    a     guarantee    claim”    how    long    will    it    approximately    take     to    complete    an    enforcement    of    security    or    a     guarantee    claim? Most types of security can be enforced without a court order, except for registered security (eg, real estate mortgages and fonds de commerce mortgages (see Question 15)) and share pledge agreements in case the pledge is a foreign bank. The court process for enforcement is usually slow and, depending on the complexity of the claim, it may take years until a final judgment is achieved. ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? The liquidator or creditor could intervene if the security or guarantee is in dispute or was granted during the cessation of payment period. The cessation of payment date is the start of the clawback period and is decided by the court during insolvency proceedings. ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving     guarantee    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? There are no financial assistance restrictions under Egyptian law. However, if the acquirer is a member of the company's board of directors, the target cannot grant the acquirer any financial assistance, grant security or give a guarantee to the acquirer. “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    government    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? Real estate mortgages and fonds de commerce mortgages must be registered to be perfected vis-à-vis third parties. A bank account is pledged through the annotation of the account before the bank. A pledge of shares must be endorsed on the corresponding shares certificates. In addition, it must be annotated in the company's shares register. The share pledge agreement does not have to be notarised or registered, unless the shares are centrally deposited, in which case the share pledge must be registered with Misr for Central Clearing, Depository and Registry. A fonds de commerce mortgage is a mortgage over all tangible and intangible assets of the borrower. Fonds de commerce mortgages include, amongst others, all tangible assets, intellectual property rights and licences and permits. Note that fonds de commerce mortgages can be granted only to banks registered with the Central Bank of Egypt and financial institutions licensed by the Ministry of Trade (please see response to Question 6 above). Security over insurance policies and receivables is perfected through notice or acknowledgment, as both insurance policies and receivables are considered an assignment of right. The timeframe for registering a real estate mortgage is between five and six months, and the timeframe for registering a fonds de commerce mortgage is one month. Note that if the above registration procedures are not complied with, the security will not be enforceable vis-à-vis third parties, ie, the lender will not have a first ranking right over the security. MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 13 EGYPT —     Does    any    security    or    guarantee    give    rise    to    any     stamp    dutyœtaxesœregistration    fees? All securities give rise to a stamp duty amounting to 90 piasters per page for the security agreement, but only mortgages give rise to registration fees upon registration and renewal (every 10 years). However, no taxes are payable in relation to the registration. Registration fees for real estate mortgages and fonds de commerce mortgages are based on a percentage of the loan amount. The Banking Law provides for maximum fees to be paid in relation to the mentioned mortgages executed in the favour of a bank which is registered with the Central Bank of Egypt: EGP25,000 if the loan is equal to or less than EGP10 million EGP50,000 if the loan is equal to or less than EGP20 million EGP75,000 if the loan is equal to or less than EGP30 million EGP100,000 if the loan exceeds EGP30 million These amounts may increase where the mortgage is not executed in favour of a bank registered with the Central Bank of Egypt. ˜      Is    it    possible    to    grant    a    lender    security    over    an    asset     which    has    already    had    security    granted    over    it    to    another     person?    If    it    is    possible”    how    would    you    normally     document    such    an    arrangement? Yes, this is possible. This arrangement would be a second-ranking mortgage and must be registered with the competent notary public office. REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries? The oil and gas, electricity, natural resources/mines, telecoms and infrastructure sectors are heavily regulated and almost all transfers would require regulatory approval. š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    the    industries    listed    above? Laws prevent the granting of security in relation to specific assets of companies in the sectors mentioned in Question 18 above. Generally, these sectors are heavily regulated. The regulator will ensure that any security granted is not contrary to the public interest. GOVERNING LAW ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    Egypt? A court in Egypt would uphold the choice of English law and the submission by the parties to the English courts provided that: the foreign courts offer reciprocal treatment to judgments obtained in the courts of Egypt. No treaty exists between Egypt and the UK for the enforcement of court judgments. Hence, the Egyptian courts will re-examine the merits of the case in the same manner as the English courts; the courts of Egypt are not exclusively competent to hear the dispute which constituted the object of the foreign judgment while the foreign courts are shown to have been competent to hear the dispute in accordance with their own respective laws; the parties to the dispute were duly notified and properly represented in the hearings; the foreign judgment does not conflict with a prior Egyptian judgment in the same case and is not contrary to public order or morality in Egypt Shalakany Law Office 12 El Marashly Street Zamalek Cairo 11211 Egypt T +202 272 88888 F +202 273 70661 [email protected] www.shalakany.com 14 HERBERT SMITH FREEHILLS IRAN IRAN ATIEH ASSOCIATES LAW FIRM Atieh Associates Law Firm is the leading law firm in Iran providing legal services exclusively to foreign companies and investors. Atieh Associates has been hailed as the top law firm in Iran for foreign investors by publications such as Chambers & Partners, Legal 500 and IFLR. The firm focuses on various aspects of foreign investment in multiple areas, including oil and gas, privatisation, telecommunications, energy, mining, finance, joint ventures, project finance, acquisitions and agencies. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    Iran    (the    borrower)?    Are    there    any     exemptions    available? Where a lender is conducting business as a lender in Iran and such activity is considered a "banking activity" under the Monetary and Banking Law 1972, a banking licence issued by the Central Bank of Iran (CBI) is required. Furthermore, the Law Organizing the Non-Institutional Money Market 2005 prohibits any banking activity by real and/or legal persons without first having obtained a banking licence. The law defines banking activity as "acting as an intermediary between the suppliers and applicants of funds and credit by way of the taking of funds, deposits and the like in any manner and granting loans, credits and other facilities and the issuances of electronic payment cards and credit cards". No licence to lend money is required if the loan is made from another jurisdiction. ‰      What    are    the    consequences    of    making    a    loan    to    a     borrower    in    Iran    without    a    licence? Where a banking licence is required, the consequences for making a loan without a licence is that such activity will amount to an offence which can be discontinued by the law enforcement authorities upon the request of the CBI. Furthermore, the offender will be sentenced to up to six months' imprisonment. A failure to comply with licensing requirements will not automatically void the financial agreements, unless the court renders a judgment on termination of such agreements based on public order considerations. ‘      Will    a    borrower    based    in    Iran    have    to    deduct     amounts    for    withholding    tax    on    interest    payments     made    to    an    overseas    lender? The Iranian tax authorities may impose tax on loans made by foreign entities under the Direct Taxation Act 1988 (as amended) (the DTA) and the Circular 7304 dated 24 April 2007 (the Circular). Under the Circular, the deemed income is assessed by the tax authorities on the basis of tables issued by it following an enquiry made by the borrower. The deemed taxable income is then subject to taxation at a flat rate of 25% and collected by way of withholding tax. Such amount must be paid by the borrower within 10 days of payment of any amount of interest. The legality of such taxation has been disputed by practitioners although until a judicial review is conducted on the practice of the tax authorities, the position of the tax authorities will prevail. ’      Is    there    any    limit    to    the    level    of    interest    that    can     be    charged    on    loans    made    in    Iran? Under the Iranian Constitution, all laws and regulations in Iran must comply with the rules of Shari'ah. Parliament and the government cannot, therefore, enact or issue laws, by-laws or directives that may contravene the rules of Shari'ah. Contracts that are contrary to the rules of Shari'ah will not be enforced by the Iranian courts. One of the foremost principles of Shari'ah is the prohibition on the payment of interest. This has also been reflected in the Iranian Constitution and in applicable laws such as the Usury (Interest) Free Banking Operations Law 1983. As a result, the payment of interest is not legal in any form whatsoever. Such prohibition does not, however, seem to be universally applied, including by the CBI. There are high-profile examples of instances where interest has been paid, particularly in relation to participation bonds issued and the payment of interest to foreign creditors who supply foreign exchange loans and credits for the major Iranian oil and gas buy-back projects. Furthermore, local banks make payment of profit (ie, interest) on deposits and charge such profit on loans under what are considered to be Shari'ah-compliant structures. As to lending by local banks, the CBI publishes its Banking and Monetary Packages on an annual basis. These packages determine the level of profit in exchange agreements (eg, instalment sales, murabaha and ijara) and participation agreements (eg, musharaka, mudaraba). For the Iranian year 1390 (21 March 2011 to 20¨March 2012), the profit determined for exchange agreements is set between 11% and 14%, and for participation agreements between 14% and 17%. The final profit rate for participation agreements must be determined after completion of a project and is calculated based on the project's actual proceeds. IRAN SAUDI ARABIA KUWAIT OMAN IRAQ PAKISTAN AFGHANISTAN SYRIA YEMEN QATAR UNITED ARAB EMIRATES DUBAI EGYPT MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 15 IRAN “      Is    it    possible    for    one    lender    to    agree    that    a    second     lender    may    be    preferred    over    the    first    lender    for     repayment    of    debt    irrespective    of    when    that    debt    was     incurred?    If    it    is    possible”    how    would    you    document     such    an    arrangement? Yes, this is possible. Such an arrangement can be contractually agreed and would be enforceable between the parties, but would not prevail if a debtor is declared insolvent or other creditors take action against the debtor. The arrangement would also not prevail over third parties. TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    Iran    or    a    guarantee    from    an     entity    incorporated    in    Iran? There are no licensing or registration requirements in Iran for a lender who wants to take security over assets. ˜      Does    the    taking    of    security    in    Iran    result    in    a    lender     being    liable    to    tax    in    Iran? The taking of security does not result in tax liability in Iran. ™      Can    a    security    interest    be    taken    in    Iran    over    the     following    assets?  ­ Land Security over land is created by way of a mortgage. To be enforceable, a mortgage must be registered with a notary public and with the Documents and Estates Registration Office. €­ Shares in an Iranian company As a matter of practice, shares can be pledged. However, certain Iranian jurists contend that the taking of a security interest over shares is not possible under Iranian law on the basis that shares are intangible assets which cannot be used as security. The practice of many notaries who register such security interests and the Tehran Stock Exchange, however, clearly indicates otherwise. …­ Bank accounts No. Banking laws and practices do allow the taking of a bank account as security. One way to put into effect such security would be to obtain an irrevocable power of attorney from the account holder, such power to be approved by the bank once issued. This would, however, only give the secured party the same (but not more) rights over the bank account as the account holder. ‡­ Receivables (rights under contracts) It is not possible to create a security interest over rights under a contract. To reach a similar result, the person receiving the sum under the relevant contract can assign its rights to such receipt. Š­ Insurance No. A security interest cannot be created over rights under a contract. To reach a similar result, the person receiving the sum under the relevant insurance contract can assign its rights to such receipt. Œ­ Floating charge over all assets Although floating charges over all assets are taken by banks as part of the loan agreement into which they enter, the enforceability of such security is questionable, in particular with respect to assets acquired in the future. Under Iranian law, no security can be taken over assets which do not exist at the time the security contract is concluded. š      Are    trusts    recognised    in    Iran?    If    not”    how    can    the     common    law    concept    of    a    security    trust    be    catered     for? The concept of a trust is recognised under the Iranian Civil Code and can be used to put into effect a contractual arrangement whereby a security trust can be created although the use of the concept of trust in such arrangements is neither commonplace nor developed. A security agency or parallel debt can also be created using a contractual arrangement under the freedom of contract provisions of the Iranian Civil Code. ›     Can    a    company    incorporated    in    Iran    (the     guarantor)    give    a    guarantee    for    the    debt    of    the     borrower?    If    the    borrower    is    incorporated    in    a    different     country”    would    the    guarantor    still    be    able    to    give    the     guarantee? An Iranian company can give a guarantee for the debt of a borrower within Iran or overseas.

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? This depends on the type of security. In respect of a registered security (eg, registered before a notary public or if the creation of the security can otherwise be proven), the secured assets will be protected vis-à-vis other general creditors. If the security was created by way of a contractual arrangement, the secured lender will not enjoy priority. In circumstances where priority does exist, a secured lender will rank above any other creditor in receiving amounts owed to him out of the proceeds of the sale of the property given as security. Where the proceeds of the sale of the secured asset are not adequate to cover the entire amount owed to the lender, the lender will rank pari passu with other ordinary creditors for the unpaid balance of his claim. ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or     does    a    lender    need    a    court    order    to    enforce    its     security    or    claim    under    a    guarantee?    If    a    court    order     or    court    involvement    isŽrequired    for    security     enforcement    orŽa    guarantee    claim”    how    long    will    it     approximately    take    to    complete    an    enforcement    of     security    or    a    guarantee    claim? A lender may not take self-help remedies when enforcing its claim or security under a guarantee. Judicial or notarial referral is required. Where the security is registered with the notary public and the enforcement of the security can also be entirely performed at the notary, the lender will not need to refer to a court to enforce its security but must refer to that notary for enforcement. Where the borrower or any other person needs to perform any type of action for the security to be enforced, a court order is needed. In general, security over immovable property (ie, land and buildings) may be enforced by referring not to the courts but through the notary that has registered the deed, whilst other property may require a court order. One way lenders have managed to address this issue is to require the borrower also to provide an irrevocable power of attorney, enabling the lender to act in the name of the borrower if required for enforcement purposes. The use of such a power of attorney requires legal advice as its validity is questionable. Enforcement proceedings may take six to twelve months in straightforward cases although much will depend on the complexity of the matter and the efficiency of the court in question. 16 HERBERT SMITH FREEHILLS IRAN ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? For a security, to the extent that the security is registered or is proven, the enforcement cannot be prevented. Otherwise, the person secured will rank pari passu with the other creditors. For a guarantee, the person guaranteed will rank pari passu with the other creditors. ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving     guarantee    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? No such prohibition exists in Iran. “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    government    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? Security over immovable property must be registered before a notary public and will become effective only thereafter. The registration of security over certain movable property such as ships and aircraft is also mandatory. A failure to register security will result in such security becoming unenforceable. Security over other movable property may be registered before the notary public, but such registration, if available, is not mandatory. If available, the registration of the security will prove the existence of the security interest and the date of its creation. There is no time limit for registration. —     Does    any    security    or    guarantee    give    rise    to    any     stamp    dutyœtaxesœregistration    fees? To the extent that the security is to be registered with the notary public, government dues equivalent to 0.5% of the amount secured must be paid. ˜      Is    it    possible    to    grant    a    lender    security    over    an     asset    which    has    already    had    security    granted    over    it    to     another    person?    If    it    is    possible”    how    would    you     normally    document    such    an    arrangement? Yes. The security will be registered or otherwise documented as being subordinated. REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries? General The ownership of immovable property (land and buildings) by foreign persons is severely restricted, effectively rendering such ownership impossible. Therefore, there exists a de facto prohibition on such acquisition There is no general restriction or limitation concerning purchases of shares by foreign persons of local companies operating in Iranian industries. Foreign persons may also acquire tangible assets in Iran However, if the asset being acquired is a business run as a going concern and the acquisition is by the foreign person in its own name (ie, not through a locally registered company), the continued operation of the business by the foreign person will in all likelihood become impossible given that operating and other licences are not granted and cannot be transferred to foreign persons The Law Amending the 4th Plan Law provides for the privatisation of most of the companies owned by the government. As a result of this law, many of the restrictions placed on the ability of the private sector to participate in certain industries have now been removed, even though the relevant law has not been specifically repealed   ­ Oil/gas No laws prevent the acquisition of such companies save that under the Iranian Constitution, various Petroleum Acts and the Law Amending the 4th Plan Law and all upstream oil and gas operations must be performed by the government. The private sector is involved in such activities as a buy-back contractor only. Foreign contractors invariably register a local branch to perform such activities. This restriction does not apply to midstream and downstream operations. Apart from the above, the acquisition of companies and assets in the oil and gas industry is permitted.  €­ Electricity Under the Iranian Constitution and the Law Amending the 4th Plan Law, the main electricity transmission grids must be operated by the government although the private sector could participate as contractors. Apart from the above, the acquisition of companies and assets in the electricity industry is permitted.  …­ Natural resources/mines The Iranian Constitution defines the public sector to include large mines. This would imply that, to the extent that a mine is considered to be a "large mine", the ownership of the mine will be vested in the government or public entities, and so private sector ownership of what could be classified as a large mine may in due course be considered unconstitutional. Apart from the above, the acquisition of companies and assets in the mining industry is permitted.  ‡­ Telecoms There are no such laws, but there is a de facto restriction in that government policy limits the ownership by foreign persons of shares in telecoms operators to 49%. š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    the    industries    listed    above? The following general comments apply to each of the industries listed above: To the extent that there is a restriction on the ownership of the asset or company by the private sector, the same restriction would mean that the enforcement of any security over such company or asset will not be possible and, for practical purposes, no security will or can be created over same Foreign persons are not permitted to own immovable property, but they may take and enforce security over such assets. The restrictions on ownership, however, mean that upon enforcement the foreign person cannot become the owner of the immovable asset MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 17 IRAN GOVERNING LAW ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    Iran? Iranian courts will – subject to stringent requirements – enforce foreign judgments in Iran. The main legislation providing for such enforcement is the Law on the Enforcement of Civil Judgments (the Enforcement Law). The section of the Enforcement Law entitled "Enforceable Judgments and Documents of Foreign Countries" addresses the issue of the enforcement of foreign judgments. It should be noted that there is very limited precedence in Iran for the enforcement of foreign judgments. Under the Enforcement Law, certain conditions must exist before a foreign judgment, such as an English law judgment, is recognised and enforced in Iran: Reciprocity: the most difficult condition to satisfy for the enforcement of judgments in Iran is normally that of reciprocity between Iran and the country where the judgment was handed down. Reciprocity may exist in the form of an agreement such as treaties between Iran and the other country. The other country may also recognise the right for enforcement of judgments issued by Iranian courts in its laws or simply provide for such condition in practice The judgment does not contradict public policy: the Civil Code provides that courts may refuse to enforce agreements and foreign governing law clauses that are contrary to public policy. The same principle also applies in the case of enforcement of foreign judgments in Iran, whereby courts have discretion in refusing to enforce judgments that they deem violate public policy, ie, common sense and public morals and order The enforcement of the foreign judgment should not contradict the international agreements to which Iran is a party or the specific laws: under this provision, no other treaty to which Iran is a party should restrict the enforcement of the judgment The judgment, in the country of issuance, must be finalised and enforceable: similar to many other jurisdictions, the judgment must be in final form The courts of Iran have not issued a contrary judgment: however, where the competence of the foreign court has been accepted by the Iranian judicial system, the principle of res judicata may apply Deciding on the issue of conflict has not been exclusively reserved for the Iranian court: the foreign judgment cannot make awards on matters reserved exclusively for Iranian jurisdiction. An example would be the exclusive jurisdiction of Iranian courts over immovable property located in Iran Atieh Associates Law Firm No. 15 Fifth Street Bucharest Avenue Tehran, Iran T +98 21 8872 1112 F +98 21 8872 0077 [email protected] www.atiehassociates.com 18 HERBERT SMITH FREEHILLS IRAQ IRAQ IRAQ LAW ALLIANCE Many of the attorneys associated with the Iraq Law Alliance, PLLC (ILA) have been operating in Iraq since 2003. The firm provides quality legal services to investors, employers and companies involved in the reconstruction and development of Iraq. ILA currently maintains offices in Basra, Baghdad, Erbil and the United States. ILA recognises the need for specialist expertise in a number of fields in Iraq, including corporate, project finance, construction, employment law and intellectual property. ILA leverages the combined experience of its attorneys and consultants in those fields and more than 46 years of Iraqi practice to provide a comprehensive service to its clients. ILA represents national and multinational companies. The firm advises on all legal matters related to corporate, petroleum-related and reconstruction activities in Iraq. Its practice spans a broad spectrum and includes general corporate, construction, regulatory, licensing, labour, intellectual property and tax issues. Information on our attorneys is available on request. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    Iraq    (the    borrower)?    Are    there    any     exemptions    available? Whether a licence is required depends on whether the lender is conducting a banking business in Iraq, the regulation of which is overseen by the Central Bank of Iraq (CBI). Any lender engaged in "banking activities" in Iraq must receive a licence issued by the CBI. The¨scope of banking activities is wide and includes receiving money deposits, extending credit, entering into contingent commitments, acting as financial adviser, agent or consultant, and activities which are incidental to these. Applicable law does not specify the extent to which the banking activities must be conducted in Iraq to fall within the requirement to be licensed by the CBI. At present, the Iraqi authorities do not require an offshore lender that provides finance to an entity in Iraq for a particular project to establish an Iraqi business and obtain a licence to conduct business in the country. However, as Iraq's financial system is still in the early stages of transitioning to a globalised economy dominated by the private sector, expected reforms may provide some CBI-dominated regulation over these and other international lending practices. ‰      What    are    the    consequences    of    making    aŽloan    to    a     borrower    in    Iraq    without    aŽlicence? Under the Iraqi Banking Law, any person who engages in banking activities as a business without a banking licence or permit issued by the CBI is guilty of an indictable offence and liable to the penalty for fraud contained in the Iraqi Penal Code. At the request of the CBI or any concerned party, the public prosecutor can initiate an action before the Iraqi penal courts. In practice, numerous offshore lenders have made loans to companies based in Iraq without establishing a presence in the country and without securing a banking licence. Structured finance transactions directed towards an Iraqi entity have not as yet been regulated by the CBI. However, this may change as Iraq proceeds with much-needed financial sector reforms. ‘      Will    a    borrower    based    in    Iraq    have    to    deduct     amounts    for    withholding    tax    onŽinterest    payments     made    to    an    overseas    lender? According to applicable law and practice, a borrower located in Iraq must deduct amounts for withholding tax on interest payments to an overseas lender at the moment that such interest is actually paid to the lender. According to the Iraqi Income Tax Law, the rate of tax payable on such amounts is 15%. ’      Is    there    any    limit    to    the    level    of    interest    that    can    be     charged    on    loans    made    inŽIraq? The Iraqi Civil Code provides for a default interest on commercial loans of up to 7% and Iraqi law requires that the total amount of interest charged be mentioned in the loan agreement. The applicable laws of Iraq also forbid the charging of penalty interest for late payments above certain rates (such as, for example, 5% for commercial loans). “      Is    it    possible    for    one    lender    to    agree    that    a    second     lender    may    be    preferred    over    the    first    lender    for     repayment    of    debt    irrespective    of    when    that    debt    was     incurred?    If    it    is    possible”    how    would    you    document     such    an    arrangement? Nothing under Iraqi law forbids this practice as long as the agreed structure does not violate general concepts of Iraqi public policy. Such an arrangement should be documented in the finance agreements. Nothing under Iraqi law forbids different lenders from agreeing between them who takes priority. Accordingly, such arrangement should be enforceable under Iraqi law to the degree that the contract, generally, is¨enforceable. IRAN BAHRAIN SAUDI ARABIA KUWAIT JORDAN OMAN IRAQ AFGHANISTAN SYRIA TURKEY YEMEN QATAR UNITED ARAB EMIRATES DUBAI MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 19 IRAQ TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    Iraq    or    a    guarantee    from    an     entity    incorporated    in    Iraq? To register security in Iraq, a lender must either be registered as an entity entitled to conduct business (usually a branch office) or appoint an agent to effect registration. ˜      Does    the    taking    of    security    in    Iraq    result    in    a    lender     being    liable    to    tax    in    Iraq? The mere taking of security by an offshore lender does make that lender liable to taxation in Iraq. ™      Can    a    security    interest    be    taken    in    Iraq    over    the     following    assets? Iraqi law recognises various types of security interest. In particular, the following types of security are used in a business context: an authentic mortgage over land and its buildings and other structures a possessory mortgage over other types of assets an ad hoc system of recording secured promissory notes with the Tanfeez office of the Ministry of Justice  ­ Land Land may be secured under an authentic mortgage. An authentic mortgage must be registered with the land registry located in the area where the property is located to be valid. However, foreign individuals and foreign-owned Iraqi entities (even if such entities are only partially foreign-owned) may not own land in federal Iraq (outside the Kurdistan Region), except under very limited circumstances, such as for the development of government-licensed residential complexes. As a result, trade registries in Iraq tend to refuse the registration of security over land for the benefit of a foreign creditor/ lender where such party is a foreign person or foreign-owned entity, even though the actual title does not pass to the secured party if the mortgage is enforced through a court order. Any secured interest over land should, therefore, be registered in the name of a local agent if the lender is a foreign person or is foreign-owned. In addition, Iraqi law recognises an ad hoc system of recording mortgages with the Tanfeez office of the Ministry of Justice. Under this system, the parties wishing to create a recordable security sign a series of promissory notes before the notary at the Ministry of Justice, which are secured, for example, by a plot of land. After a default, the lender may initiate a sales procedure with the Tanfeez office. The Tanfeez office must then take possession of the secured asset and initiate a sale, the proceeds of which are used to pay the office's administrative fees and then the debt of the borrower. The Tanfeez system has serious limitations within the context of international financing, mostly because the Tanfeez office cannot enforce a loan agreement per se and must adhere to the rigid and simplistic conditions set forth in a standard promissory note. Moreover, its procedures are subject to change without notice. The issue of foreign ownership of land is not relevant for the mechanism under the Tanfeez system as, upon enforcement, the Tanfeez office itself undertakes the sale and the foreign secured lender never acquires title over the land. €­ Shares in an Iraqi company The Companies Law permits a possessory mortgage to be taken over shares in a joint stock company or a limited liability company by private sector investors. Amongst other things, a possessory mortgage involves a grant of security, by way of an instrument, over both movable and immovable assets which can be taken into the physical possession of the lender (or a nominee). However, for commercial mortgages, possession can also be constructive as the law includes the ability to place the asset at the lender's disposal in such a manner as to lead third parties to believe that the asset has entered its custody, or to receive an instrument representing the secured asset which vests a right in the lender to take delivery of the asset. …­ Bank accounts Security may be taken over bank accounts, but this entails the account itself being blocked. It is possible to construct other means of securing amounts held in bank accounts, such as an agreement with the bank that funds may not be disbursed except for specific purposes or without agreement of the secured lender. Additionally, monies received by the borrower in Iraq are usually required to be paid directly into an offshore account in a jurisdiction in which security may be taken. ‡­ Receivables (rights under contracts) Security over receivables is valid if the creditor takes possession of the document which establishes the existence of the debt (and takes assignment of the debt as required by the Commercial Law) and the third party owing such receivables is given notice of the creation of the security. If the receivables become due to the debtor before the secured debt matures, the monies paid are held by an agent on behalf of both the creditor and debtor until the secured debt is discharged. The creditor may receive interest from the receivables and deduct those amounts from the amounts owed by the debtor. It is also possible for the creditor and the debtor to agree that the creditor directly receive all or some of the receivables when paid. Š­ Insurance Please see Question 8.4. Œ­ Floating charge over all assets Iraqi law does not recognise the concept of a floating charge. Therefore, whilst there is no prohibition over the creation of such charge, it may not be enforceable (for example, a court may rule that the secured assets are not sufficiently described). š      Are    trusts    recognised    in    Iraq?    If    not”    how    can    the     common    law    concept    of    a    security    trust    be    catered     for? The concept of a trust does not exist under Iraqi law. Therefore, any security trustee type arrangement is likely to take the form of, and/or be treated as, a contractual agency. ›     Can    a    company    incorporated    in    Iraq    (the     guarantor)    give    a    guarantee    for    the    debt    of    the     borrower?    If    the    borrower    is    incorporated    in    a    different     country”    would    the    guarantor    still    be    able    to    give    the     guarantee? Nothing under Iraqi law prohibits a company in Iraq from giving a guarantee for the debt of a borrower, whether the borrower is an Iraqi or foreign company. The arrangement between the parties is subject to the general concepts of Iraqi public policy. 20 HERBERT SMITH FREEHILLS IRAQ

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? Generally, a secured creditor has priority over unsecured creditors although certain creditors are given preferential rights over secured creditors under the Civil Code: the state (for the payment of outstanding taxes) parties which have incurred legal costs in pursuing the interests of all¨creditors parties which have incurred expenses in preserving movable assets employees (for unpaid wages) ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or    does    a     lender    need    a    court    order    to    enforce    its    security    or    claim     under    a    guarantee?    If    a    court    order    or    court    involvement     is    required    for    security    enforcement    or    a    guarantee     claim”    how    long    will    it    approximately    take    to    complete    an     enforcement    of    security    or    a    guaranteeŽclaim? Self-help remedies are not recognised under Iraqi law. A lender must enforce its security or claim under a guarantee by virtue of a court order followed by a public auction to sell the secured asset. A simple court order can take anywhere between three to six months to secure. ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? Iraq lacks a bankruptcy code although commercial laws contain provisions which govern the liquidation and insolvency generally. Applicable law provides that certain special creditors (see Question 11 above) will take priority over a secured creditor, while secured creditors take priority over unsecured creditors. Other than this ranking, we are not aware of any laws that would otherwise prevent the enforcement of a security or guarantee by a liquidator or third-party creditor. ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving     guarantee    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? The prohibition against financial assistance does not exist as a concept under Iraqi law. Accordingly, we are not aware of any laws in Iraq which would prevent a company which has been acquired by a borrower from providing financial assistance, granting security or giving guarantee to secure the loan used by a borrower to acquire such company. “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    government    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? Under an authenticated mortgage, the security must be registered with the land registry. A possessory mortgage may need to be registered in one of the relevant ministries depending on the type of asset being secured. Finally, for security granted under the Tanfeez system, the security is registered with the notary's office attached with the Ministry of Justice. The timing of such registrations varies from same-day to two to three days, depending on the ministry involved. In the absence of such registration, the security interest would be invalid under Iraqi law. —     Does    any    security    or    guarantee    give    riseŽto    any     stamp    dutyœtaxesœregistration    fees? At the time of writing, stamp duties are applicable to the creation or enforcement of an authentic mortgage or possessory mortgage. These duties are subject to internal regulations issued by the authorities and depend on the actual value of the security or guarantee. For a security registered with the Tanfeez office within the Ministry of Justice, there are no significant registration fees, but there is an enforcement fee equal to 2% of the amount collected in a forced sale administered by the Tanfeez office, which is deducted from amounts actually collected, before disbursement to the lender. ˜      Is    it    possible    to    grant    a    lender    security    over    an     asset    which    has    already    had    security    granted    over    it    to     another    person?    If    it    is    possible”    how    would     youŽnormally    document    such    an    arrangement? It is possible to grant a second-ranking authentic mortgage over an asset which has already been mortgaged to a third party. The secured party would rank prior to the unsecured creditors but not to the previously recorded holders of mortgages over those assets or certain categories of preferred creditors which are specifically referred to under Iraqi law. As discussed in Question 8.1, an authentic mortgage must be registered with the land registry located in the area where the property is located to be valid. In the case of the Tanfeez office, the security takes the form of secured promissory notes registered with the Ministry of Justice. REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries?   ­ Oil/gas No laws prevent the acquisition of shares in or assets of private companies operating in the oil and gas sectors. However, in practice, most if not all private companies are contractually bound to secure the consent of either the Iraq Ministry of Oil (for operations in federal Iraq) or the Kurdistan Ministry of Natural Resources (for operations in the Kurdistan Region) for any sale, lease or other disposition of all or substantially all of the shares or assets of any private company operating in the oil sector. Additionally, much of the country's oil and gas sector remains in state hands and there is no effective mechanism for transferring state-owned companies or assets into private hands, despite four recent petroleum licensing rounds. The Kurdistan Region has enacted its own Oil and Gas Law, which permits private companies to hold exploration and production concessions granted in Kurdistan. However, this law is of questionable validity and subject to the significant controversy surrounding the Kurdistan Region's constitutional dispute with Baghdad over the former's rights to develop the oil and gas resources present in the Kurdistan Region.  €­ Electricity All Iraqi companies that own electricity generation, transmission or distribution assets within federal Iraq are fully government-owned entities and may not be privatised without a specific law authorising the sale to a private entity. There is no effective mechanism for transferring state-owned companies or assets into private hands. However, privately owned greenfield developments are permissible in the Kurdistan Region, so the acquisition of companies or assets there is at least technically allowed although industry practice in this area remains untested.  …­ Natural resources/mines Under the Iraqi mining law which regulates the extraction of mineral resources except for oil, a mining concession is granted specifically to an MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 21 IRAQ operator, and such operator may not subcontract the concession rights to any third party without the consent of the State Company of Geological Survey and Mining and the Ministry of Industry and Minerals. This requirement has been interpreted to apply equally to any sale of shares in the operating entity although it is unclear whether this would apply to a sale of shares constituting an actual change of operator control. We are not aware of any similar requirements applicable to a sale of assets of any entity operating a concession in Iraq.  ‡­ Telecoms Telecoms companies operate in Iraq under licences issued by the National Communications and Media Commission, whose approval of any change in ownership must be obtained. Apart from this, there are no restrictions on the acquisition of such companies. š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    the    industries    listed    above?  ˜ ­ Oil/gas No laws prevent the taking or enforcement of security in relation to shares in or assets of private companies operating in the oil and gas sectors. However, in practice, most if not all private companies are contractually bound to secure the consent of either the Iraq Ministry of Oil or the Kurdistan Ministry of Natural Resources for the sale, lease or other disposition of all or substantially all of the shares or assets of any private company operating in the oil sector. Please also see Question 18.1. It is not possible to secure an interest in a 100% government-owned enterprise, but it is possible to secure an interest in a mixed-capital LLC where the government has no more than 25% control over the company.  ˜€­ Electricity All Iraqi companies that own electricity generation, transmission or distribution assets within federal Iraq are fully government-owned entities, so the taking of or enforcement of security in relation to shares in or assets of such companies is not possible as there is currently no effective mechanism for this. However, as privately owned greenfield developments are permissible in the Kurdistan Region, the taking of or enforcement of security in relation to shares in or assets of such companies is at least technically permissible although industry practice in this area remains untested.  ˜…­ Natural resources/mines We are not aware of any laws preventing the taking of or enforcement of security in relation to shares in or assets of companies operating a mining concession. In addition, please see Question 18.3.  ˜‡­ Telecoms No laws prevent the taking of or enforcement of security in relation to shares in or assets of telecoms companies. Nevertheless, telecoms companies, whether publicly or privately owned, operate in Iraq under licences issued by the National Communications and Media Commission, whose approval of any change in ownership must be obtained. GOVERNING LAW ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    Iraq? Iraqi law permits a choice of foreign law, including English law, agreed to between parties to a contract, and a loan agreement subject to English law is most likely enforceable in an Iraqi court, absent any conflict with public policy and morals in Iraq. However, the same cannot be said for the choice of forum. For a foreign judgment or arbitral award to be enforceable in Iraq, three conditions must be met: there must be a bilateral or multilateral agreement between Iraq and the country from which the award originates; the agreement must be executed into Iraqi law by passage of a specific law (international agreements are not self-executing); and there must be reciprocity of application in the award's country of origin The arbitral award will be enforceable in Iraq upon verification by an Iraqi court that these conditions have been met and that the award does not violate any mandatory provision of Iraqi law or Iraqi public policy. Iraq has entered into few bilateral treaties, but it signed and ratified the 1983 Riyadh Convention on judicial cooperation between Arab States. Many of the countries in the Middle East are signatories to the Riyadh Convention. However, Iraq has not signed the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. As the UK is neither a signatory of the Riyadh Convention nor a party to a valid bilateral treaty of judicial cooperation with Iraq, a judgment rendered in an English court or an arbitration decision rendered in the UK will not be enforceable in Iraq. Iraq Law Alliance, PLLC T ƒ†‡‰‘Œ‡‰ŒŠ‡„Ž†Œ‡¾ ƒ„‹ˆ‡……†‡Œ‘Š‡‹…Ž‘ F ƒ†‡‰‘Œ‡‰ŒŠ‡‹†‰Š [email protected] www.iqilaw.com 22 HERBERT SMITH FREEHILLS JORDAN JORDAN OBEIDAT & FREIHAT Obeidat & Freihat is a full-service law firm that was originally founded in 1985 by Ahmad Obeidat, a former prime minister of Jordan. The firm now boasts one of the leading law practices in the country with 23¨lawyers and a practice that spans most of the major areas of the legal profession. Since its establishment, Obeidat & Freihat has represented a vast number of local and foreign clients in a wide range of matters, including acquisitions, arbitration, banking, construction contracts and disputes, foreign investment, privatisation-related advice and corporate structuring, general corporate matters, intellectual property, international business transactions, financing agreements, insurance, joint venture agreements, agency, franchise and distributorship agreements, civil and commercial litigation, oppositions and seizures, patents and trademarks, shipping and taxation. The firm has set up a specialised subsidiary for the protection of intellectual property rights in Jordan and the rest of the Arab world. Major areas of practice of the firm are: privatisation and public-private partnership experience; information and communication technology; intellectual property; banking and insurance; legislative and policy reform; civil and commercial litigation and arbitration; mergers and acquisitions/IPOs; and real estate development. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    Jordan    (the    borrower)?    Are    there     any    exemptions    available? Anyone wishing to engage in banking activities (being the acceptance of deposits from the public and the use of these deposits in full or in part to grant credit, or for any other activities designated as banking activities by the Central Bank of Jordan (the CBJ) under special orders issued for this purpose) falls under the scope of the Banking Law and must be licensed by the CBJ. Offshore lenders do not require a licence to lend money to a company based in Jordan. ‰      What    are    the    consequences    of    making    a    loan    to    a     borrower    in    Jordan    without    aŽlicence? As discussed in Question 1 above, anyone wishing to engage in banking activities within Jordan must be licensed by the CBJ. The Banking Law stipulates that any entity engaging in banking activities without a licence is liable to a substantial monetary penalty and any other measure the CBJ deems appropriate to prevent the violation. As noted in the response to Question 1 above, since there are no licence requirements for offshore lending, there are no consequences for making a loan to a borrower in Jordan. ‘      Will    a    borrower    based    in    Jordan    have    to    deduct     amounts    for    withholding    tax    on    interest    payments     made    to    an    overseas    lender? According to the Jordanian Income Tax Law, interest payments to offshore lenders are subject to withholding tax which is currently at the rate of 7% of the amount of the payment, unless the rate is reduced under a tax treaty. ’      Is    there    any    limit    to    the    level    of    interest    that    can    be     charged    on    loans    made    in    Jordan? Although Jordanian law imposes limits on the level of interest that can be charged generally, lending transactions by Jordanian banks and financial institutions are exempted from the application of such limits. “      Is    it    possible    for    one    lender    to    agree    that    a    second     lender    may    be    preferred    over    the    first    lender    for     repayment    of    debt    irrespective    of    when    that    debt    was     incurred?    If    it    is    possible”    how    would    you    document     such    an    arrangement? Nothing under Jordanian law prevents a lender from agreeing that a second lender be preferred over the first lender for repayment of debt, irrespective of when that debt was incurred. Such arrangement can be documented in a subordination agreement between the lenders. TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    Jordan    or    a    guarantee    from     an    entity    incorporated    in    Jordan? Except for real estate mortgages, there is no requirement that a foreign lender be licensed or registered in Jordan to take security over assets located in Jordan or a guarantee from an entity incorporated under Jordanian law. ˜      Does    the    taking    of    security    in    Jordan    result    in    a     lender    being    liable    to    tax    in    Jordan? The taking of security in Jordan will not make a lender liable to tax in Jordan. IRAN BAHRAIN SAUDI ARABIA OMAN IRAQ AFGHANISTAN SYRIA TURKEY YEMEN DUBAI SAUDI ARABIA JORDAN MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 23 JORDAN ™      Can    a    security    interest    be    taken    in    Jordan    over    the     following    assets?  ­ Land Yes, land can mortgaged by way of a security mortgage. The mortgage must be registered. €­ Shares in a Jordanian company Yes, security over shares can be taken by way of a security mortgage, which will become valid only upon registration. …­ Bank accounts Security may be taken over bank accounts, but the account must be blocked. ‡­ Receivables (rights under contracts) Yes, rights under contracts may be assigned in favour of third parties. Š­ Insurance Yes, insurance proceeds may be assigned in favour of third parties. Œ­ Floating charge over all assets According to the newly enacted Movable Assets Debt Security Law, a company or a merchant may create a security interest over all its current and future movable assets. The charge must be documented in a pledge deed to be executed by the debtor and the creditor, and will become valid only upon registration. It should be noted that the implementing regulations for the new law are yet to be promulgated. According to the law, such regulations will specify, amongst other things, the creditors in favour of whom such floating charge may be created. š      Are    trusts    recognised    in    Jordan?    If    not”    how    can     the    common    law    concept    of    a    security    trust    be    catered     for? The common law concept of trust is not recognised under Jordanian law. As an alternative, a security agent may hold and, in the event of the borrower's default, enforce security on behalf of the lenders. It is uncertain how the Jordanian courts would interpret a parallel debt structure. ›     Can    a    company    incorporated    in    Jordan    (the     guarantor)    give    a    guarantee    for    the    debt    of    the     borrower?    If    the    borrower    is    incorporated    in    a    different     country”    would    the    guarantor    still    be    able    to    give    the     guarantee? A guarantor incorporated in Jordan can give a guarantee for the debt of a local or foreign borrower, as long as its constitutive documents permit giving a guarantee to secure a third-party debt.

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? If the borrower becomes insolvent, the secured assets will be protected from the general creditors of the borrower and no claims would have priority over the security. In a liquidation, however, a 2007 decision of the Special Legislative Interpretation Bureau interpreting the relevant liquidation provisions under the Companies Law concluded that the priority right of a secured creditor upon liquidation of a company and sale of its assets (including the secured assets) stands subordinate to the priority rights set out in the Companies Law, namely: liquidation expenses amounts due to the company's employees amounts due to governmental authorities and municipalities payments in relation to properties leased to the company Note that decisions of the Special Legislative Interpretation Bureau are deemed to have the binding effect of law. ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or    does    a     lender    need    a    court    order    to    enforce    its    security    or    claim     under    a    guarantee?    If    a    court    order    or    court    involvement     is    required    for    security    enforcement    or    a    guarantee     claim”    how    long    will    it    approximately    take    to    complete     an    enforcement    of    security    or    a    guarantee    claim? Self-help remedies are neither recognised nor enforceable under Jordanian law. Any provision in the security document which allows the secured party upon default to take possession or dispose of the secured asset, and thereby avoid judicial enforcement proceedings, would not be upheld in court. Judicial involvement is required for enforcement of a security or guarantee. It is difficult to estimate how long it will take to complete the legal proceedings required for enforcing such security as this will depend on the specifics of each case and the defences raised by the debtor. Simple cases may be resolved in a few months; in complex cases, it may take years for a final judgment to be reached. ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? Jordanian insolvency laws consider as null all security and other agreements encumbering the assets of the debtor that are entered into within the three-month period preceding a liquidation decision or the 20-day period preceding a declaration of bankruptcy. As such, a liquidator or creditor of the borrower or guarantor may prevent the enforcement of a security or guarantee on the said grounds. ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving     guarantee    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? No statutory rule prevents a company that has been acquired by the borrower from providing financial assistance or security or giving a guarantee to secure the loan used by the borrower to acquire such company. “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    government    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? Security interests over land, vehicles and shares have to be registered with the relevant governmental departments. There is no time limit for effecting the registration, noting, however, that registration is a legal requirement for the validity of such security interests. Although there are no registration requirements for the pledge of movable assets and assignment of receivables, notarisation of the documents evidencing such pledge or assignment will be required if these are to be enforceable vis-à-vis third parties. —     Does    any    security    or    guarantee    give    rise    to    any     stamp    dutyœtaxesœregistration    fees? Other than corporate or personal guarantees, other forms of security, such as mortgage of land, pledge of shares and movable assets, give rise to stamp duty and nominal registration fees. Stamp duties are calculated as a percentage of the value of the secured loan. ˜      Is    it    possible    to    grant    a    lender    security    over    an     24 HERBERT SMITH FREEHILLS JORDAN asset    which    has    already    had    security    granted    over    it     to    another    person?    If    it    is    possible”    how    would     you    normally    document    such    an    arrangement? Granting a lender security over an asset which has already been secured in favour of another lender is available only in a real estate mortgage. Such arrangement will be documented before the relevant land department. In such case, the subsequent mortgage will be subordinate to the first mortgage. For other assets, the law provides that an asset may secure more than one debt ranking equally if the security over such asset is documented in the same contract. REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries?   ­ Oil/gas Under the Law Regulating Natural Resources, licences to explore and extract oil and gas are granted by virtue of concession agreements concluded with the government. Such concession agreements typically prohibit any disposal of the shares, assets or concession rights of the concessionaire without the prior approval of the government. A similar governmental approval may also be required as a prerequisite for creating a security interest over the oil or gas project.  €­ Electricity The General Electricity Law and its implementing regulations prohibit any company that is licensed to generate, transmit or distribute electricity from selling its fixed assets or its shares without the prior approval of the regulatory commission.  …­ Natural resources/mines Nothing in the Law Regulating Natural Resources prevents the acquisition of companies in the natural resources or mining industry.  ‡­ Telecoms Under the Instructions on Competitions Safeguards in the Telecommunications Sector, any change of control of a telecoms licensee requires the prior written approval of the Telecommunications Regulatory Commission. "Control" means the ownership of more than 50% of the voting interest in a person and/or the actual control of the business of such person whether by ownership, agreement or otherwise. š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    the    industries    listed    above?  ˜ ­ Oil/gas Please see Question 18.1.  ˜€­ Electricity The General Electricity Law prohibits any person licensed to generate, transmit or distribute electricity from assigning its licence or disposing of all or part of its assets whether through sale, lease or pledge, or any other means, without the prior approval of the regulatory commission and provided that such disposal is in accordance with the terms specified in the licence. No such approval is required where such disposal is associated with the financing of the licensed activity of the licensee.  ˜…­ Natural resources/mines Under the Law Regulating Natural Resources, a mining right holder is entitled to dispose of, assign or pledge such right, provided that the prior approval of the Council of Ministers is obtained and published in the Official Gazette.  ˜‡­ Telecoms Nothing in the Telecommunications Law prevents the taking of security over the shares or assets of a telecoms company, or contains any prohibition or limitation on the enforcement of such security. It should be noted, however, that the licence may prohibit the assignment or transfer of the licence without the prior approval of the telecoms regulator. GOVERNING LAW ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    Jordan? A final judgment obtained in a foreign court in relation to a loan agreement will be enforceable in the courts of Jordan. However, a Jordanian court may refuse to give effect to a judgment of a foreign court on the following grounds: if the foreign court that issued the judgment lacked jurisdiction if the party against whom the enforcement is sought had no business operations within the jurisdiction of the foreign court or was not domiciled within its jurisdiction and did not voluntarily appear before that court and concede to its jurisdiction if the party against whom the enforcement is sought was not properly served to appear before the foreign court if the judgment was obtained by fraudulent means if the party against whom enforcement is sought was able to establish that the judgment is not final if the judgment relates to a claim that will not be entertained by a Jordanian court due to a conflict with public policy or morality if the law of the court that issued the judgment does not allow the enforcement of Jordanian court judgments Obeidat & Freihat 198 Zahran Street 1st Floor Amman PO Box 926544 Amman 11190 Jordan T ƒ„‹‰‡‹‡‘……‡…‹ŽŽ F ƒ„‹‰‡‹‡‘……‡…‹Ž‹ www.obeidatfreihat.com MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 25 KUWAIT KUWAIT AL RUWAYEH & PARTNERS ASAR – Al Ruwayeh & Partners (ASAR) is a corporate/ commercial law firm. It is the leading international law firm in Kuwait and one of the top tier firms in the Middle East with strong connections in each of the Gulf Cooperation Council countries. The firm has extensive connections throughout the greater Gulf region and beyond and has an in-depth knowledge of all aspects of Kuwaiti local affairs. The firm provides a comprehensive range of legal services and is qualified to assist its clients on the vast majority of legal issues they are likely to encounter in Kuwait and overseas. The firm has also participated in and played a prominent role in significant recent legal developments in Kuwait. ASAR's clients include Kuwaiti public and private sector organisations and major international companies from all parts of the world. The firm has a large department of internationally trained and experienced lawyers dedicated to advising clients on international commercial and litigation matters. It serves as counsel for many local and international public and private sector agencies and businesses, as well as for select families and individuals. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    Kuwait    (the    borrower)?    Are    there     any    exemptions    available? To the extent that any lending activity on a commercial basis (ie, as a business) is to take place inside of Kuwait (on an onshore basis), the lender must be licensed by the Central Bank of Kuwait (CBK) to engage in such activity under the provisions of the Kuwait Banking Law. This will require that the lender be established in Kuwait as either: (i) a local bank or (ii) a local branch of a foreign bank. No exemptions are available for such onshore activity. Where the lending of money on a commercial basis to a borrower is to take place from outside of Kuwait (on an offshore/cross-border basis) to a borrower inside of Kuwait, no restrictions should arise. ‰      What    are    the    consequences    of    making    a    loan    to    a     borrower    in    Kuwait    without    a    licence? If the lending activity takes place within Kuwait on an unlicensed basis, penalties may be imposed under the Banking Law. Such penalties include a term of imprisonment not exceeding two years and/or the payment of a fine not exceeding KD100,000. Kuwaiti tax obligations may also arise. ‘      Will    a    borrower    based    in    Kuwait    have    to    deduct     amounts    for    withholding    tax    on    interest    payments     made    to    an    overseas    lender? There is no withholding tax in Kuwait. However, government agencies and private entities in Kuwait must notify the Kuwait Department of Income Tax (the DIT) of all contracts they enter into with, and retain 5% of any payments to "contractors" or "subcontractors" until the contractor or subcontractor provides a tax clearance certificate. A copy of the relevant contract must also be filed with the DIT, and the name and address of the contractor disclosed to the DIT. Strictly speaking, this is a 5% retention and not a withholding tax as the same is to be paid to the contractor or subcontractor on the delivery of a tax clearance certificate. The DIT has interpreted the term "contractor" in a broad manner, applying it to almost any foreign party conducting business in Kuwait, regardless of its characterisation. As an aside, it should be noted that Kuwait tax obligations may arise where the lender is a non-Gulf Cooperation Council (GCC)-incorporated legal entity or a GCC-incorporated legal entity that is not wholly owned by GCC nationals/legal entities. ’      Is    there    any    limit    to    the    level    of    interest    that    can    be     charged    on    loans    made    in    Kuwait? Limits are imposed on the level of interest that can be charged on loans made in Kuwait. However, such limits apply only to loans denominated in Kuwaiti dinars. The Law of Commerce states that: "A contracting party may agree on another rate of interest provided that it is not in excess of the declared rate of the Central Bank, which is determined by the Director of the Bank after being approved by the Minister of Finance; where the parties agree on interest in excess of such rates, the interest must be reduced to the declared rate on the date of execution of the Agreement and the excessive sum must be refunded." Note that the Law of Commerce states as follows: "1. A creditor is entitled to charge interest on a commercial loan save where otherwise agreed. Where the rate of interest is not stated in the contract, the interest which accrues shall be the legal rate ie, 7% p.a. 2. Where the contract stipulates a rate of interest and the debtor delays payment, the delay interest shall be computed on the basis of the agreed rate." It is, therefore, clear that a higher rate of interest may be charged on a loan to a Kuwaiti counterparty. However, where any such loan is denominated in Kuwaiti dinars, any higher interest rate that may be agreed between the parties may not exceed the rate prescribed by the CBK. IRAN BAHRAIN SAUDI ARABIA OMAN IRAQ PAKISTAN AFGHANISTAN SYRIA TURKEY YEMEN QATAR UNITED ARAB EMIRATES DUBAI EGYPT QATAR SAUDI ARABIA SAUDI ARABIA JORDAN KUWAIT 26 HERBERT SMITH FREEHILLS KUWAIT Finally, we note that the Law of Commerce prohibits the charging of interest on interest (ie, compound interest) except where it can be established that the charging of interest in this manner is market practice. However, assuming the governing law chosen would allow for compound interest, the foreign lender would have a good argument that compound interest, if provided for in relation to the loan under the loan documentation is enforceable under such laws, the same should be enforceable in Kuwait as the parties had agreed to such governing law. However, we cannot provide any assurances on this point as it is possible such a matter could be construed as a matter of Kuwaiti public policy. “      Is    it    possible    for    one    lender    to    agree    that    a    second     lender    may    be    preferred    over    the    first    lender    for     repayment    of    debt    irrespective    of    when    that    debt    was     incurred?    If    it    is    possible”    how    would    you    document     such    an    arrangement? Yes, it is possible to subordinate debt in Kuwait, such that one lender (junior lender) may agree that a second lender (senior lender) be preferred over the junior lender for repayment of a debt, provided that the subordination does not disadvantage any other creditor of the debtor that is not a party to the subordination arrangement. A subordination arrangement may be documented in a tri-partite agreement entered into between the senior lender, the junior lender and the debtor. TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    Kuwait    or    a    guarantee    from     an    entity    incorporated    in    Kuwait? No, a lender does not have to be licensed or registered to take security over assets in Kuwait or a guarantee from an entity incorporated in Kuwait (although, as a matter of practice, the notary public may require a no objection letter from the CBK prior to notarising the security document if the lender is not based in Kuwait). ˜      Does    the    taking    of    security    in    Kuwait    result    in    a     lender    being    liable    to    tax    in    Kuwait? The mere taking of security in Kuwait does not automatically make a lender liable to Kuwaiti income tax (if that lender would not otherwise be liable to tax). However, for a lender that is tax resident in a jurisdiction with which Kuwait does not have a double taxation treaty, security over assets in Kuwait may be one element that may be considered by the DIT in determining whether interest on the loan had a Kuwaiti source and was, therefore, liable to Kuwaiti tax. ™      Can    a    security    interest    be    taken    in    Kuwait    over    the     following    assets?  ­ Land Yes, security over land may be taken by way of a mortgage. Typically, the registration process of a mortgage over land (including fixtures) requires the mortgagor and mortgagee to appear before a Kuwait notary public who verifies the contents of the written mortgage agreement (which must be in Arabic), authenticates required signatures and satisfies himself of all other related matters. Thereafter, the Kuwait notary public records the mortgage in the central register. The ranking of mortgages over land in priority to one another is established by the date of their registration in the central register. €­ Shares in a Kuwaiti company Security over shares is ordinarily taken by way of a share pledge. Depending on the type of Kuwaiti legal entity whose shares form the subject of a pledge, different pledge requirements and procedures will apply. There are two methods under which a pledge over shares may be implemented: A. direct pledge over shares: under Kuwaiti law, a pledge of shares is made by contract and is perfected by a notation on the share certificate and in the share ledger of the company issuing such shares, indicating that such shares are pledged to the pledgee (the lender). For listed shares, the pledge must also be noted at the Clearance Chamber at the Kuwait Stock Exchange (KSE); or B. floating pledge over securities portfolio: a floating pledge of a portfolio (account) with a custodian or the lender (which contains the shares and maybe cash or other assets) may be made by contract, whereby the legal owner (eg, the borrower) agrees to pledge the portfolio containing the shares for the benefit of the pledgee (eg, the lender). The custodian would be acting on behalf of the pledgee in holding the security. Title to all assets in the portfolio, including the shares, must be transferred to the custodian specifically. In the case of shares, the pledgor would transfer (by direct transfer and not a trade) the shares through the KSE to the custodian, who would then be the registered owner of the shares, which would, therefore, be off balance sheet assets. As such, the custodian would hold the shares in its name but for the benefit of an undisclosed client which is the beneficial owner of the portfolio. Clearance documents at the KSE would show the name of the custodian as the registered owner but would be followed with the words "Client Account". The custodian's internal records would indicate the name of the beneficial owner of the portfolio. …­ Bank accounts Where security is to be taken over a debtor's bank account located in Kuwait, the security should be taken in the form of a mortgage or pledge over the account. The debtor's interests in the account vis-à-vis the account bank are considered "rights". To obtain valid and effective security over the account, therefore, there must be a written security agreement in this regard establishing the mortgage and a passage of possession. If an account bank is involved, the account bank must sign a separate document or be a party to the security agreement to acknowledge that it holds possession of the account subject to the security interest to establish possession. As the same involves a mortgage over rights, the rules for assignment of rights must also be followed for the same to be effective against third parties (ie, for the same to be perfected). Note that issues may arise where a security interest is to be taken over a fluctuating bank account. Although Kuwaiti case law confirms that a security interest may be taken over a bank account, such case law is applicable only in the case of a security interest taken over a fixed deposit account. To our knowledge, the Kuwaiti courts have not ruled on the validity of security over fluctuating bank accounts. Under the Kuwait Civil Code, for an assignment of a right to be effective against third parties, the debtor in relation to the rights being assigned must either: be served with notice of the assignment through official service of process (ie, through the process server of the Kuwaiti Courts and Ministry of Justice) – the certification date given by the process server would provide the date certain and perfect the assignment under this option; or have consented to or acknowledged the assignment of rights, and such consent or acknowledgment of such debtor must have a date certain stamped by the notary public If such notification through official process or the date certain consent is not obtained, the assignment will not be effective (or perfected) against third parties. As such, there is a risk that the assignor's creditors may, in the case of bankruptcy, challenge the assignment if it was not perfected. The assignment of rights to payment may be documented by an assignment agreement between the assignor and the assignee. As noted above, this also requires that notice of the mortgage or pledge must be MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 27 KUWAIT served on the bank account through official service of process or the bank account must provide a date certain consent to such mortgage or pledge. ‡­ Receivables (rights under contracts) Yes. Security over receivables is taken by way of an assignment in the same manner as outlined in Question 8.3 above and the original underlying agreements from which the assigned rights arise will need to be delivered to the assignee. Š­ Insurance Yes. The simplest means of granting the lender an interest in an insurance policy is to name the lender as the first loss payee in the policy. In the alternative, insurance proceeds in themselves would be treated as rights under Kuwaiti law. As the same are not rights constituted by nominative documents or instruments to order, the creation and perfection of a security interest in the same would be done in the manner outlined in Question 8.3 above concerning the assignment of rights under the Kuwait Civil Code. Having said this, if the security is to be taken in the form of an assignment of the insurance policy itself, the rules of assignment or transfer of the same are specifically outlined in the Kuwait Civil Code which provides that an "…insurance policy may be in the form of an instrument for the interest of a certain person or an instrument to order (bill of exchange) or to holder; the instrument to order is transferred by endorsement even in blank". Therefore, we are of the view that, to create a mortgage over the insurance policy, endorsing the policy with the mortgage and delivering possession of the same to the secured party would be sufficient in lieu of service of official notice of assignment or the mortgage on the debtor (the insurance company) or obtaining a date certain consent from the same. However, it is customary in Kuwait to obtain a separate assignment of the insurance proceeds (as opposed to endorsing the insurance policy). Œ­ Floating charge over all assets Yes. Under Kuwaiti law, specific movable assets may be taken by virtue of a possessory mortgage (except for certain assets such as vehicles, aircraft and vessels and which are subject to particular regulations under Kuwaiti law), and a business premises mortgage may be used as a type of blanket security interest over all movable assets on the business premises. A business premises mortgage is another type of mortgage on movable assets in Kuwait and contemplated in the Kuwait Law of Commerce. Such a mortgage is similar to a floating charge over personal property and is generally made by way of mortgage deed between the creditor and the debtor and registered in the Commercial Register of the Kuwait Ministry of Commerce and Industry. Generally, this type of security will enable the creditor to enforce against their assets ahead of unsecured creditors in cases of insolvency. It would be necessary to provide in the mortgage deed a description of the property covered by the premises mortgage. Failing such specification in the mortgage deed, the mortgage will cover only the trade name, the right to the lease and goodwill of the debtor. The registration of the premises mortgage is valid for five years and may be renewed. š      Are    trusts    recognised    in    Kuwait?    If    not”    how    can     the    common    law    concept    of    a    security    trust    be catered    for? The concept of a trust, as classically understood under English law, is not recognised under the laws of Kuwait. Having said this (and aside from a security agency and/or parallel debt structure which may also be used), Kuwaiti law does recognise the instance where the legal and beneficial ownership of assets is split between two separate parties, with one party holding legal title to the assets (in a form of trust) on behalf of a third party who will be the beneficial owner of the assets. An example of this would be if custodial services are offered by a local entity in Kuwait such as a local bank or an investment company. ›     Can    a    company    incorporated    in    Kuwait    (the     guarantor)    give    a    guarantee    for    the    debt    of    the     borrower?    If    the    borrower    is    incorporated    in    a    different     country”    would    the    guarantor    still    be    able    to    give    the     guarantee? Unless there is a particular restriction in the constitutive documents of the guarantor, the guarantor can give a guarantee for the debt of a borrower, whether the borrower is incorporated in Kuwait or in a foreign jurisdiction. However, if there is no corporate benefit to the company providing the guarantee (eg, in the case of an upstream guarantee), providing such guarantee may be problematic.

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? Generally speaking, and provided that: (i) all applicable perfection procedures have been complied with, and (ii) the assets were not secured during the suspect period before the declaration of the bankruptcy of a borrower, the secured assets do not form part of the pool of assets available to satisfy the claims of general creditors of that borrower. Aside from other factors which may apply depending on the nature of the different types of security interest, claims against the borrower are subject to the following priority claims in the event of insolvency: amounts due to the state treasury for tax and other duties of any kind the cost of legal proceedings incurred for the preservation, sale and distribution of the borrower's property, including all costs relating to the preservation of the property (not just legal costs) provided that such preservation costs are necessary the following obligations where they have fallen due within a six-month period before the insolvency of the borrower: amounts due from the borrower to employees for wages and salaries of whatever kind amounts due for food, clothes and medicines supplied to the borrower and his dependants alimony due by the borrower ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or    does    a     lender    need    a    court    order    to    enforce    its    security    or    claim     under    a    guarantee?    If    a    court    order    or    court    involvement     is    required    for    security    enforcement    or    a    guarantee     claim”    how    long    will    it    approximately    take    to    complete     an    enforcement    of    security    or    a    guarantee    claim? In the case of a guarantee, a lender is required to enforce its claim by way of court order. If the guarantor opposes such action, the process of enforcing a claim by the lender under the guarantee can take anywhere 28 HERBERT SMITH FREEHILLS KUWAIT from two to five years to be completed. The enforcement of a security interest over an asset (eg, immovable property, shares) requires the lender to proceed through a judicial foreclosure resulting in a court-approved sale of the security concerned. If the action is unopposed by the borrower, such action may take anywhere from one to three months to complete. If the action is opposed by the borrower, the process can take anywhere from two to five years to complete. Generally speaking, if the security agreement is notarised by a Kuwait notary public, this will allow the endorsement of a "writ of execution" on the instrument in favour of the party to whom it has been granted. In the event of enforcement, the writ of execution would enable the secured party to deposit the original security instrument with the execution department of the Kuwait Ministry of Justice for direct enforcement of its rights under the security instrument without the need to obtain a prior judgment (to prove the debt) from a Kuwaiti court. ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? Generally speaking, in the case of a security interest, no, unless it was granted or perfected after the date of suspension of payments by a borrower. The date of suspension of payments is determined by the court and can be up to two years before the date of the pronouncement of bankruptcy. However, a claim based on a guarantee may be stayed, and such claim would rank as an ordinary claim and form part of the pool of claims of ordinary unsecured creditors. ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving     guarantee    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? If there is no corporate benefit to the company by engaging in such activity, providing financial assistance, granting security or giving guarantee to secure the loan used by the borrower to acquire such company may be unenforceable. “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    government    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? No filing or registration would be required in the case of a guarantee. For other forms of security, eg, registering a mortgage over land or over shares listed on the KSE, these would, respectively, have to be registered: (i) in the central register at the real estate department at the Kuwait Ministry of Justice, and (ii) at the Kuwait Clearing Company. Other registration/filing requirements may apply for asset classes over which security is to be taken (eg, vessels, aircraft). —     Does    any    security    or    guarantee    give    rise    to    any     stamp    dutyœtaxesœregistration    fees? Other than where the Kuwait Ministry of Justice will levy a nominal charge or stamp duty relating to its certification of translations of documentation into Arabic or to otherwise notarise a document, no other stamp duty/taxes/registration fees in relation to security or guarantees will arise. ˜      Is    it    possible    to    grant    a    lender    security    over    an    asset     which    has    already    had    security    granted    over    it    to    another     person?    If    it    is    possible”    how    would    you    normally     document    such    an    arrangement? Yes, it is possible to grant a lender security over an asset which has already had security granted over it to another person. Any such additional security interest granted over an asset would be a second-ranking security and, therefore, subject to the original security interest first being satisfied in the case of any enforcement action. The second-ranking security would be documented in the same manner as any other security over the relevant asset. The security that would have priority would be the security for which the creation and perfection occurred first. REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries? Foreign investors are restricted from owning more than 49% in a domestic non-listed company (the General Restriction). Foreign investors may now own up to 100% of the shares of Kuwait-listed companies. However, the prior approval of the Kuwait Cabinet is required where 49% of the total shares in a Kuwait-listed bank are to be acquired.   ­ Oil/gas Under the Kuwait Constitution, ownership in all natural resources/assets in the State of Kuwait (eg, hydrocarbons and minerals such as gold, silver and diamonds) vests in the State of Kuwait. However, nothing prevents a company from being contracted to, for example, extract oil/gas/ minerals on behalf of the Kuwaiti government (such company would, however, not own the minerals concerned).  €­ Electricity All utility services in Kuwait (eg, electricity, water) are provided by the Kuwaiti government and not generally open to foreign or private involvement/ownership. However, this industry sector is establishing its first public-private entity for the establishment of an electricity and water generation facility to produce (but not distribute) electricity and water.  …­ Natural resources/mines Please see Question 18.1 above, as the same would apply in this instance.  ‡­ Telecoms Aside from the General Restriction in the shares of a Kuwaiti legal entity involved in the telecoms sector (as well as in the provision of fixed landlines which are restricted to the Kuwaiti government), no restrictions would apply.  Š­ Other regulated industries Media companies: all publishing media, newspaper, advertising, art production companies, etc. are 100% restricted to Kuwaiti nationals/ legal entities Land: generally speaking, companies which have non-GCC shareholders are (with certain limited exceptions) prohibited from owning land and buildings in Kuwait š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    the    industries    listed    above?  ˜ ­ Oil/gas It is possible to take and enforce security over shares in or assets of companies in the oil and gas industry in Kuwait. It is not possible to take security over oil and gas owned by the State of Kuwait. MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 29 KUWAIT Generally speaking, but subject to exceptions, the enforcement of security in relation to shares in or assets owned by companies owned by the State of Kuwait is immune from attachment.  ˜€­ Electricity Please see Question 19.1 above, as the same would apply in this instance vis-à-vis state-owned entities or assets. If a private third party holds any shares or assets in a company engaged in this industry, no restrictions should apply. However, in the case of the electricity and water generation facility project highlighted in Question 18.2 above, it would not be permissible for a security interest to be taken over the assets which comprise the project.  ˜…­ Natural resources/mines Please see Question 19.1 above, as the same would apply in this instance.  ˜‡­ Telecoms There are no laws preventing the taking of or the enforcement of security in relation to shares in or assets of companies in this industry.  ˜Š­ Other restricted industries Other than to the extent referred to above, no. GOVERNING LAW ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    Kuwait? The fact that the governing law of the loan agreement and/or the guarantee is English law would be irrelevant for the purposes of considering whether or not an English law judgment would be enforceable in Kuwait. An English law judgment would only be enforceable in Kuwait if it complied with the provisions of the Civil and Commercial Procedures Law. The Civil and Commercial Procedures Law states the following: "An order may be issued for the execution in Kuwait of an order or judgment that has been rendered in a foreign country, in accordance with the same conditions as those provided for in the laws of that country in respect of the execution of judgments and orders entered in Kuwait." As such, a Kuwaiti court will enforce a foreign judgment under the same terms and conditions as those under which a Kuwaiti judgment can be enforced in such foreign country's courts. In addition to requiring reciprocity, an order of execution may not be issued, unless the following has been verified: (i) the judgment was rendered by a competent court in accordance with the laws of the country where it was rendered, (ii) the parties to the case were properly summoned to appear and duly represented, (iii) the judgment has become res judicata in accordance with the laws of the country where it was rendered, (iv) the judgment does not conflict with a judgment already rendered by a Kuwaiti court, and (v) the judgment does not contain anything that violates Kuwait's public policy. In our experience, Kuwaiti courts have not readily enforced foreign judgments not obtained in a GCC or Arab country. Whether or not reciprocity would be established in relation to the judgments of courts in foreign jurisdictions would be a matter determined by the Kuwaiti courts. No treaty between Kuwait and the UK affords the reciprocal treatment required in the Code of Civil and Commercial Procedure. We are not aware of any English judgment that affords such reciprocal treatment. In 2004 and 2005, the Court of Cassation (the highest court in Kuwait) had to consider applications for the enforcement in Kuwait of an English judgment. In the former case, the Court was satisfied that, on the facts, the criteria for enforcement had been satisfied (including the element of reciprocity), and it approved enforcement of the English judgment; in the latter, it was not satisfied that the element of reciprocity had been established, and it, therefore, declined to approve enforcement. One alternative for the lender is to provide for arbitration in the loan documentation if the lender wishes to enforce its rights against a borrower in Kuwait without the need to retry the case on its merits. ASAR – Al Ruwayeh & Partners Salhiya Complex, Gate 1, 3rd Floor PO Box 447, Safat 13005 Kuwait T ƒ„‹‘‡‰‰„‰‡‰…ŽŽÀ ‰‰ˆŽ‡ŽŽ‹†¾‰¾Œ F ƒ„‹‘‡‰‰ˆŽ‡ŽŽ‹ˆ [email protected] www.asarlegal.com 30 HERBERT SMITH FREEHILLS LEBANON LEBANON ABOUSLEIMAN & PARTNERS Abousleiman & Partners has consistently been ranked as one of the leading law firms in Lebanon. The firm provides innovative advice and legal assistance in mergers and acquisitions, capital markets, general corporate, litigation, dispute resolution and tax matters. The firm also advises on domestic and international commercial transactions, securitisation, corporate restructuring, establishment of mutual funds and joint ventures, as well as corporate and project finance transactions. In addition, the firm has expertise in the privatisation of telecom and electricity companies. Abousleiman & Partners has won the International Financial Law Review Law Firm of the Year Award for Lebanon in 2008. The firm has won this award for two of three years since its inception in 2006. The firm works closely with, and acts as local counsel to, many international law firms and clients and handles legal matters in English, French and Arabic. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    Lebanon    (the    borrower)?    Are    there     any    exemptions    available? Generally speaking, a lender does not require a licence to lend money to a company based in Lebanon. However, entities which carry out lending operations regularly in Lebanon must be licensed by the Central Bank of Lebanon or are subject to certain reporting requirements to the Central Bank. Lebanese holding and offshore companies are also allowed by law, subject to certain conditions, to lend funds to affiliated companies. Incidental lending on a cross-border basis does not require a licence. ‰      What    are    the    consequences    of    making    a    loan    to    a     borrower    in    Lebanon    without    a    licence? Where a loan is made to borrowers in Lebanon in a non-usual or irregular manner by entities that are not licensed or registered in accordance with applicable laws, adverse consequences are unlikely. However, where an entity carries out lending operations regularly and fails to file for a licence from the Central Bank, the Code of Money and Credit provides that such entity will be subject to the sanctions provided under the Criminal Code relating to fraud, namely imprisonment for between six months and three years and a fine between LBP100,000 and LBP1 million. ‘      Will    a    borrower    based    in    Lebanon    have    to    deduct     amounts    for    withholding    tax    on    interest    payments     made    to    an    overseas    lender? Yes, withholding tax at the rate of 10% applies to interest payments made to an overseas lender, unless the rate is reduced under a tax treaty. ’      Is    there    any    limit    to    the    level    of    interest    that    can    be     charged    on    loans    made    in    Lebanon? For civil transactions, the interest rate limit is 12% p.a. In this respect, the Lebanese Penal Code provides for usury sanctions against lenders that impose an interest rate of over 12% p.a. Whilst Lebanese law does not provide for an interest rate limit in commercial transactions, the Lebanese Code of Commerce provides for a legal interest rate of 9% which would apply should the parties to a transaction fail to determine a specific interest rate. It has been decreed that all loans granted by banks or financial institutions are considered to be commercial loans for interest rate purposes. Interest may not exceed 12% p.a. on loans secured by a mortgage on a real estate property except where such security is granted in favour of a bank or a financial institution. “      Is    it    possible    for    one    lender    to    agree    that    a    second     lender    may    be    preferred    over    the    first    lender    for     repayment    of    debt    irrespective    of    when    that    debt    was     incurred?    If    it    is    possible”    how    would    you    document     such    an    arrangement? It is possible for one lender to agree that a second lender may be preferred over the first lender for repayment of debt irrespective of when that debt was incurred. There is no specific way to document such an arrangement provided that the written formal consent of the first lender (who has agreed that the debt of the second lender be preferred to its debt) has been obtained. TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    Lebanon    or    a    guarantee     from    an    entity    incorporated    in    Lebanon? No, a lender does not have to be licensed or registered to take security over assets in Lebanon or a guarantee from an entity incorporated in¨Lebanon. IRAN BAHRAIN KUWAIT JORDAN OMAN IRAQ AFGHANISTAN SYRIA TURKEY YEMEN DUBAI SAUDI ARABIA JORDAN LEBANON MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 31 LEBANON ˜      Does    the    taking    of    security    in    Lebanon    result    in    a     lender    being    liable    to    tax    inŽLebanon? Except as otherwise set out (please see Questions 3 and 16), the taking of security in Lebanon would not directly make a lender liable to taxes in¨Lebanon. ™      Can    a    security    interest    be    taken    in    Lebanon    over     the    following    assets?  ­ Land Yes, by way of a mortgage. A mortgage over real property becomes effective upon the registration of such mortgage at the relevant Real Estate Registry. €­ Shares in a Lebanese company Security over shares of a company in Lebanon can be taken by way of a pledge. Please see Question 15 for further details. …­ Bank accounts Yes, bank accounts may be pledged. ‡­ Receivables (rights under contracts) Yes, by way of an assignment. Š­ Insurance Yes, by way of assignment. Œ­ Floating charge over all assets The concept of creating a floating charge over all assets of a borrower does not exist under Lebanese law. However, under the Code of Obligations and Contracts, creditors have a general lien that encompasses all of the assets of the debtor. All ordinary creditors rank pari passu and are not entitled to preferences based on the date on which their rights have arisen, unless such preference has been created by operation of law or contract. š      Are    trusts    recognised    in    Lebanon?    If    not”    how    can     the    common    law    concept    of    a    security    trust    be catered    for? The English law concept of a security trust is not contemplated by Lebanese law. However, Law No. 520, dated 6 June 1996, relating to fiduciary operations provides that a person (the beneficiary) may, by virtue of a fiduciary agreement, appoint another person (the fiduciary) to manage or dispose of certain rights or movable properties belonging to the beneficiary for a limited period. The fiduciary must disclose its capacity but may not disclose the identity of the beneficiary. The fiduciary acts in its own name, for the benefit and under the responsibility of the beneficiary. Fiduciary operations may be carried out only by banks, financial institutions or other entities regulated by the Central Bank of Lebanon. ›     Can    a    company    incorporated    in    Lebanon    (the     guarantor)    give    a    guarantee    for    the    debt    of    the     borrower?    If    the    borrower    is    incorporated    in    a    different     country”    would    the    guarantor    still    be    able    to    give    the     guarantee? In principle, and subject to Question 13 below, a company incorporated in Lebanon can guarantee the debt of a borrower, unless it is restricted from doing so in its by-laws, provided that the necessary corporate approvals have been obtained. The nature of such corporate approvals will vary depending on the object and activities of the guarantor and whether such guarantee is given in the ordinary course of business. The above applies irrespective of the country of incorporation of the borrower.

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? If the security interest over the assets has been validly created and perfected and the assets were not secured during the suspect period (see Question 13), the secured assets will, in principle, be protected from the general creditors of the borrower. The following claims have priority over the security: privileged debts (including, without limitation, amounts owed to the treasury (eg, taxes), contributions owed to the National Social Security Fund and employees' salaries for a period of one year) amounts paid to help the bankrupt or his family expenses paid in respect of the bankruptcy proceedings (including the liquidator's fees, court costs paid by the liquidator to protect the interests of the general creditors and expenses incurred in respect of the management of the bankrupt's business) ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or    does    a     lender    need    a    court    order    to    enforce    its    security    or    claim     under    a    guarantee?    If    a    court    order    or    court    involvement     is    required    for    security    enforcement    or    a    guarantee     claim”    how    long    will    it    approximately    take    to    complete     an    enforcement    of    security    or    a    guaranteeŽclaim? As a matter of Lebanese law, it is, in principle, prohibited for a lender to independently enforce its security freely after default by the borrower. The enforcement of security must take place in accordance with the relevant enforcement proceedings before the competent judicial authority, as provided by applicable Lebanese laws. Court proceedings in Lebanon are usually lengthy and delays are likely. It¨is, therefore, difficult to determine the length of enforcement¨proceedings. ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? In the case of bankruptcy, a pledge or a mortgage made over a debtor's assets to secure a debt arising before the "suspect period" will be invalidated automatically if made within the suspect period or the 20-day period preceding it. The suspect period is the period between the date on which the bankrupt has ceased to make payments, as determined by the bankruptcy judgment, and the date of the said judgment. This period may not be fixed at a date earlier than 18 months before the bankruptcy judgment. In addition, all other payments made by the bankrupt in respect of matured debts and transactions entered into by the bankrupt for a consideration (including the creation of security interests) within the above-mentioned period may be invalidated if the party dealing with the bankrupt was aware of the bankrupt's financial condition when it entered into the transaction. According to the Code of Obligations and Contracts, a (secured) creditor whose debt has become due may file a claim to terminate contracts made by the borrower where: (i) such contracts have been made to undermine the rights of such creditor and have resulted in the inability of the borrower to repay its debts or have increased this inability, and (ii) the counterparty of such contract was aware of the conditions of the¨borrower. 32 HERBERT SMITH FREEHILLS LEBANON ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving     guarantee    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? Except as otherwise set forth below, a company which has been acquired by a borrower may provide financial assistance, grant security or give a guarantee to secure the loan used by that borrower to acquire such¨company. However, the following matters under Lebanese law are pertinent in this¨context: A Lebanese limited liability company (SARL) may not extend loans to its partners or managers and may not guarantee the obligations of its partners or managers A Lebanese joint stock company (SAL) may not extend loans to its board members or guarantee the obligations of such board members where such board members are individuals. This restriction does not apply to Lebanese banks if such operations are performed in their ordinary course of business Banks are restricted from lending funds to a borrower which the borrower shall use to finance its purchase of shares in the said bank “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    government    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? Lebanese laws provide for registration requirements that render security interests over certain assets to be in full force and effect. Under the Real Property Law, a mortgage over real property becomes effective upon the registration of such mortgage at the relevant Real Estate Registry. For any pledge to be perfected and, therefore, to become valid and enforceable against the debtor, the dispossession by the debtor of the movable asset to the creditor or a third party is required. The Lebanese Code of Commerce further provides that a pledge of registered shares, bonds and financial instruments becomes perfected upon its registration in the relevant register (eg, a commercial company's shareholders register) and the pledge of bearer shares, bonds or financial instruments is effected through the endorsement of such instruments. A pledge of shares in a Lebanese bank, which are dematerialised and are mandatorily held by Midclear SAL (the central depositary and clearing house in Lebanon), is perfected once such pledge has been effected through Midclear's book entry system. Security over a business concern is perfected upon registration in a special register held at the competent court of first instance. Registration of security does not require a significant amount of time and can generally be completed within a few days. —     Does    any    security    or    guarantee    give    rise    to    any     stamp    dutyœtaxesœregistration    fees? Security granted for loans extended by banks and financial institutions is subject to a nominal stamp duty of LBP10,000, with the exception of mortgages on real estate properties which are subject to the proportionate stamp duty at three per mille. 1% of the amount of the secured loan must be paid upon both the registration of a mortgage on a real estate property in the real estate register and the deregistration of such mortgage. Where a security document is notarised, notary fees are payable. ˜      Is    it    possible    to    grant    a    lender    security    over    an     asset    which    has    already    had    security    granted    over    it    to     another    person?    If    it    is    possible”    how    would    you     normally    document    such    an    arrangement? Yes, it is possible to grant a lender security over an asset which has already had a security granted over it to another person. Real estate properties can be mortgaged in favour of several lenders. The priority among such lenders will be set in accordance with the date of registration of each mortgage in the real estate register, with the first registered mortgage to have priority. Given that the consent of the beneficiary of a first-ranking mortgage is not required to create a second-ranking mortgage, a notarised mortgage agreement must be made between the borrower and the lender in favour of whom the second-ranking mortgage is created, without the need for the first-ranking mortgagee to be a part of such agreement. Security over movable assets can also be granted to more than one lender under an agreement between the lender and the borrower. REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries?   ­ Oil/gas Under Law No. 132/2010 relating to oil resources in the sea, the direct transfer of any right in, or the change of control of, a company licensed under this law is subject to prior government approval (by the Council of Ministers, upon recommendation of the Minister of Energy and Water and the opinion of the Oil Sector Management Authority). The right to use an oil installation (with the exception of ships and pipelines) may not be transferred without such prior government approval. The same restriction applies to the partial or full assignment of any licence.  €­ Electricity Every generation or distribution company must be licensed by the Electricity Regulatory Authority (which has not been formed yet). An electricity licence may not be assigned without the prior approval of the Electricity Regulatory Authority.  …­ Natural resources/mines Not applicable.  ‡­ Telecoms Companies providing telecoms services must obtain a licence from the Telecommunications Regulatory Authority. Any change of control of a licensed entity is subject to the prior approval of the Telecommunications Regulatory Authority, and no telecoms licence may be assigned without its prior approval.  Š­ Other regulated industries Banks and financial institutions Transfer of shares in a Lebanese bank or a Lebanese financial institution is subject to the prior approval of the Central Bank of Lebanon if: (i) the transferee will own more than 5% of the bank's common shares (10% in the case of a financial institution) as a result of the transfer, (ii) the transferee owns 5% or more of the bank's common shares (10% in the case of a financial institution) at the time of the transfer, or (iii) any of the MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 33 LEBANON transferee or the transferor is an incumbent or elected board member, irrespective of the number of transferred shares. Real estate Shares in a company owning real property may not be transferred to non-Lebanese nationals (as defined by applicable law) – otherwise such company will be considered as a foreign company for the purposes of owning real property in Lebanon, which means it will require approval by decree from the Council of Ministers allowing it to own properties with an aggregate surface area exceeding 3,000 sq. m. Commercial representation The majority of the share capital of limited liability companies and joint stock companies performing commercial representation activities must be owned by Lebanese nationals. The majority of the members of such companies must also be Lebanese nationals. In addition, at least two thirds of joint stock company board members, as well as the chairman and vice chairman, must be Lebanese nationals. Media Companies owning a television or radio network must be 100% owned by Lebanese nationals. Any transfer of shares in such companies is subject to the prior approval of the Council of Ministers. Public service Companies operating a public service must be at least one third owned by Lebanese nationals. š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    the    industries    listedŽabove?  ˜ ­ Oil/gas The direct transfer of any right in, or the change of control of, a licensed entity is subject to prior government approval. Any enforcement of share security that would lead to a change of control would accordingly also be subject to such approval. The rules governing security over an oil installation will be determined by virtue of a Council of Ministers' decree upon recommendation of the Minister of Energy and Water and the opinion of the Oil Sector Management Authority.  ˜€­ Electricity An electricity licence may not be encumbered without the prior approval of the Electricity Regulatory Authority (to be established).  ˜…­ Natural resources/mines Not applicable.  ˜‡­ Telecoms The change of control of a licensed entity is subject to the prior approval of the Telecommunications Regulatory Authority, and any enforcement of share security that would lead to a change of control would accordingly also be subject to such approval.  ˜Š­ Other restricted industries Assets of the state and other public entities are immune from execution, attachment, seizure or other similar legal or judicial process. GOVERNING LAW ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    Lebanon? An English law judgment is enforceable in Lebanon in accordance with the Code of Civil Procedure, which provides that a foreign judgment would be recognised and enforced by the courts in Lebanon without reconsideration of its merits where the foreign judgment satisfies the following conditions: The foreign judgment must have been issued by a court competent to do so under the law of the relevant jurisdiction, with the basis for jurisdiction not being solely the nationality of the plaintiff The foreign judgment must be final and capable of being enforced in the country in which it was rendered; the foreign judgment must not be based on documents subsequently deemed or found to be untrue and must not contain contradictory terms The laws of the country in which the foreign judgment was rendered must permit the enforcement of judgments rendered by Lebanese courts without reconsideration of the merits thereof The defendant must have been properly served with respect to the proceeding in which the foreign judgment was rendered, and due process must have been observed in connection with such proceeding, and no party to the litigation must have failed to deliver to the court dispositive documents The foreign judgment must not be contrary to Lebanese public policy No final judgment has been rendered in the same case between the same parties by a Lebanese court No action shall be pending with respect to the same subject matter, between the same parties, before the Lebanese courts, which action shall have been filed before the relevant foreign action Abousleiman & Partners 11 Place de l'Etoile, 4th Floor, Riad El Solh Sector Beirut Central District, Lebanon T ƒ‡„‹†‡†‡„Š……ŒŒ¾ˆ F ƒ‡„‹†‡†‡„Š……Œ‹ [email protected] www.abousleimanlaw.com 34 HERBERT SMITH FREEHILLS OMAN OMAN AL BUSAIDY MANSOOR JAMAL & CO. Al Busaidy Mansoor Jamal & Co. (AMJ) is the leading Omani law firm, providing quality legal services for local and international clients, comprising leading companies and organisations from a range of sectors, as well as the local government. With over forty internationally and locally trained lawyers, the firm offers innovative and expeditious solutions on all corporate, commercial, financial, litigation, arbitration and employment matters. Founded in 1979, AMJ has award-winning and internationally recognised energy, capital markets, real estate and shipping and maritime teams. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    the    Sultanate    of    Oman    (the     borrower)?    Are    there    any    exemptions    available? Offering loans and extending credit is interpreted as "banking business" within the meaning of the term defined in the Banking Law. The Banking Law provides that no person may carry on banking business in the Sultanate, unless he has obtained a licence from the Central Bank of Oman (CBO). By way of exception, the Banking Law provides that financial institutions (other than banks licensed by the CBO) may carry on banking business (with the exception of receiving deposits) provided such financial institutions are regulated by a recognised controlling authority. Lending from a foreign lender to a company based in the Sultanate of Oman is permitted, subject to the lender being regulated in its own jurisdiction by an appropriate authority, and accounts with the lender being held offshore. ‰      What    are    the    consequences    of    making    a    loan    to    a     borrower    in    the    Sultanate    of    Oman    without    a    licence? Violation of the licensing requirements of the Banking Law is punishable by a fine of between OR100 and OR250 per day of violation and/or imprisonment for between ten days and three years, in addition to closure of the business in Oman. ‘      Will    a    borrower    based    in    the    Sultanate    of    Oman     have    to    deduct    amounts    for    withholding    tax    on     interest    payments    made    to    an    overseas    lender? There is no withholding tax on interest payments in the Sultanate of Oman. ’      Is    there    any    limit    to    the    level    of    interest    that    can    be     charged    on    loans    made    in    the    Sultanate    of    Oman? We believe that, as a general rule, the Primary Commercial Court in Oman will uphold provisions relating to the payment of interest on principal and on overdue principal in commercial transactions (including, without limitation, default interest). However, it may not award any interest which may be penal in nature (as opposed to being compensatory for any loss or damage suffered on account of default or delay in repayment of debt). It may also limit the rate of interest recoverable on a judgment to the maximum levels periodically specified by the CBO or, possibly, to a level considered by the Primary Commercial Court as reasonable where the parties have not agreed to an applicable rate of interest beforehand. In the latter case, the maximum rate of interest awarded in the past by the Primary Commercial Court is 6% from the date of institution of proceedings. With effect from 25 June 1994, the CBO deregulated the applicable lending interest rates and permitted banks to determine their own interest rates to be applied on any credit facilities advanced, with the exception of consumer loans. However, the CBO will not permit any cartel arrangements among banks to push up artificially the cost of credit or any attempt unreasonably to widen interest rate margins. In addition to the powers held by the CBO, the Commercial Law of Oman, Royal Decree 55/90 empowers the Ministry of Commerce and Industry (MOCI), in agreement with the Oman Chamber of Commerce and Industry, to specify every year interest rate limits within which interest rates on commercial credits may be charged, taking into account the term of the loan and the purposes and risks thereof. The wording is ambiguous in that it does not clearly state that this applies to or would override the CBO's directions to banks in Oman on interest charges. The MOCI had previously also deregulated the rates of interest. However, with effect from 15 March 1995, the MOCI has specified rates for the maximum revenue that a creditor may receive on a loan or commercial debt. The most recent Ministerial Order 52/2010 permits creditors to charge interest at a maximum rate of 8% on commercial loans and debts, unless a lower percentage has been agreed between the parties. This Ministerial Order also states that the limitation on interest rates introduced by it does not apply to commercial banks, for which the prevailing interest rates will continue to be specified by the CBO in accordance with the provisions of the Banking Laws of Oman. “      Is    it    possible    for    one    lender    to    agree    that    a    second     lender    may    be    preferred    over    the    first    lender    for     repayment    of    debt    irrespective    of    when    that    debt    was     incurred?    If    it    is    possible”    how    would    you    document     such    an    arrangement? Lenders may agree on preferential provisions for repayment of debt (irrespective of when the debt was incurred) by means of contract between the lenders (usually set out in an intercreditor or subordination IRAN SAUDI ARABIA OMAN IRAQ PAKISTAN SYRIA LEBANON TURKEY YEMEN EGYPT MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 35 OMAN agreement) or, alternatively, by a unilateral undertaking from the postponed lender confirming that it will accept the subordination or postponement. TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    the    Sultanate    of    Oman    or    a     guarantee    from    an    entity    incorporated    in    the    Sultanate     of    Oman? Save as noted below, foreign lenders do not need to be licensed or registered to take security over assets in the Sultanate of Oman or receive the benefit of a guarantee from an entity incorporated in the Sultanate of Oman. To take security over shares listed on the Muscat Securities Market, a person must first register as an investor. Where the security is in a form that requires registration in Oman, the mortgagee or pledgee is generally required to execute the relevant security documents in person in the presence of a notary at the authority which maintains the register. Where the mortgagee or pledgee is a non-Omani person, the registration authority will generally require evidence of the existence or establishment of the mortgagee and/or the signing authority to be notarised, legalised (by the Ministry of Foreign Affairs in the mortgagee's jurisdiction) and consularised (by the Omani embassy in the mortgagee's jurisdiction) before permitting execution and/or registration of the security document. This can create some practical difficulties for foreign lenders seeking to take security over assets in Oman. ˜      Does    the    taking    of    security    in    the    Sultanate    of     Oman    result    in    a    lender    being    liable    to    tax    in    the     Sultanate    of    Oman? Taking security would not make a foreign lender liable to tax in the Sultanate of Oman. ™      Can    a    security    interest    be    taken    in    the    Sultanate    of     Oman    over    the    following    assets?  ­ Land Security over land (or other interests in real estate that are capable of registration with the Ministry of Housing) can be taken by way of a legal mortgage. €­ Shares in an Omani company Shares in joint stock companies may be pledged. It is not possible to take security over the shares of an LLC (a form of limited liability company). …­ Bank accounts Bank accounts may be pledged. If the account holder is a company incorporated in Oman, bank accounts may also be charged under a commercial mortgage. ‡­ Receivables (rights under contracts) Receivables can be assigned absolutely, but any assignment of rights that is conditional (eg, where the assignment would become effective only when the debt for which that assignment is secured becomes repayable) is unlikely to be considered valid by the courts in Oman. A notice of the assignment must be sent to the counterparty to the relevant contract. If the assignee is a company incorporated in Oman, the rights under a contract may also be charged under a commercial mortgage. Š­ Insurance Rights to receivables under insurances can be assigned absolutely, but any assignment of rights to insurances that are conditional (e.g . where the assignment would become effective only when the debt for which that assignment is secured becomes repayable) is unlikely to be considered valid by the courts in Oman. A notice of the assignment must be sent to the insurer. Lenders in Oman generally require the insurer to denote a lender as the loss payee in the insurance policy. If the assignee is a company incorporated in Oman, the rights under insurances may also be charged under a commercial mortgage. Œ­ Floating charge over all assets There is no concept of a floating charge in Oman. The Oman Commercial Law permits a "commercial concern" to be mortgaged. It provides that where the items included within the mortgage are not precisely defined, the mortgage applies only to the trade name, the right of lease, the right to contact clients and the goodwill. This suggests that the assets to be the subject of a commercial mortgage in Oman must be precisely defined. We consider that a floating charge may not be enforceable although the MOCI has been allowing for the registration of such charges. š      Are    trusts    recognised    in    the    Sultanate    of    Oman?    If     not”    how    can    the    common    law    concept    of    a    security     trust    be    catered    for? Omani law has no developed doctrine of commercial or other trusts. The Oman Commercial Law acknowledges that there may be circumstances where property held in the name of a bankrupt may, in fact, belong to another party and should not be counted as part of the bankrupt's estate although the Oman Commercial Law is not clear as to what is needed to establish that such an arrangement exists. The Oman Banking Law contemplates banks holding of assets in a fiduciary capacity. However, these provisions of the Oman Banking Law are yet to be tested before the Primary Commercial Court. There are other situations where commercial practice is to make use of trust arrangements, for example, in the holding of shares listed on the Muscat Securities Market. Such developments increase the likelihood of commercial trust arrangements being enforceable. In current practice, it is common for security trust arrangements to be used in lending transactions in Oman. ›     Can    a    company    incorporated    in    the    Sultanate    of     Oman    (the    guarantor)    give    a    guarantee    for    the    debt    of     the    borrower?    If    the    borrower    is    incorporated    in    a     different    country”    would    the    guarantor    still    be    able    to     give    the    guarantee? Subject to any restrictions in its constitutional documents or applied by any regulatory authority, an Omani company can guarantee the debts of borrowers, both domestic and foreign. The Commercial Companies Law of Oman requires that a unanimous resolution of the shareholders of any Omani company is required to approve guarantees, except where such guarantees are for the purposes of the company and in the ordinary course of business.

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? Assets which have been secured by registered security will have priority over unsecured borrowers save that: 36 HERBERT SMITH FREEHILLS OMAN the government of the Sultanate of Oman, its departments, agencies and commercial organisations in which it has a 51% majority shareholding are given preferential rights in respect of liabilities outstanding in favour of it, in the name of a debtor, over any registered securities created by such debtor in favour of another creditor. Preferential rights will also be given to payments directed by the Shari'ah Court for maintenance and family support of a debtor, and insolvency-related administrative costs incurred upon the liquidation of the commercial entity. However, we are not aware of any instances where this option to take preferential creditor status has been exercised by the government; in the event of the dissolution or liquidation of the borrower, under the provisions of the Oman Labour Law employees of the borrower have priority, in respect of wages and benefits owed to them by the borrower, either as a matter of contract or under the laws of Oman, over all other debts owed by a borrower ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or     does    a    lender    need    a    court    order    to    enforce    its     security    or    claim    under    a    guarantee?    If    a    court    order     or    court    involvement    is    required    for    security     enforcement    or    a    guarantee    claim”    how    long    will    it     approximately    take    to    complete    an    enforcement    of     security    or    a    guarantee    claim? In the case of a guarantee, a lender may claim freely against the guarantor provided that the guarantee confirms the guarantor should be liable as if principal obligor and without the lender having to make any prior claim against the principal obligor. In the absence of any such provision, the Omani courts may (and will, in the case of personal guarantors) require the lender to first seek judgment against the principal obligor. Enforcement of security in Oman is made by an application to the court. It is our experience that to enforce security, a judgment for the debt must first be obtained from the court. In a straightforward debt recovery action, obtaining a judgment should take approximately six months, after which an application to enforce the security must be made to the commercial division of the court. The enforcement of the most basic security will usually take three to four months. Where circumstances are more complicated, the process could take anything up to two or three years or even longer. During that time, the debtor continues to hold and control all charged assets and could continue to run its business. Once an enforcement order has been awarded, the courts will set a date for the secured assets to be sold by public auction. The mortgagee will have no right to take possession over the assets unless permitted by the court. It should be noted that the new Oman Civil Transactions Law promulgated by Royal Decree 29/2013 (the “Civil Code”) has revised the general provisions of Omani law relating to guarantees. As at February 2014 there is no official English translation of the Civil Code in circulation, and the potential effect of the Civil Code remains subject to further analysis. However, initial reviews suggest that the Civil Code may restrict a lender’s right to claim freely against a guarantor without first seeking recourse against the principal obligor. ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? Any liquidator or creditor of the borrower or guarantor seeking to prevent the enforcement of a security would need to apply to the court, and any such application would be considered by the court on its merits. ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving     guarantee    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? No laws in Oman prohibit a borrower from providing financial assistance to a person acquiring the borrower (or to the lenders of such person). “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    government    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? A legal mortgage over land must be registered with the Ministry of Housing. A commercial mortgage over the assets of an Omani company must be registered with the MOCI. A pledge over shares in joint stock companies must be registered with the Muscat Clearance and Depository Company SAOC (the registrar). No other forms of security or guarantee may be registered in Oman. Although the Oman Commercial Law provides that a pledge of a specific asset should be registered with the MOCI, in practice, the MOCI will not accept anything other than a commercial mortgage for registration. There are no time periods applicable to the filing of any security although, in practice, an authority responsible for registration may not accept securities if they are presented for registration a long time (ie, many months) after execution. —     Does    any    security    or    guarantee    give    rise    to    any     stamp    dutyœtaxesœregistration    fees? A registration fee of OMR30 is payable for the registration of a commercial mortgage, with OMR100 payable for attestation of the document. A registration fee is payable in a share pledge. The amount will depend on the number and value of shares pledged but will normally fall between OMR50 and OMR150. A registration fee of 0.5% of the secured amount (capped at OMR100,000) will be payable to the Ministry of Housing to register a legal mortgage. ˜      Is    it    possible    to    grant    a    lender    security    over    an     asset    which    has    already    had    security    granted    over    it    to     another    person?    If    it    is    possible”    how    would    you     normally    document    such    an    arrangement? A lender can take security over assets which have already been secured in favour of another person provided the prior security holder presents a "no objection certificate" addressed to the relevant authority responsible for the registration of the security. In the absence of any agreement between the lenders on the priority of security interests, the rights between lenders to the proceeds of sale of a secured asset after enforcement of a registered security interest will rank pari passu and rateably on the amounts secured in favour of each lender. REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries? There is a general restriction on foreign companies acquiring companies or assets in the Sultanate of Oman. Any foreign company doing business in Oman will need to establish itself either as a separate LLC in Oman or as a 100%-owned foreign branch in accordance with the Foreign Capital MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 37 OMAN Investment Law of Oman (Royal Decree 102/94). The MOCI will permit the registration of, or acquisition in, companies provided that foreign ownership does not exceed 70% (there is an exemption for companies 100% owned by Gulf Cooperation Council nationals).   ­ Oil/gas Any rights granted for the exploration and extraction of oil and gas in the Sultanate of Oman need to be approved by the government and ratified by Royal Decree. The terms of any concession agreement will usually contain a restriction on change of control or disposal of assets.  €­ Electricity The electricity sector in Oman is regulated by the Sector Law of Royal Decree 78/2004. The Sector Law establishes an authority to regulate the electricity and water sector in Oman (AERO). The terms of any generation/desalination licence issued by the AERO will contain restrictions on change of control. Usually, investors wishing to acquire 20% or more of the voting capital in an electricity generation/ desalination company supervised by the AERO must obtain the prior approval of the AERO.  …­ Natural resources/mines In accordance with the Mining Law, a mining concession or licence for mining activities may be granted only to an Omani company or a branch of a foreign company registered in Oman. Such licences may be granted by specific Royal Decree or by the MOCI in accordance with the provisions of the Mining Law. Any restrictions on the purchase of a mining company or assets will depend on the terms of the licence issued.  ‡­ Telecoms Companies operating in the telecoms sector must hold a licence from the Telecommunications Regulatory Authority (TRA). The terms of any licence issued by the TRA will normally contain a restriction on the sale of the regulated company's shares or assets.  Š­ Banking sector Investors wishing to acquire 10% or more of shares in an Omani bank must obtain the prior approval of the CBO.  Œ­ Securities business sector Investors wishing to acquire 15% or more of shares in an Omani company which is licensed by the Capital Markets Authority (CMA) to engage in securities-related business must obtain the prior approval of the CMA. š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    the    industries    listed    above?  ˜ ­ Oil/gas Normally, there will be restrictions on granting security over shares or assets in the terms of any concession agreement granted to a company.  ˜€­ Electricity The terms of any generation/desalination licence issued by the AERO will usually require AERO consent to security being granted over shares or assets in a regulated company.  ˜…­ Natural resources/mines, telecoms, banking and securities business sector There are no laws restricting the taking of security over shares or assets in a company in these sectors. GOVERNING LAW ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    the    Sultanate    of    Oman? Under Royal Decree No. 29/2002, applications may be submitted to the courts of first instance in Oman for enforcement of judgments and orders passed by foreign courts. An order for execution of a foreign judgment or order will not be passed unless the concerned court in Oman is satisfied that: the judicial authority which passed the foreign judgment or order had jurisdiction, in accordance with the rules governing international judicial jurisdictions, as provided for in the law of the country where the judgment or order was passed, and that the judgment or order was to be treated as final in accordance with such law, and was not passed on the basis of deceit and fraud the parties to the suit in respect of which the foreign judgment was passed were summoned to appear and were represented in a proper and rightful manner the judgment or order does not contain any request which violates any of the laws of the Sultanate of Oman the judgment or order neither conflicts with a judgment or order passed earlier by a court in the Sultanate of Oman nor contains anything which is against public order or morals the country where the judgment was passed accepts for execution the judgments passed by the courts of the Sultanate of Oman in its territory Despite the introduction of this Decree, it is not possible for us to express an opinion on whether a judgment obtained in a foreign court, including the courts of England, in respect of a loan agreement or guarantee would be recognised and enforced by the Primary Commercial Court. To our knowledge, no judgment of a non-Omani court has ever been enforced in the Sultanate of Oman by the Primary Commercial Court. We believe that, in the absence of specific Omani legislation in the future permitting registration and recognition of foreign judgments, a foreign judgment would be of evidentiary value only in a full hearing before the Primary Commercial Court and the matter might have to be litigated de novo before the Primary Commercial Court. With the introduction of Royal Decree No. 36/98, the Sultan of Oman approved the Sultanate of Oman's membership of the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention) and directed the concerned authorities to take the necessary measures for Oman to become a signatory to the Convention in accordance with its provisions. With Oman's ratification of the Convention, any awards rendered by a foreign arbitral tribunal should be directly enforceable in Oman provided they do not fall under any of the exceptions defined in the Convention which may prevent the award from being enforced in the Sultanate. It may also be noted that, as with the enforcement of foreign judgments under Royal Decree No. 29/2002, no foreign arbitral awards have, as yet, been enforced through the courts of Oman. Hence, much would depend upon the interpretation and application of the Convention by the Omani courts when considering the enforcement of a foreign arbitral award. Al Busaidy Mansoor Jamal & Co. Oman Muscat International Centre Mezzanine Floor Central Business District Bait Al Falaj Street, PO Box 686, Ruwi, Muscat Sultanate of Oman T ƒ„‹Š‡‰ˆŠ†‡ˆˆ‹‹ F ƒ„‹Š‡‰ˆŠ†‡‰‰‘‹ [email protected] www.amjoman.com 38 HERBERT SMITH FREEHILLS PAKISTAN PAKISTAN ORR, DIGNAM & CO. Orr, Dignam & Co. is one of the largest institutional firms of lawyers in Pakistan, with fully operational offices in Karachi and Islamabad. The firm specialises in civil law, with particular emphasis on corporate and commercial law. The firm handles arbitrations (both domestic and international), having considerable experience of arbitration under the Pakistan Arbitration Act¨1940 and international modes of arbitration, including the Rules of Arbitration and Conciliation of the International Chamber of Commerce and the London Court of International Arbitration. The firm also has an extensive civil litigation portfolio covering cases in the High Courts and the Supreme Court of Pakistan. The other areas of practice cover privatisation, infrastructure projects, construction laws, banking, insurance and financial law, energy law (petroleum, gas and electrical power), commercial contracts, foreign investment laws, information technology and computer law, mergers and acquisitions, maritime and aviation law and charity and NGO laws. The principal office of the firm is based in Karachi, which is the commercial centre of Pakistan. The firm also has a well-established office in Islamabad, the capital of Pakistan. This enables it to effectively represent its clients in negotiation with the government of Pakistan and with regulatory agencies and to serve a large client base in the Province of Punjab and the North West Frontier Province. The firm was established in 1952 and acts for multinational corporations operating within and outside Pakistan, foreign and local banks, multilateral agencies, financial institutions and consultants, leading Pakistani industrial and business houses and public sector corporations involved in a wide range of activities. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    Pakistan    (the    borrower)?    Are    there     any    exemptions    available? The financial services sector is highly regulated in Pakistan. As a general rule, loans and finance can be provided, as a business, only by banks or non-banking financial companies (NBFCs). Banks are regulated by the central bank, the State Bank of Pakistan (the SBP), under the Banking Companies Ordinance 1962 (the Banking Ordinance) and the regulations and circulars issued under that Ordinance. NBFCs are regulated by the Securities and Exchange Commission of Pakistan (the SECP) under the Companies Ordinance 1984 (the Companies Ordinance) and the rules and regulations issued under that Ordinance. An entity (which is not a bank or an NBFC) wishing to engage in lending within Pakistan may be subject to the Moneylenders Ordinance 1960 (the MLO). The MLO requires persons carrying on the business of money-lending to have an effective licence under the MLO. SBP approval is required to establish a bank or the branch of a foreign bank. A licence to undertake banking business is also required. Under the Banking Ordinance, "banking" is defined as the acceptance of, for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. A lender who has been refused a licence may, in certain circumstances, continue to lend money. Foreign lenders that have no presence in Pakistan do not require a licence to lend to a Pakistani borrower. A Pakistani borrower would be subject to the applicable foreign exchange regulations of the SBP, and these must be complied with to ensure the ability of the Pakistani borrower to make repayments to a foreign lender. ‰      What    are    the    consequences    of    making    a    loan    to    a     borrower    in    Pakistan    without    a    licence? As mentioned above, a banking/NBFC licence regulates the banking/ NBFC business. It is not a permit for a lender to operate. As such, there is no consequence of making a loan without a licence per se provided the entity is not undertaking the business of banking or an NBFC. Under the Banking Ordinance, the SBP has the power to call for certain information where it appears that a company is acting as a banking company without a licence. The SBP may seize books, accounts and relevant documents in respect of any business that may be operating in contravention of the Banking Ordinance. The chief executive and officers of the company are liable to imprisonment and a fine. A lending company without a banking licence (or an NBFC) may not have recourse to the banking recovery laws which provide a more efficient means of enforcing recovery of loans and securities. Furthermore, where the lender is not a bank/NBFC, and is not exempted under the MLO, and makes a loan to a borrower without the required licence, the lender will not be entitled to recover any money or enforce any security in respect of that loan in any court. A foreign lender wishing to enforce its loan or security in respect of such a loan in Pakistan would have to seek recourse to the normal civil courts of Pakistan as the special banking courts cannot deal with financings based on interest. IRAN SAUDI ARABIA KUWAIT JORDAN OMAN IRAQ PAKISTAN AFGHANISTAN SYRIA LEBANON TURKEY INDIA YEMEN QATAR UNITED ARAB EMIRATES DUBAI EGYPT MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 39 PAKISTAN ‘      Will    a    borrower    based    in    Pakistan    have    to    deduct     amounts    for    withholding    tax    on    interest    payments     made    to    an    overseas    lender? A borrower based in Pakistan must deduct withholding tax on interest payments made to an overseas lender at the rate prescribed in the Income Tax Ordinance 2001, unless a tax exemption or concession is available. The exemptions under the Income Tax Ordinance 2001 include any profit on debt payable to a non-resident person in respect of a private loan to be used in projects in Pakistan approved by the federal government and any income of a non-resident from profit on monies borrowed under a loan agreement approved by the federal government. ’      Is    there    any    limit    to    the    level    of    interest    that    can     be    charged    on    loans    made    inŽPakistan? There is no set limit to the level of profit that can be charged on loans made in Pakistan in domestic financings provided by banks/ NBFCs. Domestic financing by banks/NBFCs in Pakistan should be under the permitted modes of Islamic financings. Foreign currency loans from overseas lenders are in the conventional form (ie, based on interest). The foreign exchange regulations specify, in certain cases, the permissible levels of interest and other terms for foreign currency borrowings by foreign-controlled companies and other companies in Pakistan. If the rate of interest exceeds the prescribed limit, the SBP's permission is required for repatriating the interest¨payments. “      Is    it    possible    for    one    lender    to    agree    that    a     second    lender    may    be    preferred    over    the    first     lender    for    repayment    of    debt    irrespective    of    when     that    debt    was    incurred?    If    it    is    possible”    how    would     you    document    such    anŽarrangement? Yes, this is possible. This would be contractually documented and, where necessary, the preference of the senior lender over the junior lender would have to be registered with the appropriate authority (for example, the Registrar of Companies under the Companies Ordinance. See¨Question 14.). TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    Pakistan    or    a    guarantee     from    an    entity    incorporated    in    Pakistan? No. Subject to our comments above, there is no requirement per se for a foreign lender to be registered or licensed to take security over assets in Pakistan or benefit from a guarantee by an entity incorporated in Pakistan. However, under the foreign exchange regulations, any security to be created by a Pakistani entity in favour of a non-resident, and the underlying borrowing, would require general or special permission of the SBP. The general permissions granted by the SBP are set out in its Foreign Exchange Manual. ˜      Does    the    taking    of    security    in    Pakistan    result    in    a     lender    being    liable    to    tax    inŽPakistan? The mere taking of security in Pakistan per se does not make the foreign lender liable to tax. However, as part of the financing transaction, there may be various fees for registering and perfecting the security interests. Please see Question 15 for further details. ™      Can    a    security    interest    be    taken    in    Pakistan    over     the    following    assets?  ­ Land Security over land in Pakistan is taken by way of a legal charge or a¨mortgage. The most common form of mortgage over land is the mortgage by deposit of title deeds, which does not require registration with the land¨registry. A registered mortgage (mortgage deed) may also be created as security. However, such a mortgage would, in addition to the applicable stamp duty, also attract ad valorem land registration costs and is, therefore, generally not used. Where a charge or mortgage is created by a company, the same (if it is a charge covered by section 121 of the Companies Ordinance) must be registered with the Companies Registry within 21 days of its creation. Please see Question 15. €­ Shares in a Pakistani company Security over shares of a company in Pakistan can be taken by way of a pledge. Please see Question 15 for further details. …­ Bank accounts Security over a bank account may be created by way of a lien, a fixed or a floating charge in favour of a lender. ‡­ Receivables (rights under contracts) An assignment by way of security of receivables and/or rights under a contract may be made in favour of a lender, subject to any restrictions contained in the contract. Š­ Insurance Please see Question 8.4. Œ­ Floating charge over all assets A borrower may create a floating charge over all of its assets in favour of a lender. From a foreign exchange regulations standpoint, any security to be created by a Pakistani entity in favour of a non-resident, and the underlying borrowing, would require general or special permission of the SBP. The general permissions granted by the SBP are set out in its Foreign Exchange Manual. š      Are    trusts    recognised    in    Pakistan?    If    not”    how    can     the    common    law    concept    of    a    security    trust    be    catered     for? The trust concept is recognised in Pakistan. A trust formed under the laws of a jurisdiction outside Pakistan will be recognised if it is not contrary to the laws of Pakistan. The SECP recently approved the Debt Securities Trustee Regulations 2012, which regulate local Debt Securities Trustee-related transactions and set out the registration criteria and the duties and responsibilities of the Debt Securities Trustee. ›     Can    a    company    incorporated    in    Pakistan    (the     guarantor)    give    a    guarantee    for    the    debt    of    the     borrower?    If    the    borrower    is    incorporated    in    a    different     country”    would    the    guarantor    still    be    able    to    give    the     guarantee? Prior approval of the SBP is required to give a guarantee, give an undertaking or open a letter of credit on behalf of a resident of Pakistan in favour of a non-resident company, the implementation of which may involve payment to a non-resident in either foreign currency or rupees. Similarly, prior approval of the SBP is required to give a guarantee in favour of a resident in Pakistan on behalf of a non-resident or against overseas guarantees or collateral lodged outside Pakistan. 40 HERBERT SMITH FREEHILLS PAKISTAN An "authorised dealer" (ie, a bank licensed to deal in foreign exchange) may, however, issue guarantees in favour of foreign suppliers/lenders to cover repayment of loans and payment of interest under foreign private loan/supplier credit, in accordance with the terms and conditions of the agreement registered with the SBP.

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? If the borrower becomes insolvent, a secured creditor has an independent right to enforce his security outside of the normal course of insolvency proceedings. If a lender has perfected the security over an asset in Pakistan, it may join the insolvency proceedings or enforce its security independently against the borrower. Priorities are regulated by the order in which the security interests are registered under the Companies Ordinance. However, lenders may also agree amongst themselves that the securities created in their favour at different times will rank pari passu inter se in point of security. In a winding-up, the secured creditors may independently enforce and realise their security over the assets that are secured in their favour. If the amount realised is less than the amount due to the secured creditor, he may prove the shortfall amount as part of the insolvency proceedings. A secured creditor may, however, also decide not to enforce his security and surrender it to the liquidator for the benefit of all creditors, including himself, in which case he will share in the distributable funds as an unsecured creditor on a pari passu basis with other unsecured creditors. A secured creditor may decide to neither realise nor surrender his security, but, instead, in his affidavit for proof of debt, to give a value which he assesses of his security. If the liquidator accepts the valuation, he may redeem it on payment to the creditor of the assessed value. If the liquidator does not accept the valuation, he may require the security to be sold on terms agreed between the liquidator and the creditor. If no such agreement is reached, the sale may be arranged as the court directs. In such case, the sale amount, if realised, after the amount of the value of the security assessed by the creditor (if this is less than the amount due to the creditor) will be paid to the creditors. Under the Companies Ordinance, the order of priorities of payments to creditors upon winding-up is as follows: preferential payments, including taxes, wages and remuneration of employees and workmen, contributions towards the employee funds, insurance and Workmen's Compensation Act 1923 winding-up expenses secured creditors other creditors, including unsecured creditors contributories (shareholders etc.) ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or    does     a    lender    need    a    court    order    to    enforce    its    security    or     claim    under    a    guarantee?    If    a    court    order    or    court     involvement    is    required    for    security    enforcement    or    a     guarantee    claim”    how    long    will    it    approximately    take     to    complete    an    enforcement    of    security    or    a     guaranteeŽclaim? Lenders generally have the power to take possession of the property, appoint a receiver, foreclose on a mortgage, sell the secured property and wind up the corporate borrower. In the case of pledged property (where the pledged property is in the possession of the lender), the lender would generally have the contractual right to sell the pledged property directly after giving notice to the pledgor. A company may be wound up by the court on account of its inability to pay its debts. Therefore, the lender may exercise the option to enforce security through a court. A secured creditor may self-enforce the security without the need for a court order. The financing documents would generally vest such power in the creditor, and this is also supported by the law. However, self-enforcement is not usually feasible as, in most cases, the mortgaged/charged property is not in the lender's possession, making the transfer of possession to a third-party purchaser problematic. Therefore, it would generally not be possible for a lender to hand over possession to a third-party purchaser. Accordingly, it is advisable to enforce the sale of mortgaged/charged property through the court. Enforcement through the banking recovery system is slow as the defendant borrower has a number of ways to delay enforcement. Where the loan does not fall within the scope of the banking recovery laws, recourse to the civil courts has to be made. In the case of civil suits filed under the Civil Procedure Code 1908, enforcement of the security may take several years. ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? In a winding-up, the liquidator may, in certain circumstances, prevent the enforcement of any guarantees or unsecured claims of the company. In certain circumstances, the liquidator may set aside security given by the¨borrower. The Companies Ordinance provides that the transfer of property (including actionable claims), or delivery of goods which is not in the ordinary course of business or in favour of a purchaser or encumbrances in good faith and for valuable consideration, made one year before the presentation of a petition or the passing of a resolution for winding-up, is void against the liquidator, except with a court order. Any conveyance, mortgage, delivery of goods, payment, execution or other actions relating to property made six months before the commencement of a winding-up or the presentation of an insolvency petition on which an individual is adjudged insolvent will be deemed fraudulent and invalid. Section 121 of the Companies Ordinance further provides that any conveyance or assignment by a company of all of its property to trustees for the benefit of all of its creditors will be void. Where a company is being wound up, a floating charge on the undertaking or property of the company created within 12 months of the commencement of the winding-up will, unless it is proved that the company was solvent immediately after the creation of the charge, be invalid except to the amount of any cash paid to the company at the time of, or after the creation of, and in consideration for, the charge together with surcharge on the amount at the rate of 1% per month or part thereof, as notified by the SECP in the Official Gazette. All security interests on the company's property or undertakings will be void against a liquidator and any creditor of the company, unless a copy of the instrument creating the security interest is filed with the Registrar of Companies. Please see Question 15 for further details. ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving     guarantee    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? Yes. The Companies Ordinance provides that a company or any of its subsidiaries is prohibited from providing financial assistance for the purpose of an acquisition of shares in the company. However, a private company (which is not a subsidiary of a public company) may provide financial assistance by means of a loan or guarantee or provision of security for the purpose of, or in connection with, the acquisition of its shares or the shares of its holding company. MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 41 PAKISTAN “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    governmental    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? Under the Companies Ordinance, a company must file and register all instruments creating mortgages or charges with the Registrar of Companies to transfer rights in property. All mortgages, charges or other interest created in relation to property, whether in or outside Pakistan, must be registered with the Registrar of Companies within 21 days of their creation. Failure to register renders the mortgage, charge or other instruments void against a liquidator or other creditors of the company. Once the instrument is registered, the Registrar of Companies issues a certificate of registration which is proof of perfection of the security interest. A security by way of pledge is not covered by section 121 and need not be registered. Where a pledge is to be created on securities or shares of a corporate entity, the methodology differs depending on whether the security is listed on the stock exchange. Unlisted shares are held in certificated form. To create a valid pledge over physical shares, the original share certificate must be handed over, along with executed transfer deeds signed by the borrower/transferor. For securities of listed companies, all securities must be held in scripless form (book-entry securities) under the Central Depository Act 1997 (the¨CDC Act) and the Central Depository Company of Pakistan Limited Regulations (the CDC Regulations). The CDC Act and the CDC Regulations provide a detailed mechanism enabling the creation of a security interest on securities held in electronic form with the Central Depository Company of Pakistan (the CDC). A pledge of book-entry securities is created when securities are blocked in an account or sub-account held with the CDC based on the instructions to the CDC by the concerned account or sub-account holder. —     Does    any    security    or    guarantee    give    rise    to    any     stamp    dutyœtaxesœregistrationŽfees? Loan agreements and security documents are subject to stamp duty. As a general rule, any dutiable document which is not stamped may not be admissible as evidence in a court in Pakistan. However, under the banking recovery laws, an unstamped or under-stamped document may also be admissible as evidence. In the Province of Sindh, stamp duty on loan and security documentation depends on the characterisation of the facility. Financing and security documents relating to a single transaction in favour of a banking company under a mode of finance not based on interest would attract stamp duty in the range of PKR1,000 to PKR100,000, depending on the amount involved. Where the financing is based on interest, and the lender is a bank or a financial institution, stamp duty at the rate of 1% of the loan amount is payable. An instrument of assignment is characterised as a conveyance for the purposes of stamp duty and attracts high ad valorem stamp duty. If a registered mortgage is to be perfected, in addition to the stamp duty, a registration fee of 1% under the Registration Act 1908 is payable. Stamp duty is payable on or before the execution of an instrument. If the instrument is executed outside Pakistan, stamp duty is payable within three months of the instrument being first brought into Pakistan. ˜      Is    it    possible    to    grant    a    lender    security    over    an     asset    which    has    already    had    security    granted    over    it    to     another    person?    If    it    is    possible”    how    would    you     normally    document    such    anŽarrangement? Yes. As a general principle, it is possible to create inferior or pari passu security over an asset provided there are no contractual restrictions on the existing chargeholders. This would be contractually documented and, where necessary, the second security would have to be registered with the appropriate authority (for example, the Registrar of Companies under the Companies Ordinance. See Question 14.). REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries? Generally, an acquisition by a foreign investor of a company or assets of a company in Pakistan is prohibited under the Foreign Exchange Regulations Act 1947, which states that no resident of Pakistan may take any action where a company ceases to be owned by a Pakistani resident without the approval of the SBP. The SBP has made certain exemptions in this regard where a foreign investor can acquire shares in a Pakistani¨company. To encourage foreign investment, a range of activities now falls under general exemptions under the exchange control laws. No prior approval is required if the foreign investment falls within the permitted categories and relevant exemptions. The Takeovers Ordinance prohibits any person from directly or indirectly: (i) acquiring voting shares which (taken together with the voting shares, if any, already held by such person) would entitle such person to own more than 25% of the voting shares in a listed company or (ii) obtaining control of a listed company, unless such person makes a public announcement of intention and, subsequently, a public announcement of offer to acquire the voting shares or control of the company (ie, a tender offer). The Takeovers Ordinance further prohibits an acquirer who has acquired more than 25%, but less than 51%, of the voting shares or control in a listed company from acquiring additional voting shares or control without making a public announcement of the offer to acquire voting shares or control in accordance with the Takeovers¨Ordinance. The provisions of the Competition Act may also apply, depending on whether the proposed acquisition would trigger any prescribed thresholds. The Competition Act, amongst others, regulates the acquisition of shares of one undertaking by another undertaking where any of the thresholds prescribed for this purpose by the Competition Commission of Pakistan (the CCP) constituted under the Competition Act are met. Unless an exemption applies, where these thresholds are met, it is necessary to obtain CCP clearance. The pre-merger notification thresholds are prescribed by the CCP in the Merger Control Regulations. The current merger control thresholds are set out below: the worldwide assets (excluding goodwill) of the acquiring party only is PKR300 million or more; or the combined worldwide assets of the acquirer and target are PKR1 billion or more; or the worldwide turnover of the acquirer only is PKR500 million or more; or the combined worldwide turnover of acquirer and target is PKR1 billion or more and the value of shares or assets to be acquired is PKR100million or more; or the total percentage of voting shares in the target held by the acquirer exceeds 10% as a result of acquisition of voting shares Note that where a merger party is an asset management company, separate thresholds would apply. Under the Merger Control Regulations, the following transactions are exempt from filing a pre-merger notification: a transaction in which a holding company (whether incorporated in or outside Pakistan) acquires or increases its stake in its subsidiary, or the subsidiaries thereof (whether incorporated in or outside Pakistan) increase their equity investment in each other a transaction in which a holding company (whether incorporated in or outside Pakistan) merges, amalgamates, combines or ventures jointly with its subsidiary, or the subsidiaries thereof (whether incorporated in or outside Pakistan) merge, amalgamate, combine or venture jointly with each other 42 HERBERT SMITH FREEHILLS PAKISTAN shares acquired by succession or inheritance allotment of voting shares under a rights issue (provided that the voting securities acquired do not increase, directly or indirectly, the acquiring person's per centum share of outstanding voting securities of the issue) where an undertaking, the normal market activities of which include the carrying out of transactions and dealings in securities for its own account or for the account of others, acquires securities of another undertaking and sells back the acquired securities on a pre-determined price within six months of the date of such acquisition Although the above transactions may be exempt from pre-merger notification, they may still be subject to substantive review under the Takeovers Ordinance if deemed appropriate by the CCP.   ­ Oil/gas The prior consent of the Oil and Gas Regulatory Authority is required for an acquisition resulting in a change of control of a company or assets of a company holding a petroleum right. If there is a disposition of the share capital of the holder of a petroleum right, or its parent company, in consequence of which any person who, before such disposition, had effective control of the holder or its parent company ceases to have such effective control, then the Oil and Gas Regulatory Authority would be entitled to revoke such petroleum right, unless its prior consent is¨obtained.  €­ Electricity Prior approval of the National Electric Power Regulatory Authority (NEPRA), the regulator of the power and electric sector in Pakistan, is required for any change in the ownership of a licensee (ie, a company that holds licences for power generation, transmission and/or distribution of electricity). Any transfer of shares or other voting securities held by a licensee equal to, or exceeding, 10% of the total number of votes would require prior authorisation from NEPRA.  …­ Natural resources/mines There is no specific restriction on the acquisition of companies or assets in the mining/natural resources sector (excluding oil and gas) in Pakistan, subject to the general laws and regulations on acquisition and foreign investment. As a matter of practice, the general conditions of mining concessions will typically require that, where the mineral title holder is a company, such company must notify the relevant licensing authority of any change in its beneficial ownership of more than 5% of the issued share capital.  ‡­ Telecoms Any transfer of more than 10% of the shares in a telecoms company must be reported to the Pakistan Telecommunication Authority (the PTA). Prior approval of the PTA is required for any changes or proposed changes in the substantial ownership interest in or control (either direct or indirect) of a telecoms company. The PTA may impose conditions on the telecoms company with regard to the proposed change. Furthermore, where the government of Pakistan believes that the transfer of control threatens or potentially threatens the national security of Pakistan, it may terminate the licence of the telecoms company. š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    the    industries    listed    above?  ˜ ­ Oil/gas Please see Question 18.1 above.  ˜€­ Electricity Please see Question 18.2 above. NEPRA has wide powers to regulate the affairs of a licensee. These include the right to suspend or revoke the licence or to appoint an administrator where the lenders of the licensee exercise their remedies in a manner that would incapacitate the licensee from performing its obligations under its licence. As a result, prior authorisation from NEPRA may be required where an encumbrance is proposed to be created on all or a substantial part of the licensee's assets under the licence.  ˜…­ Natural resources/mines Please see Question 18.3 above.  ˜‡­ Telecoms Please see Question 18.4 above. Prior written permission of the PTA is required for the sale or creation of any charge or encumbrance over any telecoms system licensed by the PTA to the extent that such charge would render the licensee incapable of performing its obligations under its licence. PTA permission is not required by a licensee to create a charge over its assets to secure a financing facility obtained in the normal course of the business. GOVERNING LAW ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    Pakistan? Section 44-A of the Civil Procedure Code 1908 (the CPC) provides that (subject to section 13 of the CPC discussed below), where a foreign judgment has been rendered by a court in a reciprocating territory (as¨recognised by the government of Pakistan) outside Pakistan, it is enforceable in Pakistan as if the judgment has been rendered by the relevant court of Pakistan. Under section 44-A, inter alia, the High Court of Justice in England has been notified as a court in a reciprocating territory and, accordingly, a money judgment of that court would, subject to the exceptions contained in section 13 of the CPC, be enforceable as if the judgment was a judgment of a district court in Pakistan. Enforcement of any foreign judgment for a sum of money under a loan/ facility agreement will be subject to the following exceptions contained in section 13 of the CPC, which provides that a judgment will be conclusive as to any matter thereby directly adjudicated upon except: where it has not been pronounced by a court of competent jurisdiction where it has not been given on the merits of the case where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognise the law of Pakistan in cases where such law is applicable where the proceedings in which the judgment was obtained were opposed to natural justice where it has been obtained by fraud where it sustains a claim founded on a breach of any law in force in¨Pakistan Orr, Dignam & Co. Karachi office 1B State Life Square I.I. Chundrigar Road Karachi-7400, Pakistan T ƒ„‰‡‰†‡Œ‰ˆ†‡‘ŒŠˆÀ ƒ„‰‡‰†‡Œ‰ˆ†‡‹ŽŽŒÀ ƒ„‰‡‰†‡Œ‰ˆ†‡‘ŽŠ‹ F ƒ„‰‡‰†‡‰ˆ†‡‹‘…†À ƒ„‰‡‰†‡‰ˆ†‡Š„‰ˆ Islamabad office 3 A, Street No. 32, Sector F8/1 Islamabad, Pakistan T ƒ„‰‡‘†‡‰‰‹‡Ž‘†…-ŠÀ ƒ„‰‡‘†‡‰‰‘‡ˆ††‹À ƒ„‰‡‘†‡‰‰‘‡ŒŽŠ‹ F ƒ„‰‡‘†‡‰‰‹‡Ž‹‘ŒÀ ƒ„‰‡‘†‡‰‰‹‡†…‰‰ www.orrdignam.com MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 43 QATAR QATAR SULTAN AL-ABDULLA & PARTNERS Sultan Al-Abdulla & Partners is an established legal practice in Qatar, specialising in corporate and commercial transactional work and complex business litigation. The firm provides quality legal services to local and international clients committed to the Qatari market. Sultan Al-Abdulla & Partners has been instrumental in drafting the free zone legislation in Qatar. With a multinational team, the firm offers expertise in Shari'ah-compliant financial products and the banking, project finance, energy, construction, information technology and communication sectors. This chapter deals with the laws of Qatar, not the Qatar Financial Centre, which has its own civil and commercial courts and regulatory tribunal. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    Qatar    (the    borrower)?    Are    there    any     exemptions    available? A lender does not require a licence to lend money to a company in Qatar. However, the Qatar Central Bank (QCB) Regulations require that an appropriate banking licence be procured to engage in the business of lending money. Providing a credit facility on a cross-border basis should not require a licence. ‰      What    are    the    consequences    of    making    a    loan    to    a     borrower    in    Qatar    without    a    licence? Not every act of making a loan to a borrower requires a licence. As explained, a licence is required where the activity of granting credit facilities is engaged in by way of business. If a financial institution gives out loans to borrowers as a matter of business without a licence, or for that matter carries out any other activity regulated by the QCB without a licence thereto, the person responsible will be liable to a punishment of imprisonment for up to three years. In addition, the defaulting institution may be subject to a fine in an amount of QR5 million and possibly forced closure. ‘      Will    a    borrower    based    in    Qatar    have    to    deduct     amounts    for    withholding    tax    on    interest    payments     made    to    an    overseas    lender? Under the Income Tax Law, interest payments by persons resident in Qatar to non-residents abroad are subject to a withholding tax of 7%, unless the rate is reduced under a tax treaty. According to the Executive Regulations, no withholding tax is applicable to interest payments to an overseas lender (if such lender is a bank or financial institution). ’      Is    there    any    limit    to    the    level    of    interest    that    can    be     charged    on    loans    made    in    Qatar? Where a person making a loan is not subject to the QCB regulatory regime because it is not in the business of lending money, no limit will apply to the level of interest that may be charged on the loan. A relatively recent QCB directive issued to banks in Qatar provides ceilings for amounts, as well as rates of interest that may be applied, on loans given out in Qatar. For example, the annual interest rate on loans granted against salaries should not be greater than 1.5% above the QCB lending rate, which is currently around 5%, and the maximum profit rate prescribed for Islamic banks on their new loans is 6.5% p.a. “      Is    it    possible    for    one    lender    to    agree    that    a    second     lender    may    be    preferred    over    the    first    lender    for     repayment    of    debt    irrespective    of    when    that    debt    was     incurred?    If    it    is    possible”    how    would    you    document     such    an    arrangement? A lender may agree that another lender has priority in relation to debt repayment. Such an arrangement can be documented in a loan contract by a provision to the effect that the lender agrees with the borrower that his debt will rank lower than another lender's. TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    Qatar    or    a    guarantee    from     an    entity    incorporated    in    Qatar? Entities that are not registered or licensed in Qatar may take security over both movable and immovable assets. ˜      Does    the    taking    of    security    in    Qatar    result    in    a     lender    being    liable    to    tax    in    Qatar? Under the Income Tax Law, only income realised from business activities carried out in the State of Qatar is liable to income tax. The taking of security in itself does not lead to generation of income, and will not, therefore, create a tax liability for the lender. ™      Can    a    security    interest    be    taken    in    Qatar    over    the     following    assets?  ­ Land Land can be mortgaged. Mortgages in the State of Qatar are governed by the provisions of the Civil Law, the Real Estate Registration and its implementing regulations. IRAN BAHRAIN SAUDI ARABIA KUWAIT IRAQ PAKISTAN SYRIA LEBANON TURKEY INDIA EGYPT QATAR SAUDI ARABIA SAUDI ARABIA JORDAN KUWAIT 44 HERBERT SMITH FREEHILLS QATAR The Civil Law provides that mortgages can be taken by virtue of a contract (mortgage instrument) in which a debtor or a real guarantor grants a creditor a real right in a specified immovable property owned by it for the satisfaction of a debt. The mortgage must be notarised at the Ministry of Justice and registered at the land registry. €­ Shares in a Qatari company The creation, perfection and validity of security over shares in Qatari companies is governed by the Commercial Companies Law and the Civil Law. Under the Commercial Companies Law, shares may be mortgaged by delivering the certificates of share ownership to the creditor/mortgagee. The mortgagee is entitled to receive dividends and enjoy the rights attached to the shares, unless otherwise agreed in the mortgage contract. Shares in a Qatari company may be pledged to any third party, including foreign nationals and entities. However, where the mandatory majority shareholding of a Qatari national in a Qatari company, which is 51% under the Foreign Investment Law, is proposed to be pledged, the pledge transaction should not be part of an arrangement to conceal the foreign shareholder's greater-thanthe-maximum permissible (ordinarily 49%) interest in the capital. If the pledge is part of such an arrangement, it will be invalidated and sanctions may be imposed under the Concealment Law. The share pledge instrument must be executed before and notarised by relevant officials of the Ministry of Justice. …­ Bank accounts Security over bank accounts can be created by way of a charge over the funds in a particular account. Such account charge agreement should preferably be notarised by relevant officials of the Ministry of Justice to ensure enforceability. ‡­ Receivables (rights under contracts) Security over receivables is not specifically regulated under the laws of Qatar, but taking such security is possible by way of a contract (eg, an assignment) to this effect between the parties. Such a security instrument should preferably be notarised to ensure that it is capable of being enforced in case of a challenge by the counterparty. Š­ Insurance A security interest can be taken over possible proceeds of insurance by way of assignment of the insurance contract. This will also involve notifying the insurer and procuring its written consent to perfect the assignment. Œ­ Floating charge over all assets Floating charges over a party's current and future assets can be created by contractual arrangement. š      Are    trusts    recognised    in    Qatar?    If    not”    how    can    the     common    law    concept    of    a    security    trust    be    catered     for? Under the laws of Qatar, the legal principles applicable to waqf provide for a concept that is akin in some respects to the common law institution of trust, more particularly a charitable trust. In the Waqf Law, waqf is defined as a dedication of revenues out of a person's estate, or from a portion thereof in cash or kind, to a lawful trust in accordance with the provisions of Shari'ah. However, the concept and regulation of a waqf is not applied in commercial transactions. The objectives of the common law concept of security trust can be achieved by contractual mechanisms, including security agency agreements whereby a security agent is assigned rights in relation to a debtor's estate. It is uncertain how the Qatari courts would interpret a parallel debt structure. ›     Can    a    company    incorporated    in    Qatar    (the     guarantor)    give    a    guarantee    for    the    debt    of    the     borrower?    If    the    borrower    is    incorporated    in    a    different     country”    would    the    guarantor    still    be    able    to    give    the     guarantee? There is no restriction on the ability of a Qatari company to guarantee the debt of a borrower whether such borrower is incorporated in Qatar or elsewhere. The articles of association of a company occasionally stipulate that guarantees above a certain amount may be given only after board and/or shareholder approval.

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? Under the Commercial Law, secured creditors can commence legal action against the bankrupt estate – this is an exception to the general prohibition on actions after an adjudication of bankruptcy. Any privilege or lien in favour of the government on account of taxes and fees for up to the two years preceding the adjudication of bankruptcy, as well as wages and salaries due to the employees for 30 days before the adjudication of bankruptcy, will have precedence. ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or     does    a    lender    need    a    court    order    to    enforce    its     security    or    claim    under    a    guarantee?    If    a    court    order     or    court    involvement    is    required    for    security     enforcement    or    a    guarantee    claim”    how    long    will    it     approximately    take    to    complete    an    enforcement    of     security    or    a    guarantee    claim? Self-help is not an option in enforcement of any type of security. If a guarantor challenges or resists a demand for payment, legal action will need to be initiated. Foreclosures on mortgages proceed through formal court proceedings. The entire procedure to complete foreclosure under a mortgage can take anywhere from six months to a year. Other types of security will also need to be enforced through the courts. ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? Under the Commercial Law, certain disposals (transactions and payouts that are prejudicial to the body of creditors) which the debtor makes after the suspension date (ie, a date determined by the bankruptcy court as that on which the debtor suspended the payment of his debts) and before the adjudication of bankruptcy cannot be claimed against the general body of creditors. Therefore, enforcement of any security created after the suspension date will be prevented by the liquidator. ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving     guarantee    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? There is no prohibition preventing an acquired company from providing financial assistance, granting security or giving guarantee to secure a loan used for the acquisition of such acquired company. MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 45 QATAR “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    government    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? As a matter of practice, contractual documents or deeds giving security over assets are notarised at the relevant department of the Ministry of Justice. However, there is no mandatory legal requirement to do so, except in the case of mortgages over real estate, which have to be notarised at the Ministry of Justice and registered at the land registry to be considered perfected. —     Does    any    security    or    guarantee    give    rise    to    any     stamp    dutyœtaxesœregistration    fees? There are no stamp duties or other levies on execution of security documents. However, where a document is proposed to be notarised at the Ministry of Justice, a nominal notarisation fee of under QR100 is payable. If documents are notarised, they will need to be translated into Arabic, which may give rise to further fees. ˜      Is    it    possible    to    grant    a    lender    security    over    an     asset    which    has    already    had    security    granted    over    it    to     another    person?    If    it    is    possible”    how    would    you     normally    document    such    an    arrangement? There is no prohibition on having more than one security interest over the same asset. However, in relation to security over real estate, it is not possible to register a second mortgage over the same property with the land registry. As for documenting this arrangement, it is essential that the first security instrument permits another security interest to be created over the same asset, and the second security interest should acknowledge the first security interest. Unless otherwise provided in the security documents, the secured creditors will rank pari passu with each other. In the absence of permission, the second security document will most likely be treated by a court as being inferior in rank. REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries? There are no laws preventing the acquisition of companies in any particular sector. However, the Foreign Investment Law contains a general restriction on foreign investment in the banking, insurance, commercial agencies and real estate sectors. It also requires, in the ordinary course, that foreigners must partner with Qatari nationals or Qatari-owned companies having at least 51% (50% if the foreign shareholder is a Gulf Cooperation Council (GCC) national or a GCC company that is 100% owned by GCC nationals) shareholding in the capital of the project. These restrictions may be lifted on a case-by-case basis by way of Ministerial Decisions and other legislative instruments. š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    particular    industries?  ˜ ­ Oil/gas Whether an oil and gas company is able to grant security over oil and gas assets will depend on whether it owns such assets. For example, the petroleum wealth relating to an oil and gas concession belongs to the state and, therefore, cannot be part of the security of the oil and gas company operating it. However, shares in the oil and gas company can be secured, unless the company's agreement with the relevant government authority prohibits security over shares in that company.  ˜€­ Other sectors Security can be created and enforced to the extent that the assets are not state-owned and subject to the terms of the relevant licence. GOVERNING LAW ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    Qatar? Yes, as a matter of rule, foreign judgments issued by competent courts, including judgments of English courts, are enforceable in Qatar subject to satisfaction of certain conditions for enforcement set out in Law No. 13 of 1990. This includes, most importantly, the condition that the country in which the judgment has been rendered provides reciprocal enforcement in respect of Qatari judgments. Sultan Al-Abdulla & Partners Al Reem Tower, 8th Floor (Opposite Qatar Financial Centre Building #1) West Bay PO Box 20464 Doha State of Qatar T ƒ„…ˆ‡ˆˆ‡ˆ‰‡Ž‹‹Ž F ƒ„…ˆ‡ˆˆ‡ˆ‰‡Ž‹‹Œ [email protected] www.qatarlaw.com 46 HERBERT SMITH FREEHILLS SAUDI ARABIA SAUDI ARABIA AL-GHAZZAWI PROFESSIONAL ASSOCIATION Al-Ghazzawi Professional Association (GPA) is a leading Saudi full-service law firm with regional offices in Dammam, Riyadh and Jeddah. GPA enjoys an enviable reputation for commitment to providing quality legal advice to clients and delivering international standard service. GPA is highly experienced, having acted on some of the largest transactions and projects in the region. GPA's lawyers respect and understand the cultural nuances of doing business in the region, and provide clients with valuable assistance in navigating the local regulatory, legal and business processes. GPA represents and advises many of the largest domestic and multinational corporates operating in the region, including a large number of Fortune 500 companies. With the fast-growing demand across the Middle East for international energy and projects expertise allied with GPA's full-service law capability in corporate, finance and dispute resolution work, GPA is the first port of call for advice on all aspects of international law and Shari'ah compliance in the region. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    Saudi    Arabia    (the    borrower)?    Are     there    any    exemptions    available? If the lender is a Saudi company, it must be a financial institution licensed by the Saudi Arabian Monetary Agency (SAMA), the central bank of Saudi Arabia, to carry out the lending activity. The Banking Control Law states that all applications to carry on a "banking business" in Saudi Arabia must be addressed to the SAMA. The definition of banking business covers a range of banking matters. The Banking Control Law distinguishes between licensing requirements for national and for foreign banks. Commercial banks are regulated by the SAMA. Investment banks are regulated and licensed by the Capital Markets Authority (the CMA). The SAMA and the CMA recently signed a memorandum of cooperation aimed at developing a framework for a high degree of coordination between the two authorities. A foreign lender without a Saudi presence may lend to a Saudi company without having to obtain permission or a licence from the SAMA or any other Saudi authority. Lending in the form of a finance lease is now legislated by the 2012 Finance Lease Law and related 2013 Regulations. While neither the Finance Lease Law nor Regulations require a SAMA licence, they do set out the parameters in which finance leases may operate. ‰      What    are    the    consequences    of    making    a    loan    to    a     borrower    in    Saudi    Arabia    without    a    licence? The Banking Control Law stipulates that any entity that carries out banking business without a licence is liable to imprisonment for a maximum term of two years and/or a fine of SR5,000 for every day that the offence continues. As set out in Question 1 above, a foreign lender is not required to obtain a licence in Saudi Arabia for Saudi loans. ‘      Will    a    borrower    based    in    Saudi    Arabia    have    to     deduct    amounts    for    withholding    tax    on    interest     payments    made    to    an    overseas    lender? In the absence of a treaty between Saudi Arabia and the country of the lender, interest payments made to an overseas lender are subject to withholding tax under the Income Tax Law and its Implementing Regulations. The current withholding tax rate on interest is 5% if the payment is made to a non-related company, and 15% if the lender is a company related to the borrower (more than 50% ownership). The withholding tax must be paid to the Department of Zakat and Income Tax. ’      Is    there    any    limit    to    the    level    of    interest    that    can    be     charged    on    loans    made    in    Saudi    Arabia? The payment and receipt of interest under Shari'ah is prohibited. As a result, an obligation to pay interest will generally be unenforceable in the Saudi courts. For certain Saudi courts, such as the Board of Grievances (whose jurisdiction covers most types of commercial disputes and government contract disputes), the enforcement of foreign judgments and arbitral awards may not be made in respect of the portion of debt which has been proven to be interest. Even though interest-related transactions are unenforceable before the Saudi Arabian courts, they are not illegal and are enforceable before certain statutory tribunals. Concepts similar to interest may also be included in transactions (eg, commission). The Banking Disputes Committee of the SAMA, which deals with disputes between banks and their customers, or the Committee for the Settlement of Negotiable Instruments Disputes, may, in practice, IRAN BAHRAIN SAUDI ARABIA OMAN IRAQ SYRIA TURKEY YEMEN EGYPT MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 47 SAUDI ARABIA uphold payment of interest by ordering debtors to pay gross sums which include interest elements. As per the Negotiable Instruments Regulation, the interest on the amount of the promissory notes is considered to be null and void. “      Is    it    possible    for    one    lender    to    agree    that    a    second     lender    may    be    preferred    over    the    first    lender    for     repayment    of    debt    irrespective    of    when    that    debt    was     incurred?    If    it    is    possible”    how    would    you    document     such    an    arrangement? It is possible to subordinate debt in Saudi Arabia. This is achieved through contractual subordination by way of an intercreditor agreement, subordination agreement or other agreement. However, subordination agreements that diverge from the order prescribed by law (eg, preferred debts during insolvency, such as alimony, lease agreement, fees of the receiver) may not be upheld during insolvency. TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    Saudi    Arabia    or    a     guarantee    from    an    entity    incorporated    in    Saudi     Arabia? Whether registration or a licence is required depends on the type of security being given. There are no such requirements for a guarantee made to a foreign lender. ˜      Does    the    taking    of    security    in    Saudi    Arabia    result    in     a    lender    being    liable    to    tax    in    Saudi    Arabia? No, provided the security does not give any financial income to the lender and the lender is allowed by law to obtain such security. ™      Can    a    security    interest    be    taken    in    Saudi    Arabia     over    the    following    assets?  ­ Land In July 2012, Saudi Arabia's government approved the much-awaited mortgage law, which will provide a framework for the mortgage and financing of real estate. According to unofficial reports at the time of writing this guide, the SAMA is preparing implementing regulations, and the law is expected to come into effect within 90 days after completion of the implementing regulations. The new mortgage law in Saudi Arabia has been over a decade in the making. It is part of a framework for the mortgaging and financing of real estate, introducing: a mortgage registration law – setting out registration requirements, priority (probably depending on the time of registration) and steps to enforcement a real estate funding law (allowing banks to undertake real estate funding) a finance companies control law (setting out requirements for licensed finance and real estate finance companies) a financial leasing law (on leases of land and other property) an execution and enforcement law (on the enforcement of a mortgage) Theoretically, it is possible for a borrower to grant security over real estate in Saudi Arabia by way of a mortgage, partly perfected by a notary public who records the pledge on the property title documents. However, on the presumption that lending from commercial institutions will involve provisions for interest, notaries in Saudi Arabia have historically refused to notarise mortgages of real estate in favour of financial institutions. Banks and financiers have sidestepped this by using less than ideal alternative structures, such as ifragh. Under this arrangement, the borrower transfers the title of its land to a special purpose vehicle (SPV), usually a corporate entity of the lender. To complete an ifragh transaction, the transferor and the transferee, the SPV through its representative, must together appear before the notary public. The notary public will endorse the transfer of the property on the title deeds itself and make another entry of the same in its register. The SPV, under the control of the lender, continues to hold the land absolutely until all repayments related to the finance facility have been made. After all the repayments have been made, and upon satisfaction of the lender, the SPV returns the title of the land to the borrower. €­ Shares in a Saudi company Security over financial instruments, such as shares in joint stock companies, is granted through a pledge under the CPL. The pledge is perfected by recording the pledge on the share certificates and in the company's share register, and through physical possession or control over the pledged item. For shares, this is established through delivery of the original share certificates to the pledgee. For tradable securities, the pledge should also be registered at the Securities Deposit Centre operated by the Saudi Arabian Stock Exchange, Tadawul, which will then block the pledged securities from trading or further pledging. In theory, it is also possible to encumber membership interests in a limited liability company (LLC) by pledging them. However, Saudi law does not specifically contemplate this, and it is uncommon for a pledge over membership interests in an LLC to be created. This is because membership interests in an LLC are not negotiable and, furthermore, are not evidenced by a form of share certificate, making it more difficult for the members of an LLC to show and provide evidence of the requisite physical possession and control typically required for a pledge. In addition, transfer of interests in an LLC trigger statutory rights of pre-emption, and membership interests in the LLC may not be transferred without first dispensing with the pre-emption right. …­ Bank accounts In Saudi Arabia, a pledge will attach only to the credit funds lying in the pledged account on the date the pledge is created. As a result, a pledge agreement recording a pledge on bank accounts will usually contain an obligation requiring the pledgor to execute supplemental pledges each time the amount in the pledged account exceeds the amount specified in the pledge agreement. Along with a pledge on a bank account, it is recommended to take an assignment of the right to receive funds from the source, for example rental proceeds from a real estate project. Such proceeds are usually then either routed through or built up in the bank account which is pledged in favour of the lender. However, under Shari'ah, money cannot be sold, so it is uncertain whether an assignment of a deposit is enforceable in Saudi Arabia. ‡­ Receivables (rights under contracts) It may be possible to take security over receivables through an assignment. The counterparty must be notified of the assignment and an acknowledgement should be obtained. The concept of an assignment by way of security may not be recognised under Saudi law, so it is uncertain whether the assignment of rights under contracts would be enforceable. Š­ Insurance Please see Question 8.4. Œ­ Floating charge over all assets The concept of a floating charge is not recognised under Saudi law. š      Are    trusts    recognised    in    Saudi    Arabia?    If    not”    how     can    the    common    law    concept    of    a    security    trust    be     catered    for? The common law concept of trust is not recognised in Saudi Arabia. In the context of a syndicated financing, security over assets is usually held 48 HERBERT SMITH FREEHILLS SAUDI ARABIA by a security agent on behalf of other secured lenders. It is uncertain how a parallel debt structure would be seen in the context of an enforcement. ›     Can    a    company    incorporated    in    Saudi    Arabia    (the     guarantor)    give    a    guarantee    for    the    debt    of    the     borrower?    If    the    borrower    is    incorporated    in    a    different     country”    would    the    guarantor    still    be    able    to    give    the     guarantee? A company incorporated in Saudi Arabia can give a guarantee for the debt of a borrower even if the borrower is incorporated in a different country. Guarantees play an important role in the structuring of finance packages in the Saudi market. Promissory notes are also often used in financial transactions. They are seen by creditors as part of the security package. In accordance with Shari'ah, the amount of any guarantee must be determined in advance, or at least capped, as a guarantor may not provide a guarantee for an unknown or undetermined amount.

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? In a bankruptcy situation, a secured creditor will have priority over general creditors. There are certain preferred debts, eg, employee wages, social contributions and receiver's fees. ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or     does    a    lender    need    a    court    order    to    enforce    its     security    or    claim    under    a    guarantee?    If    a    court    order     or    court    involvement    is    required    for    security     enforcement    or    a    guarantee    claim”    how    long    will    it     approximately    take    to    complete    an    enforcement    of     security    or    a    guarantee    claim? Note that there is, in fact, very limited precedent of actual enforcement of security and, as such, the topic remains uncertain. Any dispute about a banking matter must in the first instance be referred to the Banking Disputes Committee for settlement. Enforcement of security is regulated by the Board of Grievances. Any term in a security agreement which purports to give a right to the pledge to sell the security without recourse to the Board of Grievances is null and void. Generally, upon default, the secured creditor notifies the borrower of the default and his payment demand. The secured creditor may then file a petition with the Board of Grievances for enforcement by way of a public auction. The duration of the enforcement proceedings depends on the delay tactics used by the defendant. Usually, the enforcement process varies from three months to two or three years. Instead of selling the pledged asset by way of an auction, the pledgee, or the security agent if it holds a valid power of attorney in relation to the assets, can sell the assets and repay the debt with the proceeds. Alternatively, the Amended Implementing Regulations of the Commercial Mortgage Law stipulate in relation to movables that the borrower and the lender may agree that the lender delivers the secured asset(s) to a third party to sell it and pay the lender the amounts due to him. In relation to the enforcement of letters of guarantee: letters of guarantee require that a guarantee is paid upon request, in accordance with the requirements and conditions set out therein. This has also been adopted by the Banking Disputes Committee in its decisions on the enforcement of bank guarantees. ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? Neither a liquidator nor a creditor of a borrower or guarantor can prevent a secured third-party creditor from enforcing its security or enforcing a guarantee in its favour. Transactions entered into after the declaration of bankruptcy are null and void, but there is no suspect period. ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving     guarantee    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? There are no specific laws preventing the financial assistance by a target company in relation to the acquisition of its shares by a borrower. However, corporate benefit issues may be raised by a creditor to the acquired company in this regard. “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    government    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? A pledge is perfected if possession of the pledged assets is transferred from the pledgor to the pledgee or to a third party appointed by the concerned parties. Depending on the nature of the asset, the transfer of possession should be actual if the asset is capable of being physically transferred. If the pledgee is not capable of obtaining physical possession (for example, if the asset is large and fixed to the ground, such as plant and machinery), the pledgee must obtain recognised title documents for the pledged assets and/or, where possible, physical control over the assets to show third parties that the asset is pledged. The Implementing Regulations to the CPL stipulate that a copy of the registration certificate of the executed pledge document must be filed with the recently established Unified Center for Lien Registration (UCLR), unless another authority is responsible for registering the pledge deed. The consequences, if any, of non-registration with the UCLR are unclear. Guarantees do not need to be registered. —     Does    any    security    or    guarantee    give    rise    to    any     stamp    dutyœtaxesœregistration    fees? Other than nominal registration fees that may be payable in relation to registrable security, there are no stamp duty, taxes or other fees in Saudi Arabia. ˜      Is    it    possible    to    grant    a    lender    security    over    an     asset    which    has    already    had    security    granted    over    it    to     another    person?    If    it    is    possible”    how    would    you     normally    document    such    an    arrangement? Yes, such an arrangement can be documented by signing a subordination agreement with the other lender(s). Please note that Shari'ah principles require that the asset must be equivalent in value to the debt. MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 49 SAUDI ARABIA REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries? General Foreign investment into Saudi Arabian companies or assets is governed by the Foreign Investment Law. According to this law, foreign investors are generally not permitted to acquire companies in Saudi Arabia without first obtaining a foreign capital investment licence from the Saudi Arabian General Investment Authority (SAGIA), which was established in 2000 to simplify doing business in the country. Despite these reforms, Saudi Arabia continues to maintain a "negative list" of sectors in which foreign investment is prohibited (the Negative List) although minority ownerships in joint ventures with Saudi partners may be permitted in certain cases/sectors. Examples of sectors covered by the Negative List are real estate investment in Mecca and Medina, real estate brokerage and transportation. SAGIA periodically reviews the Negative List, and it is anticipated that the list will change as a result of further liberalisation.   ­ Oil/gas Foreign investment in oil exploration, drilling and production is restricted, except for certain services related to the mining sector. Oil and gas exploration and drilling is entrusted exclusively to Saudi Aramco, which is a closed joint stock company fully owned by the government.  €­ Electricity The production of electricity in Saudi Arabia is entrusted to the Saudi Electricity Company (SEC), which is owned by the government (74%), Aramco (7%) and the public (19%). Hence, 81% of the SEC's shares may not be acquired as Aramco is fully owned by the government. Although it is a listed joint stock company subject to the Saudi Companies Regulation, the SEC is considered a state-owned company, the assets of which cannot be acquired by third parties except those assets that can be disposed of (such as minor power plants).  …­ Natural resources/mines Natural resources and mining activities require a licence from the Ministry of Petroleum and Natural Resources. There are no laws preventing the acquisition of companies or assets in this industry, as long as such acquisition complies with the Ministry of Petroleum and Natural Resources' licensing requirements.  ‡­ Telecoms No laws prevent the acquisition of companies or assets in the telecoms industry as this industry has been privatised. š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    the    industries    listed    above?  ˜ ­ Oil/gas Saudi Aramco is a fully state-owned company, and the only company that is entitled to explore and drill oil. Neither its shares nor its assets can be encumbered by any security right.  ˜€­ Electricity The SEC is the only company that is entitled to produce electricity. It is a quasi-governmental company as 81% of its shares are owned by the government and Saudi Aramco and 19% by the public. Except for its publicly owned shares, neither its shares nor its assets can be subjected to any security.  ˜…­ Natural resources/mines; telecoms To the extent that any assets in these sectors are owned by the private sector and there are no restrictions in the relevant licence, privately owned shares in the natural resources and mining companies can be encumbered by any security right. SIDF loans and the assignment of residual proceeds The Saudi Industrial Development Fund (SIDF) is a government entity linked to the Ministry of Finance and the National Economy and based in Riyadh. It was set up in 1974 by the Saudi government to provide interest-free, medium- to long-term soft loans to encourage industrial development in Saudi Arabia and support development of the private industrial sector. The SIDF has a set of standard-form documents consisting of a loan agreement, a shareholder guarantee and a mortgage note. These documents were drafted almost 30 years ago and are regarded as non-negotiable. They are governed by Saudi law as the SIDF is prohibited by law from entering into any documents under foreign laws. The SIDF mortgage note grants a first-ranking mortgage of the borrower's interest in the project site and structures. In addition, the SIDF will take a first-ranking assignment of the project technology licences and certain project insurances. As the SIDF enjoys first-ranking security rights over many key project assets, many commercial lenders, understandably, would like to take a second-ranking position behind the SIDF's securities. Lenders in Saudi project financings in which the SIDF is involved will usually seek to obtain an assignment of residual proceeds under which the borrower assigns to an onshore security agent any proceeds which the SIDF would be returning to the borrower after: (i) the borrower defaulted in the repayment of an SIDF loan, (ii) the SIDF foreclosed on the mortgage, (iii) the SIDF sold the mortgaged property (presumably after obtaining permission from the Saudi Arabian Board of Grievances), and (iv) there was an excess of amounts from the sale of the foreclosed properties. This "security", however, would not, under Saudi Arabian and Shari'ah law principles, result in an enforceable security interest and would appear to constitute jahala under Shari'ah (entering into a contract the subject matter of which is "unknown" when the contract is entered into, as the SIDF loan probably would have not been made when the assignment was entered into, nor would there have been a default, a foreclosure or a sale in which there was an excess of proceeds). Therefore, the agreement or instrument would not be valid or enforceable under Shari'ah law and hence under the laws and regulations of Saudi Arabia. 50 HERBERT SMITH FREEHILLS SAUDI ARABIA GOVERNING LAW ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    Saudi    Arabia? Not automatically. The Board of Grievances is responsible for the recognition and enforcement of foreign judgments. There is no treaty between the UK and Saudi Arabia on the recognition and enforcement of judgments. The Board of Grievances would, therefore, rely on: (i) the reciprocity of treatment (ie, whether an English court would recognise and enforce a Saudi court judgment in England), and (ii) the non-conflict of the English judgment with the Saudi laws and Shari'ah. In practice, this means that the merits of the claim are re-examined. For a foreign court judgment to be recognised in Saudi Arabia, it must be: final and irrevocable not subject to any appeal reciprocal not in contradiction with Shari'ah In relation to arbitral awards, Saudi Arabia is a signatory to the New York Convention. However, Saudi courts will inspect all aspects of the award and review the merits of the award to confirm that it does not contradict Shari'ah principles. This procedure may take up to two years. Note that Saudi courts interpret widely the provision of the New York Convention which allows a national court to refuse to enforce a foreign arbitral award on public policy grounds. Consequently, it is advisable to consider this if an award is likely to be enforced in Saudi Arabia. Al-Ghazzawi Professional Association Jeddah Commercial Centre 3rd Floo Al Maady Street Corniche Al Hamra PO Box 7346 Jeddah 21462 T ƒ„‹‹‡‰‡‹‘Œ‡†‘…‹ F ƒ„‹‹‡‰‡‹‘Œ‡‰‹†‰ [email protected]Âcom‡ wwwÂghazzawilawfirmÂcom MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 51 UNITED ARAB EMIRATES UNITED ARAB EMIRATES HERBERT SMITH FREEHILLS The UAE is a federation of seven emirates. A framework of federal legislation applies, but each emirate may issue local laws either complementary to federal laws, or in the absence of federal laws. Local laws on, for example, security and registration requirements and related costs may vary depending on the emirate, region or free zone where the assets are located. It is, therefore, of importance, in particular in relation to security, to verify where parties and/or assets are located. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    the    UAE    (theŽborrower)?    Are    there     any    exemptions    available? Lenders with a local presence (including commercial banks, investment banks, finance companies, intermediaries and branch offices of foreign banks) require a licence from the Central Bank of the United Arab Emirates (the UAE Central Bank). The requirement to license is set out in the UAE's Central Bank Law and in the resolutions and circulars issued by the board of directors of the Central Bank under the Central Bank Law. Generally, overseas lenders do not require a licence to lend money to a UAE company. It is important to note that at the time of writing of this guide, the UAE Central Bank is overhauling its banking laws, including making major changes to the Central Bank Law and reviewing provisions on the monetary system and the organisation of banking and the financial services sector. This may affect the licensing requirements for lenders in the UAE. ‰      What    are    the    consequences    of    making    a    loan    to    a     borrower    in    the    UAE    without    a    licence? Lenders with a local presence require a licence from the UAE Central Bank. Anyone violating the registration provisions may be imprisoned for up to three months and/or fined up to AED2,000. In addition, civil and criminal liability may arise. ‘      Will    a    borrower    based    in    the    UAE    have    to    deduct     amounts    for    withholding    tax    on    interest    payments     made    to    an    overseas    lender? No withholding tax is levied in the UAE on interest payments made to an overseas lender. ’      Is    there    any    limit    to    the    level    of    interest    that    can    be     charged    on    loans    made    in    the    UAE? Charging interest is not permitted under the principles of Islamic Shari'ah. The UAE is an Islamic state, and the rules and principles of Islamic jurisprudence are relevant in the construction and interpretation of the written law. Private agreements may not be applied if they are incompatible with public order or morals, including those of Shari'ah. However, in 1981, the Supreme Federal Court held that legislation may provide for interest where necessary. A number of laws in the UAE refer to interest. In particular, the Commercial Code states that a creditor is entitled to receive interest on a commercial loan as per the rate of interest stipulated in the contract. If the interest rate has not been included in the contract, it will be calculated according to the rate of interest current in the market at the time of dealing provided that it does not exceed 12% until full settlement for commercial transactions. The Commercial Code stipulates that, in a bank loan, a borrower is bound to repay a loan plus interest to the bank on time and on the agreed terms. Charging simple interest is permissible in the UAE. The position on compound interest is a little less certain. Until relatively recently, the Federal Supreme Court had ruled that compound interest was not permitted under UAE law. In Dubai, the courts show more willingness to uphold provisions providing for compound interest in contracts. Recent cases relating to the emirate of Abu Dhabi also suggest that compound interest in banking agreements is increasingly tolerated, provided it does not exceed principal, although there can be no certainty in relation to specific facts. There are no explicit provisions in UAE legislation dealing with default interest. However, according to a circular of the UAE Central Bank, default or penalty interest is likely to be enforceable provided this has been communicated in advance and is not higher than 2%. “      Is    it    possible    for    one    lender    to    agree    that    a    second     lender    may    be    preferred    over    the    first    lender    for     repayment    of    debt    irrespective    of    when    that    debt    was     incurred?    If    it    is    possible”    how    would    you    document     such    an    arrangement? It is possible to subordinate debt in the UAE by contractual agreement. This would be effected through an arrangement whereby the senior creditor, junior creditor and debtor agree priority and payment arrangements by contract (eg, by way of an intercreditor deed or subordination deed). IRAN SAUDI ARABIA KUWAIT OMAN IRAQ PAKISTAN SYRIA LEBANON TURKEY YEMEN UNITED ARAB EMIRATES EGYPT 52 HERBERT SMITH FREEHILLS UNITED ARAB EMIRATES TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    the    UAE    or    a    guarantee     from    an    entity    incorporated    in    the    UAE? A licence is required to take security over: a business, by way of a business mortgage (also known as commercial mortgage) under the Commercial Code. The Commercial Code states that "a firm may be mortgaged only to banks and finance houses". The licence requirement for the lender is not specified but, in practice, is usually a requirement; land and real property by way of a land mortgage – for Dubai, this is stipulated in the Dubai Mortgage Law. It has not been made explicit in any federal law, but it is considered market practice and thought to be a Central Bank requirement that mortgagees should be licensed financial institutions For security other than land mortgages or business mortgages, a lender does not need to be licensed. However, in practice, some lenders prefer to engage a local financial institution as "security agent" to hold security over UAE assets as this is thought to be advantageous when it comes to enforcement of the security. A lender does not have to be licensed to receive a guarantee. ˜      Does    the    taking    of    security    in    the    UAE    result    in    a     lender    being    liable    to    tax    in    the    UAE? Taking security does not result in tax liabilities in the UAE. ™      Can    a    security    interest    be    taken    in    the    UAE    over     the    following    assets?  ­ Land Land can be mortgaged in favour of a mortgagee who is duly licensed by the UAE Central Bank. Land mortgages; however, it must be considered on a case-by-case basis as property and related mortgage laws differ in each emirate and each region. Land in this context includes the following registered interests: full ownership (akin to freehold), right of usufruct (right to use) or a right of musataha (right to develop) for a period of more than 10 years. Again, the regulations are complex, and the ability of the relevant emirate's lands department to register the interest as a matter of practice will need to be verified. The ownership of land may be restricted to UAE nationals depending on the location and type of interest. Specific advice on how the foreign ownership restrictions may affect the security should always be sought. €­ Shares in a UAE company Security over shares in a UAE company is available for a joint stock company (both public and private). Security is usually taken by way of a pledge, as set out in the Commercial Companies Law (CCL). Perfection of the share security depends on the type of security taken over the shares. If the security has been taken as a commercial pledge, the following steps should be taken: execution by the parties, annotation in the company's share register, annotation on the relevant share certificates and delivery of the share certificates to the secured creditor. A pledge over shares in a listed company must be in writing and registered with the relevant stock exchange. The most common type of company in the UAE is a limited liability company (LLC). Until recently, it was not considered possible to perfect a pledge of the interests in an LLC. However, recently, the Dubai and Abu Dhabi Departments of Economic Development (the Commercial Register) have accepted registration of security over LLC interests although this has not been tested before the courts. A new draft companies law, which currently awaits final presidential approval, provides for a pledge over a partner's share in the LLC. Foreigners are restricted from owning capital in companies (LLCs and private or public joint stock companies included) under the current CCL. …­ Bank accounts Security may be granted through an account pledge – usually over a blocked account with a fixed sum. Accounts with fluctuating balances may be subject to set-off if the bank holding the account is also the secured creditor. It is uncertain whether security is effective in relation to accounts with fluctuating balances. The account pledge is considered perfected upon notification of and consent by the account bank. It may also be possible to secure a company's bank accounts as part of a commercial/business mortgage or via an assignment. ‡­ Receivables (rights under contracts) It is possible to take security over receivables. Receivables can be pledged or assigned. Notice of and, in some cases, consent to the assignment is required. Š­ Insurance Security over insurance policies can be taken by way of an assignment and/or as part of a business mortgage (see Question 8.6 below). Perfection of the assignment takes place through notification of, and acknowledgement by, the insurance company, as well as an endorsement on the policy. Œ­ Floating charge over all assets The common law concept of a floating charge is not recognised under UAE law. A business mortgage (also called commercial mortgage) comes closest in conceptual terms. A business mortgage cannot be taken over real property but can be taken over all movable property and can, according to the Commercial Code, only be granted to banks and financial institutions (which, in practice, is understood to mean UAE Central Bank licensed banks and financial institutions). The business mortgage must include an annex listing all secured assets; otherwise, only the company's trade name, right to let, client contacts and goodwill are deemed to be mortgaged. This list can be added to during the life of the mortgage (at a cost), which gives some flexibility in relation to future assets. A business mortgage is valid for five years from the moment of registration, unless it is renewed. š      Are    trusts    recognised    in    the    UAE?    If    not”    how    can     the    common    law    concept    of    a    security    trust    be    catered     for? The Civil Code provides for a limited recognition of trusts, in the shape of waqfs (an endowment of property for religious or charitable purposes). This concept is dealt with more extensively in the emirate of Sharjah, which in 2011 introduced a Waqf Law. However, waqfs are generally not used in commercial financing transactions. The common law concept of a security trust is not recognised under the laws of the UAE; but the concept of agency (in the meaning of a person having authority to act for a principal) is. A foreign security trust and/or a parallel debt may be interpreted by a court as an agency structure although we are not aware of this having been tested before the courts. In practice, certain types of security are entered into by a local security agent for and on behalf of a syndicate of lenders, often with a parallel debt structure included. MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 53 UNITED ARAB EMIRATES ›     Can    a    company    incorporated    in    the    UAE    (the     guarantor)    give    a    guarantee    for    the    debt    of    the     borrower?    If    the    borrower    is    incorporated    in    a    different     country”    would    the    guarantor    still    be    able    to    give    the     guarantee? A guarantor can give a guarantee for the debt of a borrower located in the UAE or overseas. The guarantee must clearly state the purpose for which it is intended. A company's constitutional documents may impose restrictions on the amount which can be guaranteed. Corporate benefit must be established.

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? General point: the insolvency regime in the UAE remains untested and is being reviewed to bring it into line with international best practice. It is generally recognised that the insolvency provisions in the Commercial Code are unclear in places. Secured assets will be protected from the general creditors of the borrower and secured creditors who hold debts secured by mortgages or special liens will be outside the bankruptcy . A portion of the unpaid employee entitlements (being up to 30 days' wages before adjudication of bankruptcy) and expenses paid from the public treasury may have priority over security over movables but the legislation is not clear. State entities in the UAE may be exempt from bankruptcy procedures or subject to a separate insolvency procedure. ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or     does    a    lender    need    a    court    order    to    enforce    its     security    or    claim    under    a    guarantee?    If    a    court    order     or    court    involvement    is    required    for    security     enforcement    or    a    guarantee    claim”    how    long    will    it     approximately    take    to    complete    an    enforcement    of     security    or    a    guarantee    claim? The concept of self-help does not exist under UAE law. Security can be enforced only via a court order (issued after the debt has been proven in court), except in certain cases of security over a bank account where the account bank is also the pledgee – in such a case, the account bank may be able to use its rights of set-off. Any additional remedies in security documents are considered void (for business mortgages or land mortgages) or may be considered contractual provisions (for other types of security) and would require a court order to be enforced. An example of such a contractual arrangement could be a "special security power of attorney". This power of attorney, often used in large projects, bestows on a lender the right to seize certain assets of a borrower in case of a default under the facility agreement. It is thought that the notarised power of attorney may circumvent the court having to examine the merits of the claim and instead grant the beneficiary/ attorney the right to go straight to the enforcement judge to obtain a court order in relation to the assets. The process of obtaining a court order and having it enforced is usually lengthy and can take from six months up to several years, if the matter goes through all appeal levels. After a final judgment has been obtained, the execution court will order a public auction of the relevant assets. The Dubai Mortgage Law sets out an expedited enforcement procedure in relation to property located in Dubai, which has been successfully used. ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? Enforcement of a security or a guarantee can be prevented only through a court order. Once a company has been declared bankrupt, the court will set a date of up to two years before the bankruptcy declaration on which the bankrupt is deemed to have ceased payments. Transactions entered into by the bankrupt between this date and the date of the declaration of bankruptcy may be challenged and declared unenforceable. ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving     guarantees    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? The new draft companies law (which, as mentioned in Question 8.2, awaits presidential approval) prohibits a company, or any of its subsidiaries from providing "financial aid" to any shareholder to enable the shareholder to hold shares, bonds or deeds issued by the company. Financial aid is defined to include providing security or a guarantee. Furthermore, a target company's financial assistance or guarantee may, however, be restricted in its articles of association. There may also be restrictions resulting from directors' duties as set out in the CCL. “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    government    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? Some security documents must be registered to be valid: Land mortgages must be notarised and must be registered with the relevant registration authority in the relevant emirate/region. A land mortgage is valid only once it has been executed on behalf of both parties and registered. As mentioned, the ability of the relevant authority to register the interest as a matter of practice will need to be verified A business mortgage must be notarised and registered in the Commercial Register of the emirate where the mortgage has been taken. The registration of a business mortgage expires after five years, unless it is renewed Other types of assets, such as vehicles and aircraft, may also be mortgaged (and would have to be registered with the relevant local authority). Security over a bank account does not have to be registered and is valid upon execution. Other types of security do not have to be registered but may have to be perfected in other ways to have third-party effect (for instance, assignment or a pledge over movables) – please see Question¨8 for more details. Guarantees do not need to be registered. —     Does    any    security    or    guarantee    give    rise    to    any     stamp    dutyœtaxesœregistration    fees? Stamp duty and taxes are not applicable, but there may be registration fees and other costs. The cost of notarisation, where applicable, generally amounts to 0.25% of the secured amount, up to a maximum of AED10,000. Other than land mortgages and business mortgages, security documents or 54 HERBERT SMITH FREEHILLS UNITED ARAB EMIRATES guarantees do not need to be notarised, but parties may nevertheless decide to seek notarisation as this tends to give a document more weight in evidence. Documents that are notarised need to be provided to the notary in the Arabic language, so translation costs may apply. For registrable security, there are registration fees. Fees vary per emirate and registration authority and will generally consist of a percentage of the amount secured, subject to a cap. Registration fees for land mortgages vary per registration authority/emirate (or even per region within an emirate) and range from 0.25% to 2% of the secured amount. They are usually capped at AED1 million to AED1.5 million Registration fees for a business mortgage also depend on the relevant registration authority. In Dubai, the registration fee is AED3,500 at the time of writing Enforcement of security will incur court fees and related costs. ˜      Is    it    possible    to    grant    a    lender    security    over    an     asset    which    has    already    had    security    granted    over    it    to     another    person?    If    it    is    possible”    how    would     youŽnormally    document    such    anŽarrangement? Yes, this is possible. In relation to registrable security, the time of registration determines priority. For security that does not require registration, the time of creation of the security determines priority. REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries? Foreign investors seeking to establish in the UAE must comply with the CCL which requires that every company incorporated in the UAE must have at least one national partner whose share in the company capital must not be less than 51% of the company capital. The Commercial Concealment Law was enacted to combat the practice of entering into side agreements to circumvent the effect of complying with the CCL. Such agreements are perceived as concealing the true nature of the business structure from the UAE authorities. The foreign ownership restrictions have not been relaxed in the new draft companies law. It is now expected that these restrictions will be addressed by a new foreign investment law although, at the time of writing, it is not clear when this is likely to occur.   ­ Oil/gas The oil industry of the UAE is largely situated in the emirate of Abu Dhabi. The oil sector is dominated by a number of concession agreements with the government of the relevant emirate. The concessionaire is typically an overseas special purposes vehicle. The ownership of it is shared between state-owned oil companies and foreign investors. The significant state influence on the oil sector (through ownership and law-making powers) is overseen in the emirate of Abu Dhabi by the Supreme Petroleum Council (the SPC) and in Dubai by the Supreme Energy Council. There are no explicit legal restrictions on the acquisition of assets in the oil sector. However, any transfer will have likely been restricted in the relevant concession agreement. As the concessionaire is typically an overseas company, a transfer of shares in the concessionaire would not be subject to UAE law. However, in view of the significant government influence in the sector, approval of UAE government entities (such as the SPC in Abu Dhabi) will likely be required for any acquisition in the oil sector.  €­ Electricity The electricity sector is regulated at emirate level. For Abu Dhabi, this is the Abu Dhabi Water and Electricity Authority (ADWEA), which controls the state-owned electricity and water assets and has a general power to develop the emirate's water and electricity policies, including the participation of private enterprises. The Dubai Electricity and Water Authority (DEWA) performs a similar role in Dubai. Private sector participation in Dubai is further overseen by the Regulation and Supervision Bureau for the Energy and Water Sector. The smaller emirates depend on electricity and water subsidies by the federal government. Many of the water and electricity supply projects in these emirates are undertaken by the ADWEA. Private participation in the electricity sector exists mostly through independent power projects (IPPs) in the electricity generation field. Significant parts of the electricity assets in the UAE are in public hands through one of the authorities. The acquisition of such assets will be possible only as part of one of their privatisation projects. On the energy generation side, it will be possible to acquire assets or shares from a private entity involved in an IPP. In any such businesses, the public authorities, particularly the ADWEA (through its subsidiary ADWEC) and the DEWA, will have a strong position as the sole off-takers of electricity and through their broad regulation power. The viability of such acquisitions will, therefore, depend on their consent.  …­ Natural resources/mines At federal level, as well as in the emirate of Abu Dhabi, mining is regulated by the ministries responsible for oil. The ownership of natural resources lies with the relevant emirate. The emirate of Fujairah has a number of quarries operated by private companies and regulated by the Fujairah Natural Resources Authority (the FNRA), which issues "lease and license contracts" to quarry operators. Any transfer of assets will be subject to restrictions in the relevant licence agreement.  ‡­ Telecoms One of the objectives of the UAE government for the telecoms sector is to encourage participation and investment by local and international companies. Currently, the first of the only two licensed operators is 100% government-owned, and the foreign ownership in the second operator is restricted to a maximum of 22%. The Telecommunications Regulatory Authority (TRA) is the government-established regulatory body for the telecoms industry. The TRA decides on every aspect of licensing (or exemption thereof). Only companies incorporated under the CCL, which under current legislation would require such company to have a 51% local shareholding, can apply for a licence (unless exempted from this by the TRA). The acquisition of companies or assets in an operator would require TRA approval. A licence may not be transferred or assigned, in whole or in part, to any third party, unless: (i) this is allowed under the terms of the licence, and (ii) prior consent of the TRA has been obtained.  Š­ Other regulated industries The banking, insurance and finance sectors are subject to additional regulations regarding foreign investment and any investment would require UAE Central Bank approval. MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 55 UNITED ARAB EMIRATES š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    the    industries    listed    above? General The Civil Procedures Code stipulates that public or private property owned by the state or one of the emirates may not be seized. As a result, contracts with the government or semi-governmental entities (including commercial enterprises in which the government holds a significant stake) in the UAE often include a waiver of sovereign immunity, contemplating the right of a counterparty to sue the government and/or to enforce against its assets. However, such a waiver may not be upheld in a UAE court. Foreign ownership restrictions also apply – see Question 18 above.  ˜ ­ Oil/gas As previously mentioned, the oil and gas sector in the UAE is governed by a number of concession agreements between the relevant emirate and a concessionaire, in which UAE state-owned entities may carry significant stakes. The taking of security and subsequent enforcement will depend on the concession terms and the role of the emirate in that particular concession. Taking security over assets in the oil and gas sector requires an analysis of the relevant concession agreement, any agreement between shareholders in the relevant concession holder and other related agreements. Regardless of whether or not consent is strictly needed under the relevant concession agreement, government consent (such as from the Supreme Petroleum Council in Abu Dhabi) is likely to be required for any direct security interest in the concession holder or its assets. To the extent that a concession structure provides for significant assets and revenue streams overseas, it may be possible – subject to the relevant laws – to take security overseas.  ˜€­ Electricity As previously stated, most electricity assets in the UAE are government-owned through public authorities such as the ADWEA or the DEWA. Private entities can be involved in electricity generation through an IPP between private entities and these government bodies. It is possible to take security over assets in this sector although the extent to which such security may be enforced is uncertain. This will also depend on the consent of the ADWEA and the DEWA, as well as the Supervision Bureau in Dubai, as regulators but also as main contracting partners of any private enterprise in the electricity sector.  ˜…­ Natural resources/mines The creation of security in this industry depends on the nature and terms of the lease and licence contracts with the FNRA. Security over the land of a quarry will be possible only if these contracts create a valid interest in land. Quarrying companies are private entities, so in principle any security permitted under UAE law will be available. However, enforcement may be restricted under the terms of the licence. To the extent that the assets are owned or controlled by the government (which is the case in many of the UAE minerals processing industries), please see the general point above.  ˜‡­ Telecoms In addition to the general point above, security over a licence, in whole or in part, would require TRA approval.  ˜Š­ Other restricted industries To the extent that the assets are owned or controlled by the government, please see the general point above. GOVERNING LAW ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    the    UAE? Foreign judgments, including English law judgments, are enforceable in the UAE courts in two circumstances: if there is a relevant treaty providing for judicial cooperation and recognition of judgments and arbitral awards (such as the Riyadh Convention or the Gulf Cooperation Council Convention to which the UAE is a signatory); or if the requirements for enforcing a foreign ruling under UAE federal law are satisfied. These requirements include that the parties have attended the foreign hearing and were represented, that the judgment does not contradict a ruling made in a UAE court and that the judgment does not contravene propriety or public order in the UAE Where enforcement is sought under the auspices of a bilateral treaty, the jurisdiction of the court that issued the judgment will not be open to review as the foreign judgment is directly enforceable. However, where the provisions of UAE federal law are invoked, the UAE court enforcing the foreign judgment must be satisfied that the UAE courts did not have jurisdiction over the substantive dispute as a matter of UAE law. Foreign arbitral awards can be enforced under the UAE Civil Procedure Law in the same way as foreign judgments. The UAE is also a signatory to the New York Convention. Those holding awards made in a contracting state to the New York Convention may apply to the execution judge of the UAE court for enforcement on assets in the UAE. Note that, in the case of foreign judgments and arbitral awards, the UAE court may refuse to enforce on the basis that the judgment or award is contrary to public policy in the UAE. This public policy exception may be interpreted widely. 56 HERBERT SMITH FREEHILLS YEMEN YEMEN LAW OFFICES OF SHEIKH TARIQ ABDULLAH The Law Offices of Sheikh Tariq Abdullah are the oldest and most respected law offices in the Arabian Sub-Peninsula. The origins date back to 1927 when Sheikh Mohammed Abdullah founded a legal practice in Aden. As Aden grew and changed its status to a Crown Colony in 1935, and thereafter achieved independence in 1967 along with the Aden Protectorates and became the Republic of South Yemen, through to the unity of South Yemen and the Yemen Arab Republic in 1990 to form the Republic of Yemen, the office has grown in strength and experience. Litigation is not recommended in Yemen, but if a settlement cannot be agreed, the Law Offices of Sheikh Tariq Abdullah are equipped to provide this service. The firm's arbitration practice is focused on guiding foreign clients when in dispute with Yemeni nationals or the government of the Republic of Yemen, and the office also supports foreign law firms in arbitration proceedings abroad. The office offers an international service and specialises in serving clients in co-ordination with their foreign lawyers if so desired. The¨lawyers in the office combine local expertise with international¨knowledge. LENDING

     Does    a    lender    require    a    licence    to    lend    money    to    a     company    based    in    Yemen    (the    borrower)?    Are    there     any    exemptionsŽavailable? A lender is generally not required to obtain a licence to lend money to a borrower in Yemen. However, lenders intending to conduct "banking¨activities" must apply for a licence from the Central Bank of¨Yemen. The Central Bank Law defines "banking activities" as the acceptance of cash deposits, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise, and the use of these deposits to grant credit or for any other activities designated as banking activities. Lending on a cross-border basis does not require a licence. ‰      What    are    the    consequences    of    making    a    loan    to    a     borrower    in    Yemen    without    aŽlicence? Lenders conducting banking activities (see Question 1 above) in Yemen must be licensed by the Central Bank of Yemen. The consequences of conducting banking activities without a licence are unclear. ‘      Will    a    borrower    based    in    Yemen    have    to    deduct     amounts    for    withholding    tax    on    interest    payments     made    to    an    overseasŽlender? No withholding tax is payable on interest paid to overseas banks which have been approved by the Central Bank of Yemen. A 10% withholding tax is levied on interest paid to foreign banks that have not been approved by the Central Bank of Yemen. ’      Is    there    any    limit    to    the    level    of    interest    that    can    be     charged    on    loans    made    inŽYemen? There is no such limit. The level of interest is agreed between the lender and borrower. In practice, international borrowing rates are followed. “      Is    it    possible    for    one    lender    to    agree    that    a    second     lender    may    be    preferred    over    the    first    lender    for     repayment    of    debt    irrespective    of    when    that    debt    was     incurred?    If    it    is    possible”    how    would    you    document     such    an    arrangement? Yes, this is possible. A contractual arrangement to this effect would¨suffice. TAKING SECURITY —      Does    a    lender    have    to    be    licensed    or    registered    to     take    security    over    assets    in    Yemen    or    a    guarantee    from     an    entity    incorporated    in    Yemen? A lender may freely take security over the assets of and receive a guarantee from a borrower entity incorporated in Yemen. ˜      Does    the    taking    of    security    in    Yemen    result    in    a     lender    being    liable    to    tax    inŽYemen? No, the taking of security in Yemen does not make a lender liable to tax in¨Yemen. ™      Can    a    security    interest    be    taken    in    Yemen    over    the     following    assets?  ­ Land Land may be mortgaged. €­ Shares in a Yemeni company Shares in a Yemeni joint stock company cannot be pledged under Yemeni law. There is some uncertainty with regard to a pledge of shares in a limited liability company, but such pledges are prevalent. Share pledges have, as yet, not been tested in any court. IRAN SAUDI ARABIA OMAN IRAQ PAKISTAN SYRIA LEBANON TURKEY YEMEN EGYPT MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 57 YEMEN …­ Bank accounts Bank accounts can be pledged. ‡­ Receivables (rights under contracts) Receivables can be assigned. Š­ Insurance Insurance policies can be assigned. Œ­ Floating charge over all assets All present and future movable assets can be charged by way of a¨hypothecation. š      Are    trusts    recognised    in    Yemen?    If    not”    how    can     the    common    law    concept    of    a    security    trust    be    catered     for? As there is no provision of trust under the Companies Law, a trust cannot be created in Yemen, but parties may do so abroad. A trust that is created abroad by Yeminis will be recognised locally. ›     Can    a    company    incorporated    in    Yemen    (the     guarantor)    give    a    guarantee    for    the    debt    of    the     borrower?    If    the    borrower    is    incorporated    in    a    different     country”    would    the    guarantor    still    be    able    to    give    the     guarantee? A company incorporated in Yemen may give a guarantee for the debt of a borrower. It makes no difference whether the borrower is in Yemen or¨elsewhere.

     If    the    borrower    becomes    insolvent”    will    the    secured     assets    be    protected    from    the    general    creditors    of    the     borrower?    What    claims    would    have    priority    over    the     security? In the event of insolvency, the secured assets will be protected from the general creditors of a borrower. However, claims resulting from government dues and labour/employee rights have priority over the¨security. ‰     Can    a    lender    enforce    its    security    or    claim    under    a     guarantee    freely    after    default    by    the    borrower    or    does     a    lender    need    a    court    order    to    enforce    its    security    or     claim    under    a    guarantee?    If    a    court    order    or    court     involvement    is    required    for    security    enforcement    or    a     guarantee    claim”    how    long    will    it    approximately    take     to    complete    an    enforcement    of    security    or    a     guaranteeŽclaim? A secured lender would require a court order to enforce security or claim under a guarantee. If the borrower has no defence or the defence is frivolous, the enforcement proceedings may take a few months. Otherwise, the enforcement proceedings may take up to three years if the litigation continues at all levels up to the Supreme Court. The court will take account of the provisions in the security documents in this¨respect. ‘     Can    a    liquidator    or    creditor    of    the    borrower    or     guarantor    prevent    the    enforcement    of    a    security    or     guarantee? A liquidator is required to give priority to all perfected loans with respect to properties subject of enforcement if he has been notified of the existence of such security. In the absence of this, a liquidator or creditor of the borrower or guarantor cannot prevent the enforcement of the assets subject to a security or guarantee. ’     Are    there    any    laws    which    prevent    a    company    which     has    been    acquired    by    the    borrower    from    providing     financial    assistance”    granting    security    or    giving     guarantee    to    secure    the    loan    used    by    the    borrower    to     acquire    such    company? There are no such laws in Yemen. “     Does    any    security    given    by    the    borrower    or     guarantor    or    guarantee    granted    by    the    guarantor    have     to    be    registered    or    filed    with    a    government    bodyœ court?    What    is    the    time    period    for    such    filing    or     registration    to    be    made”    and    what    is    the    consequence     if    it    is    not    made? Registration or filing of security documents and guarantees is optional. However, to ensure smooth enforceability of security or guarantee, these must be notarised/registered by the Registrar of Documents. —     Does    any    security    or    guarantee    give    rise    to    any     stamp    dutyœtaxesœregistrationŽfees? The fee for the registration of a security or guarantee is 0.2% of the value of the secured liabilities, without a cap. As a result of the absence of a cap on registration fees, most lenders do not register security. An¨alternative would be to execute the loan document and the main security documents abroad, and notarise and legalise them through the Yemeni embassy. Such legalised documents are recognised by the local courts as documents that are perfected. ˜      Is    it    possible    to    grant    a    lender    security    over    an     asset    which    has    already    had    security    granted    over    it    to     another    person?    If    it    is    possible”    how    would    you     normally    document    such    anŽarrangement? Yes. The consent of the lender of the first security must be obtained, and the rights of the parties and the manner of enforcing the two securities must be stated in a document. REGULATED INDUSTRIES ™     Are    there    any    laws    preventing    the    acquisition    of     companies    or    assets    in    particular    industries? No laws prevent the acquisition of companies or assets in particular industries. However, the relevant ministry must be informed of the acquisition, and the transfer documents must be filed with the ministry. š     Are    there    any    laws    preventing    the    taking    of    or     enforcement    of    security    in    relation    to    shares    in    or     assets    of    companies    in    particular    industries? There are no laws restricting the taking of security over shares or assets in a company in particular sectors. However, enforcement may be restricted under the terms of a licence and the relevant ministry may need to be informed. GOVERNING LAW ‰›     On    the    basis    that    the    loan    agreement    andœor     guarantee    are    governed    by    English    law”    is    an    English     law    judgment    in    relation    to    the    loan    agreement     enforceable    in    Yemen? Yemeni courts are ill-equipped to look into judgments in any foreign language other than Arabic. Without a reciprocal agreement or treaty between England and Yemen for the execution of judgment, a loan agreement and/or guarantee governed by English law will not be enforceable. If a claim governed by English law is filed before the Yemeni¨courts, the courts will apply Yemeni law. Under the Yemeni Civil Procedure Law, only judgments made in the courts of countries which have entered into a bilateral or multilateral 58 HERBERT SMITH FREEHILLS YEMEN treaty with Yemen for the execution of judgments are enforceable in Yemen. For example, Yemen is a signatory to the Riyadh Convention. Judgments from other Riyadh Convention states should be enforced in Yemen if they satisfy the Riyadh Convention tests, including that the judgment is not contrary to Shari'ah law. The process of enforcement of a foreign judgment requires the judgment creditor or a decree holder to submit a certified copy of the foreign judgment, together with a certified Arabic translation of the judgment, to the Yemeni courts. Both documents must be legalised and bear the stamp of the Yemeni embassy in the country where the judgment was¨made. Yemen is not a party to the New York Convention. Foreign arbitral awards are enforced in Yemen only where reciprocal arrangements to enforce Yemeni arbitral awards exist in the country in which the tribunal has its seat (being either the Riyadh Convention or a relevant bilateral treaty). The award must be consistent with Shari'ah and public policy. To enforce a foreign arbitral award in Yemen, the party in whose favour the award was rendered has to submit to the Yemeni court the original award and the original arbitration agreement, together with certified Arabic translations of these documents. Law Offices of Sheikh Tariq Abdullah Al-Sabeel Street PO Box 148 Crater, Aden Yemen T ƒ„‹…‡‰‰‘‡„Ž‹‰¾ ‰‹‡ŽŠŽŽ¾‰‘‡ŒŠ‰ˆ F ƒ„‹…‡‰‰‘‡†‹ŒŠ [email protected]ÂnetÂye‡ wwwÂyemenlaw-relevantÂcom MIDDLE EAST GUIDE TO LENDING AND TAKING SECURITY 59 CONTRIBUTOR CONTACT DETAILS BAHRAIN Zu'bi & Partners E. Hugh Stokes T ƒ„…Œ‡†…‘Œ‡Š‹ŽŽ F ƒ„…Œ‡†…‘Œ‡‰Œˆ‰ [email protected] EGYPT Shalakany Law Office Aly El Shalakany T ƒ‰Ž‰‡‰…‰‡ŠŠŠŠŠ F ƒ‰Ž‰‡‰…Œ‡…Ž‹‹† [email protected] IRAN Atieh Associates Law Firm Cyrus Shafizadeh/Behnam Khatami T ƒ„Š‡‰†‡ŠŠ…‰‡†††‰ F ƒ„Š‡‰†‡ŠŠ…‰‡ŽŽ…… [email protected] [email protected] IRAQ Iraq Law Alliance, PLLC T ƒ†‡‰‘Œ‡‰ŒŠ‡„Ž†Œ¾ƒ„‹ˆ‡……†‡Œ‘Š‡‹…Ž‘ F ƒ†‡‰‘Œ‡‰ŒŠ‡‹†‰Š [email protected] JORDAN Obeidat & Freihat Ms. Sanaa A. Obeidat T ƒ„‹‰‡‹‡‘……‡…‹ŽŽ F ƒ„‹‰‡‹‡‘……‡…‹Ž‹ [email protected] KUWAIT ASAR – Al Ruwayeh & Partners Sam Habbas/Ahmed Barakat/Rob Little T ƒ„‹‘‡‰‰„‰‡‰…ŽŽÀ‡‰‰ˆŽ‡ŽŽ‹†¾‰¾Œ F ƒ„‹‘‡‰‰ˆŽ‡ŽŽ‹ˆ [email protected] LEBANON Abousleiman & Partners Randa Abousleiman T ƒ„‹†‡†‡„Š……ŒŒ¾ˆ F ƒ„‹†‡†‡„Š……Œ‹ [email protected] OMAN Al Busaidy Mansoor Jamal & Co. Marcus Pery T ƒ„‹Š‡‰ˆŠ†‡ˆˆ‹‹ F ƒ„‹Š‡‰ˆŠ†‡‰‰‘‹ [email protected] PAKISTAN Orr, Dignam & Co. Asim Nasim Partner Karachi office T ƒ„‰‡‰†‡Œ‰ˆ†‡‘ŒŠˆ¾ƒ„‰‡‰†‡Œ‰ˆ†‡‹ŽŽŒ¾‡ ƒ„‰‡‰†‡Œ‰ˆ†‡‘ŽŠ‹ F‡ ƒ„‰‡‰†‡‰ˆ†‡‹‘…†¾ƒ„‰‡‰†‡‰ˆ†‡Š„‰ˆ Islamabad office T‡ ƒ„‰‡‘†‡‰‰‹‡Ž‘†…-Š¾ƒ„‰‡‘†‡‰‰‘‡ˆ††‹¾ ƒ„‰‡‘†‡‰‰‘‡ŒŽŠ‹ F‡ ƒ„‰‡‘†‡‰‰‹‡Ž‹‘Œ¾ƒ„‰‡‘†‡‰‰‹‡†…‰‰ [email protected] QATAR Sultan Al-Abdulla & Partners Salman Mahmood T ƒ„…ˆ‡ˆˆ‡ˆ‰‡Ž‹‹Ž F ƒ„…ˆ‡ˆˆ‡ˆ‰‡Ž‹‹Œ [email protected] SAUDI ARABIA Al-Ghazzawi Professional Association Dr Talal A. Al-Ghazzawi Chairman T ƒ„‹‹‡‰‡‹‘Œ‡†‘…‹¾ƒ„‹‹‡Œ‡ŠŒŒ‡†‹†† [email protected] Dr Belal T. Al-Ghazzawi Senior Managing Partner T ƒ„‹‹‡‰‡‹‘Œ‡†‘…‹¾ƒ„‹‹‡Œ‡ŠŒŒ‡†‹†† [email protected] Hussam T. Al-Ghazzawi Managing Partner T ƒ„‹‹‡‰‡‹‘Œ‡†‘…‹¾ƒ„‹‹‡Œ‡ŠŒŒ‡†‹†† [email protected] Wissam Chbeir Partner T ƒ„‹‹‡‰‡‹‘Œ‡†‘…‹¾ƒ„‹‹‡Œ‡ŠŒŒ‡†‹†† [email protected] UNITED ARAB EMIRATES/DIFC Herbert Smith Freehills LLP Nadim Khan T ƒ„…†‡ˆ‡ˆ‰Š‡‹ŒŽ‘ [email protected] Alexander Currie T ƒ„…†‡‰‡Š†Œ‡‘ŽŽ‘ [email protected] Adil Hussain T ƒ„…†‡‰‡Š†Œ‡‘Ž‰† [email protected] YEMEN Law Offices of Sheikh Tariq Abdullah Sheikh Tariq Abdullah T ƒ„‹…‡‰‰‘‡„Ž‹‰¾‰‹‡ŽŠŽŽ¾‰‘‡ŒŠ‰ˆ F ƒ„‹…‡‰‰‘‡†‹ŒŠ [email protected] CONTRIBUTOR CONTACTS DETAILS CONTRIBUTOR CONTACTS DETAILS 60 HERBERT SMITH FREEHILLS HERBERT SMITH FREEHILLS KEY CONTACTS UNITED ARAB EMIRATES DUBAI Nadim Khan Head of finance T ƒ„…†‡ˆ‡ˆ‰Š‡‹ŒŽ‘ [email protected] Zubair Mir Partner T ƒ„…†‡ˆ‡ˆ‰Š‡‹ŒŽŒ [email protected] ABU DHABI Alexander Currie Partner T +971 2 813 5005 [email protected] Adil Hussain Partner T ƒ„…†‡‰‡Š†Œ‡‘Ž‰† [email protected] QATAR Neil Brimson Partner T ƒ„…ˆ‡ˆˆ‰„‡ˆ†Ž† [email protected] Joanna Addison Partner T ƒ„…ˆ‡ˆˆ‰„‡ˆ†Ž‰ [email protected] HERBERT SMITH FREEHILLS KEY CONTACTS Middle East Guide to lending and taking security 61 Notes 62 HERBERT SMIT H FREE HILLS Middle East Guide to lending and taking security 63 Notes The use of the FSC® logo identifies products which contain wood from well-managed forests certified in accordance with the rules of the Forest Stewardship Council®. 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