The main legal and regulatory change impacted businesses across all sectors in the UAE in 2021, is the update to the Commercial Companies Law. On 20 September 2021, the UAE issued New Federal Decree - Law No 32/2021 on Commercial Companies (the “New CCL”) which replaced the previous draft issued under Federal Decree - Law No 2/2015.
The New CCL will take effect as of 02 January 2022 and included major changes as follows:
1. The Introduction of SPACs and SPVs
The New CCL recognized two new corporate structures namely the Special Purpose Acquisition Company (“SPAC”) and the Special Purpose Company (“SPV”).
A SPAC is defined in the New CCL as a Public joint stock Company that the Securities and Commodities Authority (“SCA”) has approved to classify as a SPAC without any other purpose in accordance with the provisions of the decision issued by the SCA in this regard.
An SPV is defined in the CCL as a company established with the aim of separating the obligations and assets associated with a particular financing operation from the obligations and assets of the person who incorporated it, and used in credit operations, borrowing, securitization, issuance of bonds, and transfer of risks associated with insurance, reinsurance, and derivatives operations, in accordance with the provisions of the decision issued by the SCA regulating this activity.
Although the New CCL did define a SPAC and an SPV nonetheless it did not elaborate on the applicable regulations to these structures including the basis for their constitution. They were included among the list of companies to which the New CCL will not apply. We note however that the reference to both of these structures in the way it is done further outlines the understanding that the New CCL does recognize the use of these structures in IPOs and in future financing transactions and dealings. The SCA is expected as well to issue specific circulars to address the regulations relating to the set up of both of these structures.
2. Corporate Governance
The New CCL referred to the Minister’s of Economy role to issue decisions regulating the governance for companies in accordance with international standards and practices. This does not include public joint stock companies which will fall under the jurisdiction of the SCA for this purpose and financial institutions regulated by the Central bank of the UAE as each of these authorities will handle the corporate governance regulations and guidelines applicable to the companies under their supervisions. This is expected to enhance the transparency in respect of the appointment and role of board of directors and managers in companies such as limited liability companies and private joint stick companies.
3. Limited Liability Companies (“LLC”)
The New CCL provided for many changes that affect the way LLCs are managed and structured as follows:
4. Public Joint Stock Companies (“PJSC”)
There are many changes as well affecting PJSC’s as follows:
5. The Division of Joint Stock Companies
The New CCL allocated a new chapter to deal with the division / decomposition of joint stock companies. It is possible now for joint stock companies to be divided by separating the assets from the activities and related elements over two or more corporate entities according to the conditions, limitations and procedures to be issued by the Ministry of Economy or SCA.
The division can either be horizontally by having the same shareholders and share distribution on the level of the PJSC and the divided entity or vertically by allocating some assets and activities to a new fully owned subsidiary. In either case, a special resolution will have to be passed by the general assembly after obtaining a no objection from the SCA or the Ministry of Economy.
6. The Conversion of Companies
In the event of converting a company into a PJSC, the shareholders will be able to trade their shares from the date on which the company is listed or from the date on which the company is registered in the Commercial Register if it is exempted from being listed.
Further, the requirement for a company to have achieved net operational profits of not less than 10% of the share capital in the last two financial years is removed as a condition to convert a company into a PJSC.
Expectations for 2022
The New CLL will enter into effect as of 02 January 2022. All companies in the UAE organized under the previous Federal Decree - Law No 02/2015 which was replaced by the New CCL will have a period of one year from 02 January 2022 to adjust their statuses to comply with the terns of the New CCL. This can be extended by a decision from the Council of Ministers.
All resolutions and decisions issued in relation to the Federal Decree - Law No 02/2015 will continue to apply to the extent where they do not contradict with the terms of the New CCL until they are replaced in due course by the competent authorities. Throughout 2022, businesses operating in the UAE should keep afresh of all developments introduced by the New CCL and how they may impact the processes of your company.