In January 2015, the Board of the Abu Dhabi Global Market (ADGM) published drafts of various key regulations as part of a formal public consultation. Clyde & Co has engaged with ADGM to discuss these regulations and has submitted detailed comments on the regulations to the Board.
In this article, we provide an overview of the draft companies regulations (the Regulations).
The Regulations are based on the UK Companies Act 2006 (UK Act) but with several significant departures which remove various historic peculiarities of the UK Act, in order to better cater to local markets and business objectives and enhance flexibility.
This approach provides a sensible framework, and the absence of foreign ownership restrictions within ADGM, should encourage businesses in and from ADGM on both a regional and global level.
Some other key points:
• The Regulations introduce a new class of private limited company, the ‘restricted scope company’ (RSC), subject to a reduced level of regulation and enhanced confidentiality. An RSC must be a subsidiary of a group which publicly files accounts or of a company formed by Emiri decree. The board is considering whether to extend the RSC regime to include the single family office (SFO) concept, which could provide useful flexibility in the region.
• The Regulations provide for protected cell companies and incorporated cell companies. A cell company is a single legal entity, within which there are a series of pools of assets and liabilities (cells). Claims by those transacting with a particular cell can be brought only against that cell. In an ‘incorporated’ cell company, each cell has a separate legal identity, providing better protection against ‘non-cellular’ claims. Cell companies can provide a useful format for structuring investment products.
• Shares of ADGM companies will have no nominal value. The nominal value of a share bears no relation to its market value and the concept is somewhat archaic. Nevertheless, the removal of a feature so long embedded in UK company law may have repercussions for the drafting of corporate legislation and documents.
• In the UK, a shareholder holding just a single share has standing to bring a statutory derivative action (i.e. an action on behalf of the company against a director for e.g. breach of duty). Concerns about shareholder activism prompted an amendment to the equivalent provisions of the Regulations, such that only a member holding five percent or more of the share capital of the company may bring such a claim.
• The Regulations include provisions for ‘continuance’ based on Jersey law, to allow companies to re-domicile both in and from ADGM.
• Provisions from the UK Act on schemes of arrangement, mergers and divisions have been adopted, with some key differences:
– Schemes of ADGM companies require the approval of 75 percent of voting rights but not a majority in number of shareholders. The majority in number requirement in the UK enables activist shareholders to split their holdings between affiliates to help block the requisite shareholder resolution;
– Mergers will be available to private and not just public companies;
– A ‘universal succession’ concept is adopted, under which a ‘merged company’ is absorbed or consolidated with another company into a successor or surviving company. This is in line with a number of other jurisdictions including Jersey and the BVI.
• The Regulations do not contain the statutory ‘squeeze-out’ provisions in Part 28 of the UK Act, which allow and require a bidder holding 90 percent or more of the shares to acquire the remaining shares. It is envisaged that separate Takeover Regulations will be issued by the Board in due course.
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