A Comparative Study Between the Old and New Company Law

To commemorate the UAE's 50th anniversary, the country has enacted a series of important legislative amendments aimed at consolidating the country's status as a global trade and economic centre. Federal Law No. 2 of 2015 or the Old Law is now repealed and replaced by the New Law, which was updated in 2020 by Decree No. 26 of 2020 ("2020 Amendment"). The 2020 Amendment aimed to improve the regulation of public joint stock corporations and facilitate foreign direct investment.

The New Law has now consolidated the modifications made in the 2020 Amendment, as well as introducing a few major additions, such as the addition of the two new company forms ,the special purpose acquisition company or "SPAC" and the special purpose vehicle or "SPV" and  minor amendments to provisions relating to Limited Liability Companies ("LLCs"); and amendments to certain provisions relating to PJSCs, as well as the introduction of a regime allowing for the division of Joint Stock Companies ("JSCs").

 

CHANGES IN THE LAW

1. Special Purpose Acquisition Company (SPAC)

The SPAC is a PJSC designated by the UAE Securities and Commodities Authority ("SCA") as a special purpose acquisition company with the sole aim of purchasing or merging with another company. SPACs are exempt from the New Law and will be governed by the SCA's regulations.

The SPAC was introduced in tandem with regulations pertaining to the split of JSCs, with the goal of providing greater flexibility to public offers, spin-offs, mergers, and demergers.

2. Special Purpose Vehicle

The New Law also introduces the concept of a special purpose vehicle, which is defined as a company formed with the purpose of separating the obligations and assets associated with a specific financing operation from the obligations and assets of the person who formed it and used it in credit operations, borrowing, securitization, bond issuance, risk transfer associated with insurance, reinsurance, and derivatives operations, in accordance with the provision.

The SPV's description is similar to the Dubai International Financial Centre's ("DIFC") Prescribed Companies, which can be utilised as investment holding companies in larger transactions, financing, or asset holding arrangements.

3. LLC Related Provisions

Certain provisions related to LLC have been amended, they are as follows:

1. According to the New Law, if a company's board of managers' membership term expires and the board of managers has not been reformed, the board of managers shall continue to run the company's business for a period of not more than (6) six months, after which the general assembly shall form a new board of managers.
2. If the number of partners in an LLC surpasses 15, the New Law demands the formation of a supervisory board.
3. A quorum at an adjourned general assembly meeting is lawful regardless of the number of partners present in the meeting or whether the memorandum of association specifies differently.
4. The statutory reserve requirement for LLCs has been cut from 10% to 5% of net profits, with the deduction being phased out once the reserve reaches half of the capital and at the partners' discretion.

 

4. Provisions related to PJSCs

Certain corporate governance regulations relating to PJSCs have also been changed by the New Law. For example, if a PJSC's board of directors has a vacancy, a replacement director must be chosen within 30 days for the remainder of the former director's term. In addition, at the end of a financial year in which the company does not achieve profits, a member of the board of directors may be paid a lump sum fee not exceeding AED 200,000 as remuneration, subject to general assembly approval and the inclusion of an express provision in the company's Articles of Association.

5. Provisions related to PJSCs and the introduction of a regime to allow for the division of JSCs 

• Amendments to the founders' contribution requirements: The minimum and maximum percentages of capital to which the founders of a PJSC may subscribe to new shares upon public sale have been repealed under the New Law. Prior to the invitation to the public subscription, the founders are no longer compelled to subscribe to a minimum of 30 percent and a maximum of 70 percent, and they may now subscribe to new shares up to the proportion mentioned in the prospectus and subject to the SCA's requirements.
• Subscription time changes: The period during which the public sector can subscribe for shares in a public offering can now be specified in the prospectus, as long as it does not exceed 30 days (the subscription period was 10 working days under the Old Law). On application to the SCA, the subscription period for the offering may be extended for an additional period, but it must not exceed the date specified in the prospectus. The extension period was capped to an additional 10 working days under the Old Law. After the subscription time has expired, the founders of a PJSC may now subscribe for any unsubscribed shares.
• Changes to the share issuance provisions: The New Law now allows PJSCs to issue shares at a lower price than the nominal value if the market price of the company's shares falls below the nominal value, as long as the difference between the issuance price and the nominal value is recovered from future profits.
• Changes to the nominal value of shares: The New Law eliminates the minimum and maximum nominal values for shares. Previously a minimum of AED 1 and maximum of AED 100 was set.
• Sale of a portion of a PJSC's shares upon conversion: The New Law eliminates the maximum percentage of shares that can be sold following conversion from a private joint stock company to a PJSC. The maximum limit on a sale of shares was set at 70 percent under the Old Law.
• Founders' lock-up period in a PJSC: The New Law also lifts the ban on PJSC founders trading their shares once the transformed firm is listed.
• Division of PJSC: A PJSC can divide certain of its assets, liabilities, rights, and obligations horizontally (in which the same shareholders own directly the shares of the resulting company pro rata to their shareholding in the parent company) or vertically (in which the same shareholders own directly the shares of the resulting company pro rata to their shareholding in the parent company) (in which the shareholders of the parent company own the new shares through the new division subsidiary). These measures aim to make spin-off and demerger transactions even easier.

CONCLUSION:

The introduction of the New Companies Law is a positive move to enhance the competitiveness in the field of economic development. It also helps to illustrate to the world the ability to maintain pace with international best practice thus stimulating existing companies and attracting further investments into the country.

-Khushi Saxena

For any enquiries or information, contact info@thelawreporters.com or call us on +971 52 644 3004