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GCC Quarterly Review - Q2 2022

Explore the recent developments in the Gulf Cooperation Council (GCC)

Welcome to the Q2 edition of our GCC Quarterly Review

The second quarter of 2022 saw a number of legal developments in the Gulf Cooperation Council (GCC) region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates). The latest edition of our GCC Quarterly Review summarises a selection of the major developments in that period, with links to further reading where available.

A summary of the jurisdictions we cover in this edition

Click the buttons below to learn more on the legal developments

 

The ADGM Registration Authority has consulted on proposed changes to aspects of commercial legislation in the ADGM, which should simplify licensing procedures and penalties applicable to ADGM companies (Consultation Paper No.3 of 2022). 

Proposed changes to the Commercial Licensing Regulations 2015 would provide for licensed entities to renew their commercial licences annually, replacing the current requirement to apply for a new licence annually (which effectively treats licensed persons as new applicants each time their licence expires and, as such, they are required to produce all documents to support their application for a new licence). Where a licensed person does not intend to renew their commercial licence, it must notify the Registrar of that intention and take steps to terminate its operations/registration in ADGM within a set timeline and failure to do so would attract a penalty.

Under a proposed new framework for late filing fees (which would involve the repeal and re-enactment of the Companies Regulations 2020), certain late filings would attract a late filing fee of USD 150 per month (capped at three months), rather than a fine as a penalty. The Registrar will retain the option to impose a standalone fine for late filings. Other changes include a simplified strike off process for companies and LLPs, an amendment to the definition of “working day” to align with the recent adoption of a Monday to Friday working week introduced by the UAE government and the removal of the obligation to have ‘RSC’ on the name of a restricted scope company (making it optional).

 

The ADGM Registration Authority published a consultation paper (Consultation Paper No.4 of 2022) to seek views on proposed enhancements to its insolvency practitioner regime. New Insolvency Regulations 2022 are proposed, as well as revised Commercial Licensing Regulations. New Insolvency Regulations (Insolvency Practitioner) Rules 2022 are also proposed, which are intended to improve how the ADGM Registration Authority regulates and monitors insolvency practitioners and align the regime with aspects of international best practice. The regime would provide for registration requirements, requiring registered insolvency practitioners to provide the Registrar with an annual insolvency practitioner return, which include details of insolvency appointments in the last 12 months and statements concerning compliance with the Insolvency Practitioner Rules. Registered insolvency practitioners would also be required to obtain and maintain a security bond.

The Dubai Financial Services Authority (“DFSA”) has implemented a new regime for credit funds, which came into force on 1 June  2022. The following modules of the DFSA Rulebook have been updated: Collective Investment Rules Module (CIR), General Module (GEN), Glossary Module (GLO), Prudential – Banking , Investment, Insurance Intermediation and Banking Module (PIB) and Fees Module (FER).

The new rules primarily impact managers of credit funds domiciled in the DIFC, however there are some implications for non-DIFC credit funds. The regime imposes greater regulations on  DIFC credit funds and their managers (in comparison to other DIFC funds and their managers). Under the new regime, a specialist class of funds called “Credit Funds” can originate loans and/or purchase loan portfolios, subject to new conduct and prudential requirements (previously, the direct origination of loans or the purchase of loan portfolios were not permitted activities). A DIFC fund is a “Credit Fund” if its investment objective is to use at least 90% of its assets to provide credit, including by loan origination or acquiring loan portfolios. Credit Funds are limited in terms of the credit instruments it can offer, and they cannot provide letters of credit, financial guarantees or cross-border trade finance. Lending activities by credit funds are restricted to Qualified Investor Fund and Exempt Funds, where the unitholders would be professional investors. The new regime also sets out additional rules and restrictions for Credit Funds, including, among other things, a requirement that the Credit Fund is:

  • managed by a DFSA-regulated fund manager;
  • structured as an Investment Company or an Investment Partnership (not a trust); and
  • established for a specified term not exceeding 10 years.

Specific rules apply to fund managers of a Credit Fund, including as to strategy, a diversified portfolio of loans, borrowing levels, policies and processes and reporting requirements. In addition to standard disclosures for DIFC funds, a Credit Fund prospectus must include additional risk warnings and statements regarding matters such as risk diversification strategy and borrowing limits. 

 

Building on the regulation of Investment Tokens (previously referred to as Security Tokens) under the updated DFSA Rulebook introduced in October 2021 (read more…), the DFSA is now proposing to introduce a Crypto Token regime as part of the second phase of its digital asset regime.

The DFSA issued Consultation Paper No.143 of 2022 in March 2022, which sets out proposals for a regulatory regime for persons wishing to provide financial services activities in respect of Crypto Tokens. The proposed Crypto Token regime would regulate Crypto Tokens, which are tokens which are is used, or is intended to be used, as a medium of exchange or for payment or investment purposes – but which are not Investment Tokens - such as Cryptocurrencies. As in other jurisdictions, only certain types of “accepted” cryptocurrencies would be regulated, which the DFSA considers suitable for use in or from the DIFC and this will depend on a variety of factors, including the regulatory status of a Crypto Token in other jurisdictions, the size, liquidity and volatility of the Crypto Token and the risks associated with the use of the Crypto Token, and appropriateness of controls to mitigate those risk. The proposed regime would generally not apply to certain categories of “Excluded Tokens”, such as Utility Tokens, Non-fungible Tokens (NFTs) and Central Bank Digital Currencies (CBDC).

Similar to the Investment Token regime, the proposed Crypto Token regime would apply the prohibition on financial promotions to persons making financial promotions in relation to Crypto Tokens. All entities intending to offer financial services in relation to Crypto Tokens would need to establish a corporate entity in the DIFC under DIFC law. This means that only subsidiaries of foreign financial institutions (i.e., no branches, including representative offices) would be allowed to set up to offer financial services in relation to “accepted” Crypto Tokens in or from the DIFC. The regime for the trading and clearing of Investments would be amended to allow for the trading of Crypto Tokens, subject to certain limitations. The DFSA’s Money Services regime would not allow firms to provide services relating to Crypto Tokens. The proposed regime would involve amendments to the Regulatory Law and Markets Law, and the DFSA Rulebook, if enacted. 

 

A new trademarks regime should help businesses to protect their trademarks, which identify their brand, product or service (such as brand names and logos). The Trademarks Law (Federal Decree Law No. 36 of 2021) came into force in March 2022 and implementing regulations have now been issued. The new regime adopts many aspects of the GCC Unified Trademarks Law. 

The trademarks law provides for the registration of trademarks, and the range of trademarks that are capable of registration is now wider. Non-traditional marks such as a single colour or combination of colours, holograms, a distinctive sound or smell can now be registered. There is also a list of marks that cannot be registered as trademarks. There is now a clear legal basis permitting assignments of trademarks with or without consideration, which was not clear under the previous regime. The law provides for greater protections for trademark infringements, including increased penalties for trademark infringement (ranging from up to AED1,000,000) and new rules relating to customs seizures. A new Grievances Committee will hear all objections to decisions relating to applications, oppositions and cancellations issued by the UAE Trademark Office. The new regime should make it easier to take legal action against anyone who steals or copies a trademark and prevent or deter competitors from stealing or copying trademarks. 

The executive regulations address certain procedures relating to registration, including a requirement to submit a legalised power of attorney with applications, to publish registration in the Trademark Journal issued by the UAE Trademark Office (rather than in local newspapers) and enabling post-registration amendments to be made to registrations. 

A new classification system for companies in the UAE private sector was implemented by the Ministry of Human Resources and Emiratisation in June 2022 by Cabinet Resolution No.18 of 2022. Under a new three-tier system, local companies will be assessed as to whether they meet various criteria related to promoting cultural and demographic diversity in the UAE labour market, including raising the company’s Emiratisation rate (the proportion of a company’s workforce comprised of Emirati nationals) at least three times above the target. A company’s classification determines the applicable service fees for work permits and transfer fees. Companies which are in category 1 (i.e., they comply with at least one of the criteria) will pay the lowest fees, and companies which are in category 3 (i.e., non-compliant and showing a lack of commitment to protecting workers’ rights or promoting cultural and demographic diversity in the UAE labour market) will be subject to the highest fees. 

From January 2023, private sector companies which do not meet target Emiratisation rates will be subject to financial penalties. The current target rates are 2% for commercial entities which employ over 50 people, 4% for banks and 5% for insurance companies which employ over 50 people. Companies who fail to meet the target thresholds will be liable to financial penalties.

A recent Dubai Court of Cassation held that, in order for an arbitral award to be enforceable in the UAE Courts, the arbitrators must sign the pages of the arbitral award containing the decision and the reasoning for the award, in accordance with the UAE Arbitration Law (Federal Law No. 6 of 2018). The case affirms that under UAE law, the arbitrators’ signature does not have to be on all the pages of the award. Historically, there has been a risk that arbitral awards rendered in onshore UAE-seated arbitrations may be deemed to be unenforceable (as a matter of public policy) by the UAE courts if the arbitral tribunal does not sign every page of the award. The Dubai Court of Cassation has, to date, only agreed to enforce arbitral awards which are not signed on every page in limited circumstances.

The UAE Supreme Court has reportedly clarified the law around personal liability of shareholders in the case of corporate insolvency under the UAE Bankruptcy Law (Federal Decree-Law No.9 of 2016) in a recent decision. It is reported that creditors of a company filed a claim against the company and two of its shareholders for bankruptcy, on the basis that the UAE Bankruptcy Law provides that, in case of an order for bankruptcy of a company and liquidation of its assets is made, all joint partners of a company shall be declared bankrupt. The Supreme Court clarified that the relevant provision of the UAE Bankruptcy Law does not apply to shareholders in a limited liability company, but rather applies to “merchants” and/or joint partners in unlimited liability companies or civil companies. The Supreme Court aligned with the view of the lower courts and rejected the creditors’ application for the bankruptcy of the two shareholders, on the basis that the company has separate legal personality from its shareholders. In this case, the company was a free zone company whose shareholders had limited liability and the extent of their liability was determined by their shareholding in the company.

Companies in Saudi Arabia are to be regulated by a new Companies’ Law, which was approved by Royal Decree No. M/132 dated 1/12/1443H (corresponding to 30 June 2022) and published in the Official Gazette on 22 July 2022. The new Companies Law will come into force on 18 January 2023 (being 180 days from the date of publication) and will replace the current Companies’ Law of 2015 and the Professional Companies Law of 2019. 

The new Companies Law regulates commercial companies, non-profit companies and professional companies.

Some of the key reforms that the new Companies Law implements include:

  • a new concept of a simple joint stock company, which may be established by a single shareholder with no minimum capital requirements. This company type offers simplified establishment and management processes (similar to a limited liability company (“LLC”)), together with the ability trade shares and issue different types of shares whilst being subject to a lighter regulatory and corporate governance regime than a traditional joint stock company (“JSC”);
  • LLCs can pledge their shares, issue Sukuk or other debt instruments (currently, only JSCs can issue these types of instruments);
  • JSCs can issue different classes of shares (including ordinary, preferred and redeemable shares), with varying rights. Companies can also split shares into shares with a lower nominal value, or merge them to result in shares with a higher nominal value;
  • new provisions allow companies to include squeeze-out and sell-out rights for shareholders in their Articles of Association;
  • drag-along and tag-along rights for LLCs and JSCs are expressly permitted;
  • shareholder agreements are expressly recognised;
  • limits on the maximum number of board members of JSCs and their compensation are removed; and
  • codified directors’ duties (applicable to managers and board members) are to be introduced for the first time, including a duty of care and loyalty, which comprises a non-exhaustive list of duties such as to act with reasonable care, attention, diligence and skill, to act in the interests of the company and to promote its success and to avoid conflicts of interest. 

The Kingdom’s new Personal Data Protection Law came into force in March 2022 (Saudi Arabia Cabinet Decision No 98/1443). There is a one-year grace period for compliance. The Saudi Data and Artificial Intelligence Authority has supervisory authority for the new regime, but after two years transition of authority to the National Data Management Office is to be considered.

The regime applies to controllers who processes personal data who are located either in Saudi Arabia processing personal data of individuals in Saudi Arabia or abroad, or outside of Saudi Arabia processing the personal data of residents of Saudi Arabia. Key features of the new law include:

  • data controllers must register online with the Saudi Data and Artificial Intelligence Authority and renew their registration annually;
  • records of data processing must be registered with Saudi Data and Artificial Intelligence Authority;
  • data officers must be appointed to ensure compliance with the law, and foreign companies operating in the Kingdom and processing personal data of residents must appoint a local representative;
  • personal data may only be processed with the consent of the data subject;
  • detailed rights of data subjects;
  • rules on data transfers, and limits on transfers outside of the Kingdom; and
  • rules on sensitive data.

Penalties for non-compliance may be punished by fines or imprisonment.

A new Securities Law came into force in Oman under the Sultani Decree 2022/46 on 19 June 2022. The new law largely replaces the old securities law enacted by Royal Decree 98/80. The new law regulates securities, investment funds, a compensation fund, administrative procedures, sanctions as well as criminal offences. It also provides a legal framework to regulate the Fintech sector, as the law confers on the Capital Markets Authority (“CMA”) the power to regulate innovative financing and approve the application of technology and virtual investments. The law also allows greater financing options by regulating new products and services such as warehouse receipts, derivatives, futures etc. The law also establishes the necessary legislative infrastructure to ensure the independence of the Muscat Stock Exchange from the CMA as a self-regulated institution, and allows the stock exchange to regulate brokerage activities, market making and margin financing. The law also confers on the CMA the authority to license the establishment of a stock exchange for small and medium enterprises.

Bahrain issued new resolutions and guidelines in March 2022 to supplement the Personal Data Protection Law No.30 of 2018, which applies to residents and workers in Bahrain as well as to local businesses and businesses outside Bahrain that process personal data in Bahrain. Penalties including criminal and administrative fines may be imposed for failure to comply with the law. The resolutions align aspects of the regime with international standards, addressing matters such as transfers of personal data outside Bahrain, technical and organisational measurers to protect personal data, sensitive personal data processing and data subject rights.

The Executive Regulations of the Foreign Capital Investment Law in Oman were amended in April 2022 in relation to investment licensing. Key changes should make it easier for foreign investors to complete and submit foreign investment applications, including enabling access the Public Authority for Investment Promotion and Export Development’s electronic system to complete foreign investment projects applications and extending the types of representatives that can certify applications.

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