Corporate Restructuring in the UAE: Key Legal Considerations for Businesses Undergoing Structural Change

Corporate restructuring involves changing the legal, ownership, financial or organisational structure of a business to respond to commercial, financial or strategic requirements. In the UAE, this may include a merger, acquisition, share transfer, conversion of a company's legal form, increase or reduction of share capital, transfer of assets or reorganisation of companies within a corporate group.

 

However, restructuring is not simply a commercial decision. Depending on the proposed transaction, it can trigger requirements under the UAE Commercial Companies Law, applicable licensing and regulatory frameworks, competition legislation, beneficial ownership rules and, where financial distress is involved, the UAE Financial and Bankruptcy Law.

 

The legal requirements will also depend on whether the business is incorporated on the UAE mainland, in a particular free zone or within a financial free zone such as the DIFC or ADGM. Businesses should therefore identify the legal framework applicable to the entity before proceeding with any restructuring.

 

What Are the Main Legal Frameworks?

 

The starting point for most UAE companies is Federal Decree-Law No. 32 of 2021 on Commercial Companies. The law contains provisions dealing with conversion, merger, division and acquisition of companies. It permits a company, subject to the applicable requirements, to convert from one legal form to another while retaining its legal personality. The conversion must be registered with the competent authority.

 

A merger can similarly involve the consolidation of companies, with the relevant rights and obligations passing to the surviving or newly established entity. The Commercial Companies Law sets out specific procedures for mergers, including requirements relating to the merger agreement, valuation, shareholder approval and registration.

 

The legal framework becomes more complex where the restructuring involves a regulated activity. A financial services business, for example, may require approvals from its sector-specific regulator in addition to the corporate approvals required for the restructuring itself. Similarly, the procedures for changing shareholders, directors, managers, activities or capital can differ between mainland companies and individual free zones.

 

Businesses should therefore not assume that a restructuring procedure applicable to one UAE entity will automatically apply to another. The company's legal form, place of incorporation, licensed activities and regulatory status should all be considered at the outset.

 

Competition law may also become relevant where restructuring involves a merger or acquisition. Federal Decree-Law No. 36 of 2023 on the Regulation of Competition regulates economic concentrations and provides a framework for assessing transactions that may affect competition in the UAE. This means that a qualifying acquisition or merger may require competition-related assessment or notification in addition to the corporate approvals.

 

Where the company is experiencing financial distress, a conventional corporate restructuring must also be distinguished from formal financial restructuring under Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy. The legislation provides mechanisms intended to enable a debtor to continue its business and address its debts through measures including preventive settlement and restructuring plans. This law does not extend to entities established in the DIFC or the ADGM, which operate their own standalone insolvency regimes under their respective legislation. A company restructuring in either of those centres should therefore assess its position under the applicable DIFC or ADGM insolvency framework instead.

 

What Corporate and Legal Approvals Should Be Considered?

 

One of the most important aspects of a restructuring is determining which approvals are required before the transaction can take effect. Depending on the proposed transaction, this may involve approvals from the board of directors or managers, shareholders or partners, the General Assembly and the relevant licensing or regulatory authority.

 

The company's constitutional documents should be reviewed alongside the Commercial Companies Law. The Memorandum of Association (MOA) and Articles of Association (AOA) may contain specific provisions concerning voting thresholds, transfer restrictions, pre-emption rights, management powers or other matters that affect the proposed restructuring.

 

This is particularly important where a restructuring changes the company's ownership. A proposed share transfer, for example, should not be treated merely as a private agreement between the seller and purchaser. The parties must consider the company's constitutional documents, applicable statutory requirements and the procedures of the relevant licensing authority for recording the transfer.

 

A capital restructuring requires similar consideration. Increasing the company's capital may involve issuing additional shares and changing existing ownership percentages. Depending on the circumstances, this can result in dilution for existing shareholders. A reduction of capital can raise separate considerations involving shareholders and creditors.

 

The legal documentation should also correspond with the corporate approvals. Depending on the transaction, this may include shareholder resolutions, board resolutions, amended constitutional documents, share purchase agreements, merger agreements, asset transfer agreements, powers of attorney and regulatory application forms.

 

The transaction should only be treated as complete once the required registrations and filings have been completed. A restructuring that has been commercially agreed but not properly registered may leave the company's official records inconsistent with its actual ownership or corporate structure.

 

What Should Businesses Review Before and After a Restructuring?

 

Due diligence is a critical part of any restructuring, particularly where the transaction involves the acquisition, merger or transfer of an existing business.

 

The review should ordinarily cover the company's incorporation documents, trade licence, shareholder records, beneficial ownership information and corporate registers. It should also examine material commercial contracts, financing arrangements, security interests, litigation, intellectual property, employment matters and regulatory compliance.

 

Contracts require particular attention. A change in ownership or control may trigger contractual notification or consent requirements. Similarly, transferring a business, asset or contractual right may require an assignment or novation rather than simply being included in the restructuring documentation.

 

Financing documents should also be reviewed for restrictions relating to changes in control, ownership or corporate structure. Banks and other creditors may have rights that need to be addressed before the restructuring is completed.

 

Employment matters should not be overlooked. Where a restructuring involves the transfer of a business, merger of entities or movement of employees between group companies, the parties should assess the relevant employment, immigration and sponsorship implications.

 

Intellectual property should also be reviewed. This includes determining whether trademarks, domain names, licences and other intellectual property rights are registered in the name of the entity being restructured and whether any transfer or recordal is required.

 

Following completion, the company should ensure that all corporate and regulatory records accurately reflect the new structure. This can include updating the trade licence, commercial register, MOA, AOA, shareholder register, authorised signatory records and banking information.

 

Beneficial ownership compliance is particularly important. Cabinet Resolution No. 109 of 2023 requires legal persons within its scope to maintain and update their Real Beneficiary Register. Where a change occurs, the relevant information must generally be updated within 15 days of the legal person being informed of the change. The Resolution also requires information concerning a change in beneficial ownership to be addressed when ownership is transferred.

 

A restructuring can also create significant risks for directors and managers. They should ensure that the transaction is properly authorised and that decisions are taken within the scope of their powers. Article 84 of the Commercial Companies Law provides that a manager of a limited liability company may be held personally liable to the company, its partners and third parties for fraudulent acts, misuse of powers, violations of the law or the company's constitutional documents, and gross errors in management. Article 162 confirms that any provision purporting to limit this liability is void.

 

Where a company is financially distressed, additional caution is required. A restructuring designed to preserve the business should not improperly prejudice creditors or result in transactions that could create liability for the company or its management. In appropriate circumstances, the Financial and Bankruptcy Law provides formal mechanisms for dealing with financial distress and restructuring debts.

 

Conclusion

 

Corporate restructuring in the UAE should be approached as a legal and regulatory exercise as well as a commercial one. The first step is to identify the restructuring mechanism and determine which legislation and regulatory framework applies to the company.

 

Businesses should then obtain the necessary corporate approvals, conduct appropriate legal due diligence, review contractual and financing arrangements, assess regulatory requirements and prepare the necessary transaction documents. Once the restructuring is completed, the company's licences, corporate registers, constitutional documents and beneficial ownership information should be updated to reflect the new structure.

 

The precise requirements will vary depending on the company's legal form, jurisdiction, industry and proposed restructuring. A transaction that is properly planned and documented from the outset can reduce the risk of regulatory non-compliance, shareholder disputes, contractual breaches and unintended liabilities.

 

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