Regulation of Mergers and Acquisitions in the UAE

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Staff Writer, TLR

Published on July 14, 2023, 17:41:00


UAE, Mergers and Acquisitions, mergers and acquisitions in uae, uae federal commercial companies law no. 8 of 1984, Federal Commercial Companies Law 1984, Consumer Protection Law 2006, Competition Law of 2012, UAE Labour Law 1980

Mergers and Acquisitions is a process of combining two or more companies' assets through various types of financial transactions, including tender offers, purchase of assets, and management acquisitions. Even though Mergers and Acquisition are merely a tool for business consolidation and sharing the economic as well as business consequences among the parties involved, it has the potential to influence and impact the entire business environment of the countries where such deals are targeted to operationalise their business and where the engaging parties are incorporated.

This article will essentially overview the existing and significant Merger and Acquisition regulatory framework of UAE. Although there are no specific laws governing the procedure for Mergers and Acquisitions in UAE, the Key laws regulating Merger and Acquisition transactions in UAE are-
1. Federal Commercial Companies Law,1984
2. Consumer Protection Law, 2006
3. Competition Law of,2012
4. UAE Labour Law,1980 

1. Federal Commercial Companies Law,1984
In the 'Amalgamation of companies' chapter of Chapter 9, Part II, of the Commercial Company Law, Merger & Amalgamation is covered in Articles 276 to 280. A corporation may be merged with another company of the same or different kind, according to the act. Amalgamation may be accomplished in one of two ways.

  1. By merger, there is a dissolution of two or more businesses and the transfer of their liabilities to a new business.
  2. By consolidation, there is a dissolution of two or more concerns and the formation of a new concern to which all of the dissolved concerns' obligations are transferred.
    Another significant feature of the Act on Mergers and Acquisitions is the Foreign Investment Restraint contained in the Act's Foreign Investment clauses. The rule stipulates that after a Merger or Acquisition, a UAE national individual or UAE national corporation must possess 51 percent of a company's shares, while the remaining 49 percent can be owned by a foreign shareholder. The ownership restriction does not apply to Free Trade Zone though.

2. Consumer Protection Act,2006
Since Mergers and Acquisitions, directly and indirectly, affect the working class and consumers in the end, Mergers and Acquisitions UAE laws are very keen to regulate the transactions without affecting the rights of employees who are affected by these deals.
Authorities can use the Consumer Protection Law to establish if a corporate entity's actions have resulted in an abnormal increase in pricing. It also forbids the development of a monopoly without authority. The Consumer Protection Laws implementing regulations are more specific about business acts that raise prices.

3. Competition Law,2012
The Federal Commercial Company was the primary regulator of M&A transactions in the UAE until the Competition Act was enacted in 2012. The Competition Law changed the focus of regulators on market conduct, particularly in the areas of abuse of a dominant position, merger control, and the regulation of restrictive agreements.
Merger Control establishes an obligatory filing requirement as well as the suspension of transactions awaiting clearance. As a result, UAE merger control analysis must now be included when planning foreign or domestic mergers.
According to the act, the applications for exemptions and Merger Approvals should be made to the competition department of the UAE Ministry of Economy along with certain specified documents. The Department will examine the application and then submit a recommendation to the UAE Minister of Economy. The Minister shall then either approve the application (with or without conditions) or reject it. In terms of a time period, the Minister must issue his decision within 90 days of notifying the relevant parties of the receipt of the application, although this period may be extended by a further 45 days.
Competition Law further anticipated regulations setting out more detail on several critical points, including the provision of complaints, where any stakeholder may submit a complaint to the Department concerning any violation of the Competition Law.
The Merger Approval Regulations also require the submission of a "draft contract or agreement" as part of the Merger Approval application, which is essentially a scanner mechanism for detecting any restrictive agreements.
Non-compliance with the approval regime, the abuse threshold, or restrictive agreements shall be punished severely with large fines. If a company fails to comply with the prior approval mandate, it will be fined between 2% and 5% of its annual turnover, and if determining the annual income is impossible, it will be fined between AED 500,000 and AED 5 million. The fine for non-compliance with the terms of the Abusive domination and restrictive agreements can range from 500,000 to 5 million AED.

 4. UAE Labour Law,1980 
According to UAE Federal Law, 1980 (Labour Law), an employee who has completed one year or more of continuous service is entitled to an end of service gratuity at the end of his job. The buyer should guarantee that the purchase price includes any such liabilities incurred by the target as of the acquisition date. End-of-service gratuities can be as much as two times an employee's annual salary (depending on the length of service). Therefore, the total liability can be substantial.
The statistics on merger and acquisition deals around the world over the last two decades will undeniably show that mergers and acquisitions have been growing exponentially all over the world, from developed economies like the United States to emerging and developing economies like the United Arab Emirates and other Middle Eastern and African countries. Mergers and Acquisitions statistics from the United Arab Emirates in the last two decades growing on par with the global pace. It expanded from mere 26 deals in the year 1990 valued at around twenty-Five billion US Dollars, towards 116 successful deals valued at around 24 Billion US dollars in 2019.

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