GCC Quarterly Review - Q1 2015

The GCC Quarterly Review briefly summarises a selection of the major developments in the laws of the Gulf Cooperation Council ("GCC") region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) in the first quarter of 2015, with links to further reading, where available.

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The new company law landscape in the United Arab Emirates: Key features of the Commercial Companies Law 2015: The Federal Commercial Companies Law No.(2) of 2015 (“CCL 2015”) has now been made publicly available, following publication in the Federal Official Gazette dated 31 March 2015.

The CCL 2015 will repeal and replace Federal Commercial Companies Law No.(8) of 1984 (“CCL 1984”), when it comes into force in the United Arab Emirates (“UAE”) in July. The CCL 2015 makes reasonably conservative amendments to the existing regime, rather than creating a new legal framework for companies operating in the UAE. Many provisions restate or amend the provisions of the CCL 1984, maintaining the existing position in areas such as foreign investment in UAE companies. The most wide-ranging changes apply to PJSCs. Many changes will be welcomed by the market and should make the UAE more investor friendly, especially in relation to IPOs, though some ambiguities and challenges remain. Further changes are anticipated, as discretion is retained for the Cabinet and UAE regulators to introduce new rules in key areas. Read more in our guide summarising the key features of the CCL 2015.

Saudi Arabian Capital Market Authority announces timetable for implementation of regulations permitting foreign investment by Qualified Foreign Investors in Saudi listed shares: On 16 April 2015 the Saudi Arabian Capital Market Authority (“CMA”) announced the timetable for implementation of final rules permitting direct investment by qualified foreign investors in shares listed on the Kingdom of Saudi Arabia’s stock market, the Tadawul. This follows the approval by the Saudi Arabian Council of Ministers of direct investment by qualified foreign investors (broadly, foreign financial institutions) for the first time in July 2014 and the publication of draft regulations by CMA in August 2014 (read more…).

The CMA announced that the final regulations will be approved and published on 4 May 2015 and become effective on 1 June 2015. With effect from 15 June 2015, qualified foreign investors will be permitted to invest in listed shares. This is a significant change to the existing position, whereby direct ownership of shares in listed Saudi companies is limited to domestic investors, investors from the other Gulf Cooperation Council states and resident foreigners (up to a maximum of 5% of a publicly listed company’s issued share capital for each foreign investor).

SCA regulates to protect minority shareholders and to tighten IPO requirements: The UAE Securities and Commodities Authority (“SCA”) has issued new and amended rules addressing protection for minority shareholders in public joint stock companies (“PJSCs”). Rules on the following issues have been amended:

  • disclosure and transparency rules: amended provisions require shareholders, owning at least 50% or more of the shares in a PJSC and seeking to increase their shareholding, to make a tender offer to all shareholders of the company, stipulate that only PJSCs may offer securities to the public (in line with existing Commercial Companies Law requirements) and restrict advertisements inviting public subscription until regulatory approval is obtained;
  • trading, clearing, settlement, transfer of ownership and custody of securities: amended provisions restrict the ability of a company to prevent trading in its shares prior to or during a general meeting or during a transaction;
  • share buy back provisions relating to Article 168 of the Commercial Companies Law (Federal Law No.(8) of 1984): amended provisions prohibit a subsidiary from owning shares in its parent company, except where it was already a shareholder (subject to conditions); and
  • corporate governance: amended provisions on voting majorities at EGMs and equality of rights and obligations for ordinary shares.

New rules were issued in January 2015 on offerings and listings of newly incorporated PJSCs (other than PJSCs owned by the Federal or local government, banks and funds). The new rules comprise:

  • Public Offering Controls, which limit investment in new PJSCs to eligible legal persons (such as banks and financial institutions, investment funds and other companies and institutions, federal government, local governments, or affiliated companies or institutions and individual investors with a sufficient net worth), with a minimum subscription of AED 5 million. Founders are subject to a 2 year lock-up period (in line with the existing and new Commercial Companies Law) and may not be special purpose vehicles. The majority shareholders must own the maximum percentage of shares permitted by the Commercial Companies Law (currently 45 per cent). The PJSC must be carrying out activities in a specified sector (commercial, industrial, agricultural, real estate, or tourism). It must also appoint a bank as an underwriter; and
  • Listing Controls, which require the new PJSC to be listed as a second category company on a local exchange (DFM or ADX), and to appoint a SCA-licensed listing consultant for a period of at least two fiscal years following the listing of the company's shares.

Abu Dhabi Global Market consults on first regulations: The Abu Dhabi Global Market (“ADGM”), the new international financial free zone recently established by the Abu Dhabi Government, released six consultation papers in January 2015. Ranging from Company Regulations to Insolvency Regulations, the consultation papers set out the proposed legal regime to apply within the free zone. The consultation, which closed in February, is the first step in what will be an extensive and ongoing consultation process with the aim of ensuring that all activities in the free zone are regulated to international standards. Read more in our alert which examines some of the key features of the proposed legal and regulatory environment in ADGM and compares these with the Dubai International Financial Centre in Dubai, the other financial free zone in the UAE.

Insurance developments in the UAE and Saudi Arabia: The Insurance Authority in the UAE issued regulations on 28 December 2014 concerning solvency and capital adequacy for insurance and takaful companies in the UAE. There are two separate regulations for conventional insurers and takaful providers, with provisions covering:

  • solvency requirements, which have been based on the key principles of Solvency II;
  • asset liability management, which is expected to require a diversification of assets by insurers and the use of annual stress testing for investments; and
  • a number of technical provisions intended to standardise the approach used by insurers in the UAE, requiring them to use International Financial Reporting Standards (IFRS) and standardised actuarial practices.

The regulations give insurers between one and three years to adjust their positions in line with the new requirements, and are intended to bring the UAE in line with the European Solvency II requirements. The new regulations are regarded as a determined move towards a risk based approach.

In the Kingdom of Saudi Arabia, draft regulations are currently in circulation in respect of insurance companies in the Kingdom, which cover matters relating to actuarial requirements, the introduction of audit committees and a new corporate governance regime.

Developments in foreign ownership restrictions in the GCC: In the UAE, there is market speculation that a draft foreign investment law may provide for a limited relaxation of the restrictions on foreign investment in shares in UAE companies, for some sectors. There is no official consultation on the proposed draft law and the legislative timetable is not known. In 2013, the Federal National Council rejected an earlier draft over the proposed provision allowing the Cabinet discretion to permit greater foreign investment. The new Commercial Companies Law (in force in July), like the current Commercial Companies Law, imposes ownership restrictions which require every company incorporated under the CCL to have not less than 51 per cent. of its share capital owned by UAE nationals (subject to certain exceptions).

This potential development is part of a trend towards phased liberalisation of foreign direct investment in the region. Saudi Arabia is preparing to open its stock exchange to foreign direct investment by qualified investors in June 2015, subject to a series of caps on foreign investment in a company and across the market (read more above). In Qatar, following an amendment to the regime in 2014, foreign investors may now own up to 49 percent of the shares of Qatari shareholding companies listed on Qatar Exchange (previously 25 per cent), with the approval of the Ministry of Economy and Commerce. The Cabinet has discretion to approve a greater percentage foreign ownership. GCC nationals are treated as Qatari citizens in this context. Bahrain relaxed foreign investment restrictions in late 2014, so that the incorporation of a foreign branch no longer requires a Bahraini sponsor and instead a letter of guarantee from the head office of the company should suffice.

DIFC Courts issues new practice directions on jurisdiction and referral to arbitration: The DIFC Courts issued two practice directions in February 2015, designed to facilitate the enforcement of DIFC Court judgments internationally. DIFC Courts Practice Direction No. 1 of 2015 on the Elective Jurisdiction of the DIFC Courts clarifies when the DIFC Registry will accept an election by the parties to the submission to the jurisdiction of the DIFC Courts and sets out sample drafting for submission is acceptable to the DIFC Registry. It replaces Practice Direction No.2 of 2012 on the Jurisdiction of the DIFC Courts.

Parties who have submitted to (or are bound by) the jurisdiction of the DIFC Courts may rely on DIFC Courts Practice Direction No. 2 of 2015 on the Referral of Judgment Payment Disputes to Arbitration to refer a dispute relating to an unpaid DIFC Court judgment to arbitration for resolution, if it meets the referral criteria. The referral criteria include that the judgment must be final, the referral must be agreed to in writing by the parties and the judgment is not on a matter which is non-arbitrable under DIFC law. In this way, an unpaid DIFC Court money judgment may essentially be “converted” into an arbitral award and thereby easier to enforce internationally under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. Facilitating concurrent remedies in both litigation and arbitration should assist parties in the cross-border enforcement of their contracts through the DIFC and bolster DIFC’s position as a legal hub for the region.

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