СТА - ведущая юридическая компания в Дубае с офисами по всему мируhttps://www.stalawfirm.com/ru.htmlSTA Law Firm - Блоги - Corporate GovernanceruCopyright 2024 STA Law Firm All Rights Reserved<![CDATA[Economic and Fraud Provisions in Middle East]]> Economic and Fraud Provisions in the Middle East

"There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

- Milton Friedman

Economic fraud is a term that has been repeated over the years, so much so that the consequences it bears do not have any precedence or impact on the ones that hear it. For many companies and capitalist machinery, this term essentially triggers them to explore options to hide their fraudulent tracks and continue operating in the same manner. To have governments help them cover the tracks in certain jurisdictions ultimately defeats the purpose of the assignment.

Despite the incongruent activities of individuals, companies, and governments from the expected norm of justice in many jurisdictions, other countries are tenacious to implement a regulatory framework that will eradicate such fraudulent activities in the market. This article will discuss the economic and fraud provisions established in the Middle East, their effectiveness, and the scope of reach it possesses about financial crime.

What are the Economic and Fraud provisions in the Middle East?

If one area of the economy has seen a steady increase in the past years, it would be the economic fraud prevalent in society. Regardless of the number of provisions that jurisdictions and international organizations establish to combat financial fraud, none of them seems sufficient. The parties involved in economic fraud and other fraudulent practices are constantly evolving to cover their tracks efficiently.

Infamous scandals like Bernie Madoff and the Ponzi scheme leave one in absolute awe as it remains unclear, what is the culprit: the crime or the criminal? Many innocent parties, including employees and clients, were adversely affected by the ill-doings of these financial schemes. After the outburst of many scandals and its impact on many innocent individuals, jurisdictions are trying to fasten their pace to stay a step ahead of wrongdoers and hopefully eliminate the potential threats in the market.

The introduction of new anti-economic fraud regulations has paved the way for potential investors to feel a sense of security over their investments within the market, along with the ability of the regulations to enforce justice. Over time, people have understood that the formation and establishment of an anti-fraud legal framework are not sufficient to ensure peace and harmony in the market, an iron fist must be imposed on fraudulent parties and companies to deter them from doing such activities in the future and serving it as a lesson for other participants in the market who bear similar intentions.

The types of economic fraud can be quite varied and are spread across different industries and the scope of nature. These could include housing benefit fraud, tenancy fraud, council tax fraud, blue badge fraud, social care fraud, business rates fraud, insurance fraud, bribery, and money laundering. These are just a top layer of economic crimes prevalent in an ocean of fraudulent activities in the market. The crimes that are more coherent to the wrongdoings in the market include not declaring the business location, stating that a property is not in use while it is, dishonestly requesting for an exemption to pay for charges that are owed, or any unauthorized movement of money to make ill-gains.

Often, economic crime is caused not by companies but by customers towards companies. The highest reported crime boost in the Middle East is through customer fraud and procurement fraud, which have proved to be the most disruptive fraud within an economic crime. In a survey conducted on a global platform, the number of customer frauds was comparatively more in the Middle Eastern region.

In an ongoing effort to combat fraud together, many companies in the Middle East began investing in more stringent controls and implementation of the rules to avoid economic crime, while many others conducted a thorough examination into reasons after the occurrence of a crime in the company. Another issue that stands alongside customer fraud about its prominence is procurement fraud. This fraud entails the practice of favoring associates with vendor and supplier contracts.

All these efforts are measures taken to mitigate the risks involved and ensure that proper prevention is taken by instilling the right technology and talent to deviate from any fraudulent prone routes.

However, it is not easy to ensure that accountability will be maintained and transparent feedback is provided. Another limitation of this procedure is that advanced technologies to combat financial crime can be costly, which would further deplete if the company possesses insufficient resources to acquire and install the platform and is not equipped with properly trained employees to manage the technology. The lack of proper expertise to handle the in-place technology could attract various cyber threats, which allows a wrongdoer from any part of the world to infiltrate the company's system.

With this in mind, companies must equip themselves from the arsenal of defenses to protect themself and the financial and reputational facets of the company. The extent of damage that infiltration of the company's system can cause to the operations is quite unfathomable. It would be better for companies to leave their vault of secrets wide open than installing an IT platform that is managed poorly. The necessity of combating such insecurities is proliferating and must be countered at the earliest. One would like to believe that the efforts of the legal jurisdictions in the Middle East to battle economic crime are practical and promptly applied. However, many of the jurisdictions still fail to provide a proper implementation of the provisions established against economic crime.

The readiness of companies in the Middle East to confront the indecisive nature of economic crime and report any issues as they arise is still moving at a stagnant rate. The stark increase in cyberattacks and its potential threats is not a mystery to the companies in these regions. Nevertheless, they decide against preparing themselves in defense of such risks and attacks. The firms in the region and the governmental organizations must understand the types of threats that could arise in the economy and the nature of such economic crimes. Although this would seem like an insignificant step, this particular action could help achieve a more profound revelation of the gaps and vulnerabilities of the economy and its protective framework.

Many would argue that the relationship of the Middle East with economic crime and fraud dates back ages. All the glitz and glamour and the boom of economies are incongruent with the fraudulent activities occurring within the firms and regions. A region's legal systems cannot enforce the regulatory frameworks established to fight against economic crime if the country's government does not implement the rulings.

To know more about Economic and Fraud Provisions in the Middle East in Singapore Click here 

 

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Thu, 30 Sep 2021 14:28:00 GMT
<![CDATA[JAFZA Offshore Companies Regulations]]> UAE Compan's Law and JAFZA Offshore Companies Regulations : Key Differences

All corporations undergo a development phase that is affected by a range of external factors such as market conditions, economic climate, implications, and new regulations, to name a few. Internal affairs of an organization, the roles and responsibilities of the company's directors, and principal officers also influence its development. A mix of external and internal factors may lead a company to consider the best available alternatives. For instance, an unstable economic climate and unfavourable market conditions may cause financial difficulty for an investee company, thereby affecting their expectations. Such factors finally call upon shareholders and board to reconsider their position and weigh in other options which may include refinancing, restructuring, or eventually, parties may end up in a dispute.

Contentious disputes are often driven and led by a belief that other shareholders or board members have acted improperly or breached the terms of agreement. These differences or disagreements often come into limelight when matters have set a clear tone for possible litigation. The shareholders of an investee company also get into a dilemma where offshore company is one of the shareholders and the law governing offshores varies significantly from that of the laws of the country where the company received such investment.

Within the United Arab Emirates, the UAE Commercial Companies Law (Federal Law Number 2 of 2015) (the Law) is the primary legislation within which most corporate entities are regulated. The Law sets out extensive provisions for types of entities, the shareholding composition, the rights and obligations of the parties so involved, matters relating to voting rights, transfer of shares and other essential provisions. The Law also applies to free zones within the United Arab Emirates, and businesses and investors often reach out to their counsels to understand legal implications of these varied provisions to cement their relationship and/or to obtain advice on other key areas. This article seeks to discuss entity form not covered under the Law – being the Jebel Ali Offshore Company Regulations (the Regulations or JOCR). The Jebel Ali Free Zone Authority, commonly known as JAFZA, has issued JAFZA Offshore Companies Regulations (JOCR), 2018 applicable to all the Offshore Companies formed with the Authority and have repealed and replaced the JAFZA Offshore Companies Regulations, 2003.

The underlying purpose of discussing the Regulationsis to understand three principle components covered therein and how they vary from the Law. In essence, these are:

  • A general overview of the Law and the Regulations including formation and procedural aspect;
  • Understanding the liability of shareholders under an LLC form of entity pursuant to the law vis a vis. the liability of shareholders under the Regulations;
  • Provisions governing the transfer of shares;
  • Role of managers (or; the managing director) andtheir liabilities; and
  • Provisions surrounding annual general meeting or the general assembly and voting rights.
  • The Law repeals the earlier enactment being the UAE Commercial Companies Law (Federal Law Number 8 of 1984). The Law also provides for different forms of companies such as limited liability company, public joint-stock company, private joint-stock company, to name a few. Still, for this article, we discuss the relevant entity type, being the limited liability company (the LLC). The Regulations were presented primarily to introduce the offshore form of companies within Dubai. For Corporate inverstors, the Dubai Land Department required all freehold properties within the city to be registered under the offshore form of company. The Regulations were introduced to enable 100% foreign ownership as JAFZA allows its clients to operate as a wholly-owned entity, without any requirement for local partnership.

    Moreover, the shareholder's liability is restricted to the amount of its paid-up share capital. While offshore entities certainly have distinct advantages, the purpose for which investors form such special purpose vehicle them may vary for a variety of reasons. A comparison between the setup of an offshore company and a limited liability has been discussed below to gain a clearer perspective on the same.

    As per the provisions of the Law, an LLC can be formed with a minimum of two (2) shareholders and a maximum of fifty (50) persons. One natural or corporate person may solely own shares in an LLC (one person limited liability company provided these shares are registered in name of UAE national or company 100 percent held by UAE nationals. The liability of shareholders under the Law is limited to the extent of shares held by them, and the same has been provided for under Article 71 of Law. The LLC also requires that UAE Nationals effectively own a mini mum fifty-one per cent (51%) shares in such company. Readers are advised to read more on UAE Anti Fronting Law which aims at prohibiting the use of side contracts between foreign companies and UAE nationals that enables foreigners to undertake any economic or professional activity that is prohibited by the UAE law. The Regulations, on the other hand, permit one or more persons to apply for a certificate of incorporation and obtain a license for an offshore company with limited liability. Clause 5.1 of the Regulation provides for the above.

    In an LLC, a partner may transfer his shares to other existing partners or any other third parties which shall be made as per the terms of the MoA of the company, under an official document per the provisions of the Law under Article 79 of Law. In JAFZA Regulations, the transfer of a share in an Offshore Company must be done through an instrument of transfer in writing. It must be submitted to the Registrar for approval along with the applicable fee to JAFZA as laid out under Clause 24.1. The Manager of an LLC shall be liable for any losses or expenses incurred due to improper use of the power or the contravention of the provisions of any applicable Law or the MoA of the company or for any gross error conducted by the Manager (Article 84 of Law). Whereas in the case of the JOCR, a Director of an offshore company must disclose an interest (direct or indirect) in a transaction entered/proposed to be entered into by the Offshore Company which conflicts with the interests of such a company (Clause 36 of the regulation).

    The quorum at the general assembly has been laid down under Article 96 of the Law and Clause 51(f) of the Regulations in offshore companies. Consistent with the provisions set out in Article 96 of Law, in an LLC, the quorum at the General Assembly shall not be valid unless one or more partners holding at least 75% of the capital of the company are present in the meeting. However, if such quorum of partners holding at least 75% of the capital of the company is not present at the meeting, then the partners shall be invited to another meeting, to be held within fourteen (14) days from the date of the first meeting provided that at least 50% of the capital is present at this second meeting. If both these conditions are not met with, then there will be a third meeting held upon the expiry of thirty (30) days from the date of the second meeting. A quorum at the third meeting shall be valid irrespective of the partners present at the meeting. The Decisions by the General Assembly shall not be valid unless passed by the majority of the partners present in person and those represented at the meeting unless the Memorandum and Articles of Association (the Constitutive Documents) provide for a higher majority. Accordingly, in cases where the Constitutive Documents require a higher majority, the decisions passed by the General Assembly with a lower majority will not be valid. In an offshore Company under Clause 51(f) of the Regulations, the voting at a general meeting will be held to be valid, only if the shareholders holding, shares representing 95% (ninety-five per cent) of the total capital of the Offshore Company are present.

    Interestingly the reasons for the imposition of this 95% rule imposed by the Regulations pursuant to Article 51(f) is unclear. One may ask why such an imposition of 95% majority? Further, if such imposition were at 99%, what difference would that make? Comparatively, the regulations regarding the quorum of a general assembly in other offshore jurisdictions (discussed below) requires standard majority which is generally set at 75% of the share capital owned by the shareholders in a general meeting. Imposing the high bar 95% rule could, in some cases, affect the rights and interests of decision-makers and often force them to consider litigation. Consider by way of example a case where disputing litigants are tasked with substantial negotiation(s) for several mainland companies and free zones companies in addition to a small offshore entity that is integral and important to the settlement process. Further assuming that parties have (in principle) achieved a settlement on all the entities but the offshore's majority rule creates a snag for want of 95% rule imposition. In such event, the parties may have to deal with the offshore firm separate to the entire settlement process and thereby requiring the Some of the provisions for offshore companies in other jurisdictions about voting rights call for a lower percentage. For instance, under the prevailing regulations of Cayman Islands Company Law (Companies Law of 2013), a majority of at least two-thirds is required for approving a decision in a general assembly of an offshore company, unless the articles of association specify that the required majority shall be a number higher than two-thirds. Under the British Virgin Islands (BVI Business Companies Act No 16 of 2004) a resolution passed by the general assembly in an offshore company shall be approved by a majority over 50% or in case the MoA requires a higher majority. In a foreign company in Guernsey (Companies Law of 2018), a resolution that is passed at a general meeting on a poll is given by the relevant majority of the voting rights of members who, vote in person or by proxy on the resolution. The requirements for a poll are based on the majority being assessed not against the total voting rights of the company, but against the complete voting rights of those members who do choose to vote. In Bermuda, (Companies Act, 1981 of Bermuda), resolutions of shareholders generally require to be approved by a simple majority.

     

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    Sun, 01 Mar 2020 11:34:00 GMT
    <![CDATA[Special Purpose Vehicles ADGM]]> Abu Dhabi Global Market (ADGM) – Special Purpose Vehicles (SPV) and Foundations

    As a company within the Middle East, there are many seemingly insurmountable risks, such as financing, asset transfers or high-risk opportunities, which risks previously held no viable risk mitigation alternatives. However, the ADGM now supplies a competitive entity for which mitigates such risks. The risks as abovementioned could include, for example, should a company wish to engage in a project that is considered to be high-risk – such as the purchasing of an aircraft – such company may utilize the creation of an SPV to isolate this project risk from the parent company. In what follows will be a comprehensive breakdown of the many advantages of SPV's as well as their practicality and ease of company formation in ADGM.

    At the outset, it is pertinent to thoroughly examine what an SPV is and why a company would utilize such an entity. An SPV is a legal establishment which is formed to fulfil a limited, specific or temporary purpose. They are entities distinctively used by companies to isolate the parent company from a particular financial unpredictability. The official definition of an SPV is "a fenced organisation having limited predefined purposes and a legal personality."

    The ADGM has stepped into the forefront in respect of their SPV regime, offering a dynamic and extensive scheme which caters to numerous industry sectors and a range of uses.

    In the below table is a depiction of the typical uses of SPVs

    Use

    Why

    Securitisation

    The utilisation of an SPV can be as an entity through which a company can securitise a loan. In this respect, the SPV will purchase these assets by issuing debt. A debt, the security of which, is on such an underlying asset. This provides a priority right to those persons who are holders of the asset-backed security to receive payments in respect of the debt while curbing the recourse they might have to the originator of the assets.  

    Risk-sharing

    As has been eluded to above, an SPV can be formed by a company to shield the company from high-risk projects and to provide a possibility to other investors for risk-sharing. This entity is especially useful in joint venture projects for isolating partners from risks inherent in certain joint ventures.

    Finance

    An SPV can be used in this capacity for ring-fence investments, this can be utilized to gain financing without increasing debt levels of the parent company.

    Asset Transfer

    In respect of asset transfer, many permits and requirements may be needed for the operation of certain assets, for instance, a mine or a power plant. The attainment of such permits may be arduous, and such permits are often non-transferable. The way in which an SPV will relinquish the burden of the abovementioned can be that the SPV owns the asset along with all permits and authorisation and should the parent company wish to transfer the assets, they can do so through the sale of the SPV, thereby transferring the assets and permits in unison.

    To Maintain Secrecy of Intellectual Property

    This use for an SPV holds many applications and advantages, one being the protection of intellectual property rights of companies from pre-existing licensing deals the company may have with competitors. Additionally, it can be used to separate valuable Intellectual Property into an entity with minimal liabilities and provides it with the opportunity to raise funds and enter into agreements with third parties separate from that of the parent company.

    Financial Engineering

    An SPV has the capability of being utilised as a method of tax avoidance or a way of manipulating financial statements.

    Regulatory Reasons

    An SPV can be set up with an orphan structure to circumvent statutory restrictions, such as regulations relating to the nationality of ownership of specific assets.

    Property Investing

    An SPV can be utilised in the process of acquisition of real property, and this respect will afford limitation of recourse of mortgage lenders – this is dependent on the location of the asset. As was seen above in respect of the transfer of assets and the certain permit transfers, the same is true for the property transfer. An SPV that owns a property can be sold to a person interested in acquiring the property, and in this respect, persons can circumvent high taxes and fees that go hand-in-hand with the transfer of property. 

     

    A famous example of utilisation of an SPV as securitisation of intellectual property is that done by David Bowie (Musician). In order to enhance cash flow, the formation of an SPV for which Bowie sold his assets to, such assets include the right to certain future royalty payments from certain albums. This SPV then issued what was known as Bowie Bonds, for which the record distributor provided specific credit enhancements. The underlying copyrights secured the bonds, and if the SPV defaulted on its payment obligations to bondholders, the copyrights are permanently transferred to bondholders.

    ADGM SPVs are "exempt" structures, and this consideration is brought about due to the fact that they do not fall under the immediate supervision of the Financial Services Regulator. Such SPVs offer sophisticated ownership structures and propose a particularly innovative and flexible mechanism. They combine dematerialised SPVs into substantiated holding companies.

    To surmise: -

     

     

    The breakdown

     

    It's Suitability

  • Proprietary investment;
  • Securitisation;
  • Holding;
  • Capital raising;
  • Advantages

    • Dependability;
    • Adaptable;
    • Different share classes;
    • Applicability of the common law;
    • Acceptance of trusts, funds as holder, and foundations;
    • Capable of morphing;
    • No foreign ownership restrictions;
    • Tax Residency – all ADGM registered companies are eligible to apply a Tax Residency Certificate from the UAE Ministry of Finance to benefit from the UAE's Double Tax Treaty network.
    • Migration or continuance of existing corporate entities

    Legislative backdrop

    Common law

    Competency

    ADGM Courts

    Corporate Mitigation

    Allowed

    Protected cell companies

    Available

    Compatibility with sophisticated holding structure

    Yes

    Ownership

    Capable of being 100% foreign owned

    Registered office

     

    Minimum shareholding

    1 Shareholder

    Minimum director requirement

    1 Director and at least one of the directors has to be a natural person

    Corporate Directors

    Allowed provided there is one natural person as a director

    Minimum share capital requirement

    No minimum share capital requirement

    Evidence of capital pay-up

    Not required

    Set-up timeline

    5-7 working days

    Company name

    Prior approval required

     

    In addition to the numerous abovementioned advantages, the ADGM also offers a type of SPV which affords information disclosure protection to registered SPVs – this is through the Restricted Scope Company. This is an entity unique to ADGM which offers limited information disclosure on the public register but full disclosure to the ADGM Registrar.

    ADGM Foundations

    The concept of ADGM foundations has only recently been brought about and implemented by the financial free zone and affords individuals, and entities access to a product for which they previously had no access to. In this respect, the ADGM Foundations regime offer an alternative to trusts for the purposes of wealth management and preservation, family succession planning, tax planning, asset protection, corporate structuring, and for public interest purposes (with the exclusion of charities).

    To delve a somewhat further into what a foundation is, we can begin by noting its similarity with that of a trust, the use of a foundation as described above depicts its vast similarity – the main difference here is that trusts find their basis in the common law, while foundations are derived from the civil law.

    A notable difference between foundations and trusts is that foundations are incorporated as a legal entity and carry their distinct attributes and legal personality. It is in this characteristic that foundations are comparable to a company; however, they lack the company component of shareholding. The foundation will hold the title of assets in its own name on behalf of beneficiaries, and the establishment of such must carry a particular and specific objective. The foundation may not engage in any commercial activities which fall outside of the scope of activities necessary for the attainment of the purposes of the foundation.

    The person who is responsible for the creation of the foundation will be the "founder", and such a person will transfer assets to the foundation which will subsequently become the property of the foundation. A further differentiation between a foundation and a trust is seen in that, and unlike a trust, a foundation safeguards the founder's ability to exercise control over a foundation. Should the founder die, this will have no effect on the foundation, and it will exist perpetually after the death of the founder. 

    ADGM is a market leader within the United Arab Emirates in respect of Foundation regulation and offers a variety of attractive provisions. The regime provides the domiciliation of foundations into and out of ADGM along with marginal set-up costs. The regulation too provides considerable flexibility in the amendment of governance and the utilisation of a registered agent is voluntary. The commitment requirement of primary assets is as little as USD 100, and it requires no physical office space. The regime also provides limited public disclosure with no individuals' names on the public register.

    The ADGM continues to put forward regulation and evidence which place it at the forefront of International Financial Free Zones – providing innovative and effective corporate structures to suit every commercial and financial need. The two abovementioned entity types are just basic examples of the multitude of ADGM entities. Feel free to get in touch with our team of lawyers in Abu Dhabi to learn more on setting up SPV in ADGM and setting up ADGM Foundation entity.

     

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    Thu, 21 Mar 2019 18:20:00 GMT
    <![CDATA[Substantial Acquisition of Shares and Take-Over (SEBI) Regulations 2011 Overview]]> Substantial Acquisition of Shares and Take-Over (SEBI) Regulations 2011 Overview

     

    Introduction

    The Indian economy has been marked by many critical structural initiatives which intend to build the strength and substantial growth over the past two decades.  In the last t 25 years, India has gained a lot in the economic sector. India has in recent times been considered as one of the fastest growing economies in the world now. Concerning international regard, the view is that the country is a giant in today's emerging world. In the wake of India's most rapid growth, Mergers and Acquisition have become one of the most influential types of restructuring. In India, SEBI (Securities Exchange Board of India) is the nodal authority which regulates various entities listed on the stock exchange in India. These multiple initiatives are taken by SEBI to protect the interest of the shareholders.

    In September 2011, SEBI declared an overhaul SEBI (Substantial Acquisitions of Shares and Takeover) Regulations 1997 by introducing the 2011 regulations. The Regulation was mainly added to regulate the acquisition of shares and voting rights in Public Listed Companies in India. The various changes made in the new regulations is traceable to the recommendations of a committee which was mainly set up to evaluate the many provisions mentioned in the 1997 rules.

    The regulation applies to direct or indirect acquisition of shares or voting rights or control over Target Company.

    As per the new Regulation Article2(1)(a) An Acquirer means any person who, directly or indirectly, acquires or agrees to purchase whether by himself or with persons acting in cohort with him, shares voting rights in control over a target company;

    Article 2 (1) (b) "acquisition" means, directly or indirectly, agreeing to acquire (or acquiring) shares or voting rights in, or further control over, a target company;

    Article 2 (1)(e) "control". What this includes is the right to appoint a majority of the directors or beyond this to control the management and policy outcomes exercisable by a person or in concert, provided that a director or officer of said target company shall not be considered in control over the target company, merely by holding such position.

    The term "Control" has numerous definitions. As per the Black's Law Dictionary, "Control is the power to direct the management and policies of an entity, whether this arises through ownership of voting securities, contract, or beyond; the power and authority to manage, direct or oversee."

    The definition of control is a comprehensive definition, and the ordinary meaning of "control" is 'the power of exercising restraint on direction over something'.

    As per the Regulation 4 of the SEBI Takeover Regulations 2011, "any acquirer acquiring, directly or indirectly, control over a target company must make a public announcement of an open offer for acquiring shares of such target company."

    Key Changes made in SEBI Takeover Regulation

    Critical Changes made in SEBI Takeover Regulation

    SEBI Takeover Regulation contains various changes and elements such as those mentioned below.

    Modification made in the definition of "Control":

    The definition used for 'Control' has been modified in SEBI Takeover Regulations 2011 as per the recommendations of the Regulations Advisory Committee ('TRAC'). In the 2011 Regulations, an officer or director of a company targeted will not be considered in control over that target company, simply by holding such a position. [Regulation 2(1) (e)].

    As per Article 2 (1) (p) under the SEBI Takeover Regulations 2011, "offer period" means the period between the date of agreement to acquire shares, voting rights or control over the company requiring a public announcement.

    As per Article 2 (1) (q) under SEBI, persons acting in concert means, persons who while having a common objective or purpose to acquisition shares or voting rights or control over a company, according to an agreement or understanding, directly or indirectly co-operate for the acquiring of voting rights or shares in, or exercise of control over the target company.

    Trigger Point

    As per Regulation 3, the initial threshold limit provided for open offer obligations which were 15% of the voting rights within a company has increased to 25%. In addition to this, if a party already holds at least a quarter of the target's voting rights, a mandatory open offer will be triggered if that party acquires more than 5% of the target's voting rights in any financial year.

    Modification made on Open Offer Exemptions

    SEBI Takeover Regulations, 2011 provides for certain trigger events wherein the Acquirer is required to give an offer to the shareholders of the Company being targeted to provide them with the exit opportunity.

    Mandatory Open Offer

    The SEBI Takeover Regulations, 2011 provides a threshold for a binding open offer. The Regulations make the provision that whenever an acquirer acquires the shares more than the limit as mentioned in Regulation 3 and 4 of the SEBI Regulations, 2011, then the acquirer id is required for a public announcement of the offer to the shareholders of the target company.

    Regulation 3 of the SEBI Takeover Regulations, 2011 provides the following. Shares or voting rights shall not be acquired by a target company which, when taking together shares or voting rights held by them and by persons acting in concert with him in such target company, entitling them to exercise twenty-five percent or more of the voting rights in such target company. The single exception to this is if the acquirer makes a public announcement of an open offer for acquiring shares of such target company following these regulations.

    Delisting Offer

    Regulation 5A of SEBI Takeover Regulations, 2011 deals with delisting offer in case of some instances arising out of open proposal as discussed below:

    In the event the acquirer makes a public announcement of a free offer on shares of a target company concerning regulations 3, 4 or 5, he may delist the company under provisions of the SEBI (Delisting of Equity Shares) Regulations, 2009. However, the acquirer shall have declared upfront his intention to so delisting at the time of making the detailed public statement.

    Modifications Made on the Voluntary and Open Offers

    Voluntary Open Offer refers to an offer which is given by the acquirer voluntarily without triggering the mandatory open offer obligations. In case of a voluntary open offer, an acquirer along with the persons acting in concert can hold at least 25% or more shares in the target company. The acquirer along with the persons working with them cannot acquire any shares from the target company in the 52 weeks preceding without attracting the obligation to make a public announcement.

    Modification on the increase in the Offer size from 20% to 26%

    One of the most clear-cut elements of the 2011 regulation is that the minimum size of an open offer regarded as mandatory is 26% of the target's voting rights. As such if a party who already holds minimum 25% of the target's voting rights, that party are in a position to make a "voluntary" open offer for 10% or more of the target's voting rights, with the condition that certain other provisions meet fulfillment.

    Public Announcement

    SEBI Regulation 2011 mentions that whenever the acquirer acquires the shares and the voting rights of the target company in the exercise of the limit is required to make a public announcement of an Open Offer. The Regulation has mentioned the separate timelines for Public Announcement and the Detailed Public Statement.

    Short Public Announcement

    A quick public announcement can on the same day the offer finalizes should follow. Sending a copy of the general statement to SEBI and the Target Company within one working day of the date of the short public announcement should also be performed.

    Detailed Public Announcement (Regulation 14 (3) and (4))

    The Acquirer can make a complete public announcement within the five working days from the date of the short public statement. The detailed public notification is required to be announced to publish in all the editions of anyone English national daily, anyone Hindi national daily and any one regional language daily at the place where the registered office of the targeted company is situated.

    Judicial Decisions made on "Control"

    K. Sreenivasa Rao v. SEBI (2002 112 Comp Case 327 AP.):

    In this case, it the decision was that when an acquirer acquires the control over a target company, there is the obligation to make a public announcement on the acquirer who agrees to buy.

    In M/s. Clearwater Capital Partners Ltd. v. SEBI, (Appeal No. 21 of 2013, (CCI) dated Feb. 12, 2014): 

    In the case mentioned previously, the granting of voting rights to Clearwater was the ultimate holding, which amounts to hand over the control over the target company.

    In Re: Jet Airways Ltd Order No. WTM/RKA/CFD-DCR/17/2014 dated May 8, 2014:

    In this case, the preferential allotment of 24% shares of Jet to Etihad was to occur. There was the issue of whether 24% shares allotted to Etihad would amount to control over management and policy decisions of Jet. SEBI upheld that the rights which are acquired by Etihad do not result in a change in control and do not attract Reg. 2(1) (e) read with Reg. 4 of the Code.

    Conclusion

    In today's corporate world, shareholding in companies and ownership in business has created a significant impact. Ensuring smooth corporate governance in a progressive nation is essential. Again, nowadays, the concept of control has become a complicated issue; as such SEBI has adopted various measures and established the regulations which can suit with the investors and can bring a smooth functionality in the corporate governance of a country.

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    Sun, 04 Nov 2018 10:13:00 GMT
    <![CDATA[Base Erosion and Profit Sharing (BEPS)- Tax Evasion of Multinational Corporations]]> BASE EROSION AND PROFIT SHARING (BEPS)- TAX EVASION OF MULTINATIONAL CORPORATIONS

    OLD WINE IN A NEW BOTTLE

    Before 1961, there was a minimal focus on national tax laws upon the multinational corporation's tax and digital economy because during that time no country taxed the foreign source. During that time the nations were under the illusion that they lacked both the origin and residence of the foreign corporation. Lack of taxation imposed on multinational corporation has left the path opened for the multinational corporation to evade the global corporate tax. Furthermore, in 2008, the vast recession resulted in inequalities between the overseas nations and inter-city in the developed and developing countries.  Politically influenced by the US and the UK were peeking into massive profits of multinational organizations such as Google, Apple, and Starbucks paying less than the fair share of taxes. For resolution of the global taxation chaos, the league of nations in the 1920s designed the "Draft Model Treaty on Double Taxation and Tax Evasion[i]" is as a reference by the United Nations and the Organisation for Economic Co-operation and Development (the OECD) in establishing model tax treaties. Furthermore, through model tax treaties, the government and the Multinational Enterprises (the MNE) were focusing on eradication of double taxation rather than interpreting the danger of double non-taxation.  In response to the abovementioned scenario, in 2013 finance ministers of the world formed a group known as G20 and the OECD initiated the extension of the reevaluation of the global tax system known as "Base Erosion and Profit Sharing" (the BEPS). The OECD tax experts developed a set of principles for BEPS projects. BEPS project states that "economic activities generating the profits and creation of value, must ensure taxation on profits[ii]." BEPS project is formed to consider the issue of double non-taxation, and a stronger imposition of rules on Controlled Foreign Companies ( theCFC) which would allow taxing upon offshore subsidiaries[iii].  But the primary problem of BEPS is that it is not yet well redefined and structured. The aim of OECD in developing BEPS is to tax multinational corporations overseas to generate revenue for their citizens and to close the international tax loophole.

    A COMPARATIVE STUDY BETWEEN THE UNITED STATES AND THE UNITED KINGDOM

    The BEPS project was adopted by the Obama Administration in the United States (the U.S) in 2013. BEPS project was strongly endorsed by Treasury Secretary Jacob J who stated that "address the persistent issue of stateless income, which undermines confidence in our tax system[iv]." In 2016 budget, former president Barack Obama had imposed a new tax on corporate earnings held abroad which had resulted in additional revenue of $238 billion[v]. These political and economic factors have accelerated BEPS project in the US which have ultimately strengthened the US taxation which has to increase the inflow of the corporate tax revenue. Until now the US companies were paying lower tax rates by transferring their intellectual property to low tax countries like Luxembourg and United Kingdoms.  In 1980s cost-sharing concept was developed by the Internal Revenue Service (the IRS) Regulations which became more significant due to increase in the importance of intellectual property. The US MNE's like Apple Inc.took advantage of this cost-sharing concept and shared the cost of development of its project overseas such as in Ireland. For example, Apple Irelandcontributed 80% of the cost of developing the Iphone6 and the Apple Inc. would receive 80% of the profit earned from the sale of Iphon6 in Ireland.  Another gamble made by Apple Ireland was that it had issued a license to right to use Apple's brand and intellectual property to Apple Inc. that affiliates to other countries. Those affiliated with Apple Inc. brand in other countries were liable to pay massive royalties to Apple Ireland to shift its sales profit to Ireland. In 1997 Clinton administration adopted the rule called 'check the box'under which Apple Ireland treated all its MNE as a separate entity and the profit earned through it as its own sales income. In 2015 Obama administration repealed the concept of 'check the box,' and Apple Ireland revealed that it paid the tax rate of 12.5% rather than US tax rate of 35%, on recognition by an Irish company in the Senate hearing.

    Furthermore, Google saved billions in taxes worldwide. For example, in Australia Google just paid AUD$ 74,176 in 2013 despite making estimated revenue of AUD 1billion.  Google reduced its overseas tax rate by 5%. Apple Inc. uses the same concept where it paid a tax bill of merely AUD$ 40 million despite generating estimated revenue of AUD$6 billion.  In the United Kingdom, Starbucks a coffee shop just spent £8.5 million in tax between 1998 and 2008 despite generating revenue of £3 billion[vi].

    A Similar case of Caterpillar Inc. vs. Williamsreveals another scam where US government encourages international corporate tax avoidance. A brief outline of the Caterpillar Inc. is that it is the US MNE which is in the business of manufacturing of industrial equipment and engines. Caterpillar Inc. has its subsidiary company in Switzerland named Caterpillar SARL (the CSARL) as a principal in sales of replacement parts. US Senate hearing reveals that Caterpillar Inc. paid $55 million to Price Water-house Cooper (the PWC) for design and implementation of tax structure in 2012. Furthermore, after execution of tax structure designed by PWC, Caterpillar Inc. continued its business of sales of replacement parts in Switzerland and return it received service fee which was equal to its cost plus 5% from CSARL. CSARL also paid 5-6% royalties to Caterpillar Inc. outside the US. In the US Senate hearing, it reveals that the US government is promoting its MNE's in the avoidance of not only the foreign tax but also the US corporate tax. The issue of Caterpillar Inc. was highlighted not because of tax audit but because of the civil lawsuit between the company, and it's internal tax manager who alleged that Caterpillar Inc. reacted against him since he had expressed his concern about the lack of economic substance in the company's tax structure. This incident exposed the company's international tax avoidance.

    Additionally, in the case of Futuris Corporation Ltd. Vs. Federal Commissioner of Taxation(the FCT) where the taxpayer wanted to float some profit of the business, so to do that the taxpayer transferred some assets to other group companies through a tie-up with its shareholdings and capitalized some existing debts[vii]. The Commissioner argued the creation of tax benefits which were rejected by the Full Federal Court.

    But now as per the guidelines of the BEPS suggest that payment of corporate tax to the countries where there is a creation of the value such as in the case of the US, it is California which is the IT hub. Furthermore, this shows that US economy is driven by intangible assets rather than tangible assets. In the US, corporate income tax was estimated to be 1.9% of GDP in 2015 as per the reports of Office of Management and Budget (the OMB). As seen in the OMB report it can be interpreted that the corporate taxes in the US are higher than marginal corporate income tax rate in the UK. For example, as per the survey conducted by the KPMG, United States pay 35% federal marginal tax rate on their profits along with its state and local taxes taken into account comes about a total marginal rate of 40%. Whereas, in comparison to the UK the marginal corporate income tax is 20%. If it is compared to the overall unit of Europe, then the average is 20% marginal corporate income tax rate. These BEPS rules are not only increasing the corporate tax payments globally but causing a vast corporate revenue loss to the United States since the US pays 15% marginal corporate income tax more than the other countries. If the situation in the US remains the same, then there will be a brain drain in the US since most of the skilled and creative workers will migrate to other countries. Many academic scholars debate the fact that most of the nations are implementing BEPS project without government approval and uses OECD international tax guidelines as the basis for their procedure. Therefore, BEPS project has given strict instructions to the national tax authorities to contemplate the functioning of multinationals overseas carefully.

    Intellectual Property Tax Rate

    The erosion of another significant issue in the United States is that due to tax pressure on the US companies, other European countries are offering lower tax rate for profits gained from intellectual property such as patents. For example, the United Kingdom provides 10% rate on intellectual property compared to 20% overall corporate tax rate. This concept of the lower tax rate on intellectual property is trending as patent boxes. Chief Executive Andrew Witty of GlaxoSmithKline has recently quoted upon patent boxes saying "Since the patent box, we have invested in upgrading 15 or 16 of our sites in the UK. It has made Britain the go-to place for our industry"[viii]. So, to benefit 10% tax rate on the patent boxes most of the research and development workers in the US multinationals are migrating to the UK. Due to the enormous difference in the tax rates between the United States and Europe, most of the multinationals are aggressively using these tax strategies. Therefore, to mild the situation BEPS are eliminating these aggressive tax strategies.[ix] On the other hand, BEPS rules are encouraging the US companies to shift these high paying jobs such as research scientist and software developers to Europe to incur lower tax rates.

    It was proposed by trade partners in the US to modify the US Controlled Foreign Company (the CFC) which it states "base company sales income" which refers to foreign income tax.[x] They suggest that taxation on US MNE's would be as per the sales income acquired from its production. But the US government tax authorities have strictly formed the CFC rules that it would be applied upon the incorporation of the company and not upon its production income.  Taxation imposed on corporation allows qualifying many entities of MNE taxable in the US. It has been debated by many US government officials and tax authorities that more transparency is required in the BEPS project to make it easier for the tax authorities to investigate in regards to international tax avoidance cases.

    The adoption of the BEPS project in the UK in 2014, the former Exchequer Secretary expressed its UK's support for OECD's BEPS action plan to Treasury David Gauke. There is a debate on the ongoing issue of Brexit in the UK, whether it will affect the implementation of BEPS project in the UK for international tax avoidance or not. Anticipation by KPMG states that Brexit will not interrupt UK's implementation of BEPS action plan. 

    CONCLUSION

    This article concludes that from the above findings the study shows that most of the multinational corporations reallocate their profits globally to lower corporate tax. Notably, in the United States after the implementation of the BEPS project by Obama administration most of the prominent multinational companies are shifting their profits in the United Kingdom where the marginal corporate income tax is 20% which is 15% less than the US corporate income tax. Moving of prominent tech companies to the UK has incurred a massive loss of corporate revenue for the United States. BEPS rules have turn out to be a disadvantage for the US MNE's, due to competitive taxation system in the US most of its skilled and creative workers are shifting to the Europe where there is 10% tax rate on the patent. In the current scenario, it is debated by the US government officials and tax authorities to modify BEPS rules to make it more transparent so that it becomes more comfortable for the tax authorities to interpret it while investigating in regards to international tax avoidance cases.  On the contrary, there is a little success rate of BEPS in the UK since there is lower corporate income tax on multinational corporations and it will not be interrupted even after Brexit. The objectives of the BEPS projects are still vague and more defined rules are required to be structured by OECD to have a global impact of taxation on multinational firms.

    [i]Reuven S. Avi-Yonah; Haiyan Xu, Evaluating BEPS, 10

    Erasmus L. Rev. 3 (2017)

    [ii]Johann Muller, BEPS Case Study, 24 Int'l Tax Rev. 29

    (2013)

    [iii]Johann Muller, BEPS Case Study, 24 Int'l Tax Rev. 29

    (2013)

    [iv]Reuven S. Avi-Yonah; Haiyan Xu, Evaluating BEPS, 10

    Erasmus L. Rev. 3 (2017)

    [v]Reuven S. Avi-Yonah; Haiyan Xu, Evaluating BEPS, 10

    Erasmus L. Rev. 3 (2017)

    [vi]Mandel, Michael, The BEPS Effect: New International Tax Rules Could Kill US Jobs (June 2015). Available at SSRN: https://ssrn.com/abstract=2872250 or http://dx.doi.org/10.2139/ssrn.2872250

    [vii]Mandel, Michael, The BEPS Effect: New International Tax Rules Could Kill US Jobs (June 2015). Available at SSRN: https://ssrn.com/abstract=2872250 or http://dx.doi.org/10.2139/ssrn.2872250

     

    [viii]Discussion Paper No. 13-078 Profit Shifting and "Aggressive" Tax Planning by Multinational Firms: Issues and Options for Reform Clemens Fuest, Christoph Spengel, Katharina Finke, Jost H. Heckemeyer, and Hannah Nusser.

     

    [ix]Discussion Paper No. 13-078 Profit Shifting and "Aggressive" Tax Planning by Multinational Firms: Issues and Options for Reform Clemens Fuest, Christoph Spengel, Katharina Finke, Jost H. Heckemeyer, and Hannah Nusser.

     

    [x]Johann Muller, BEPS Case Study, 24 Int'l Tax Rev. 29

    (2013)

     

     

    ]]>
    Mon, 14 May 2018 11:24:33 GMT
    <![CDATA[Company Formation in Kuwait Free Trade Zone]]> COMPANY FORMATION IN KUWAIT FREE TRADE ZONE

     

    Kuwait, also known as the Fruitful Land of the Gulfis considered to be a land of opportunities.The country's richness lies in the natural resources like oil and gas but also the real wealth of the nation lies in its human capital as people are highly educated and dynamic. Its presences are in the northwestern corner of the Persian Gulf.Kuwait is a modern city with mingling skyscrapers, apartment buildings, and mosques. In all of the GCC countries, Kuwait is one of the most urbanized countries. Kuwait is recently appreciated due to its extended foreign investment in the free trade zones specific focus on the free zone Shuwaikh.

    The first ever free zone in Kuwait, Kuwait Free Trade Zone (KFTZ) came into existence in 1999 in Shuwaikh port, which is the country's central shipping business facility, on a 1.5 million square meters area. KFTZ came into existence under the Law number 26 of 1995 allowing Kuwait's Ministry of Commerce and Industry to incorporate free trade zones in Kuwait (KFTZ Law).

    The Background Check

    The Kuwaiti Government signed an agreement with a privately-owned establishment, National Real-estate company (NERC) to manage KFTZ, since its establishment until 2006. Where the NREC has the authority to retain 20% of the net operating profits of the free zone and rest will be offered to the government. NERC made several advancements in KFTZ such as rehabilitating the port to ensure foreign investment, unlimited supply of electricity and water to free zone companies, easy road access, and state-of-art infrastructure.

    However, due to several disputes and allegations that NERC failed in managing the free zone, the Kuwaiti cabinet council passed a resolution number 507 of 2006 whereby terminating NREC from the management of the open area subsequently suspending all their activities. After that, in  2007, the Kuwaiti government passed on the responsibility of managing the free region to Public Authority for Industry (PAI) which is yet in-charge of the management of the openarea.

    Why KFTZ?

    The primary objective of KFTZ was to resuscitate Kuwait's economy by enlarging investment opportunities and to ensuring Kuwait's healthy business environment by making it a business center in the whole region. The free zone provides several benefits including but not limited to warehouses, open lands, exhibition halls, insurance agencies, courier companies, hotels and more. It further offers following advantages:

             i.            Complete hundred percent ownership;

           ii.            Free from corporate and income tax;

          iii.            Exemptions from customs duties on imports and exports of goods from the KFTZ;

         iv.            No restrictions on capital;

           v.            No limitations from the foreign exchange Department;

         vi.            Easy access to international airports;

        vii.            Free zone authority cannot confiscate foreign assetsotherwise will grant compensation worth market value;

      viii.            Adequate rewardoffered to foreign investors in case of violation of any rights and privileges;

         ix.            Tools and equipmentutilized within the free zone are free from taxes and customs duties;

           x.            An option to refer contractual disputes to international arbitration centers.

    An establishment may seek different types of licenses from the free zone, considering the activities of the company such as following:

             i.            Commercial/ Trade License;

           ii.            Industrial License;

          iii.            Investment license;

         iv.            Service License.

    In the licenses above, the company can hold hundred percent (100%) ownership without any interference from the local sponsor. The free zone does not restrict companies on the currency or any export and import activities with the openregion. However, there isa minimal limitation on the attachment or seizure of the capital so invested by the foreign companies.

    The companies wish to establish their presence in the free zone must obtain a license to carry out one or more of the permitted activities mentioned in the KFTZ law. Importantly, companies can only conduct those activitiesoutlined explicitly in the trade, commercial or service license. Below table will assist the investors planning to establish their presence in KFTZ:

     

    Particulars

    Free Zone Establishment/LLC

    Application form

    Required

    Famous Activities

    Manufacturing and Exports

    Timeline for obtaining a license

    Five months

    Timeline for a Lease agreement

    1 Week

    Corporate Tax Rate

    0%

    Limited Liability Entity

    Yes

    a Government Grants

    Available

    The requirement of Government Approvals

    Yes

    Requirement for GCC director or Manager

    No

    Minimum Share Capital

    USD 3,300

    Right to bid for government contracts

    Yes

    Right to secure trade finance

    Yes

    Average Costs for setting up

    USD 48,000

    Minimum Number of Partners

    2

    Future Goals of KFTZ

     

     

     

     

    With a clear view to support and increase the investment in the free zone, the Ministry and Commerce Industry promulgated a proposal to transfer the management of the free trade zone from Public Authority Industry (PAI) Kuwait Direct Investment Promotion Authority (KDIPA). The new KDIPA also has the authority to manage new free zones such as Abdali and Nuwaiseeb to However; the transfer is not yet final stage.

    The Kuwaiti government, considering the increased investment in the KFTZ has announced to further establish new free zones on five of its islands. As recently quoted by Ministry of Social Affairs and Labor and Ministry of State Department and Planning Affairs that the project will support the Gulf state to expand the industry from the oil sector to international investment. It further aims in offering varied job opportunities to Kuwaiti's citizens and limit the dependency of government funds.

    The project is now in under control of Supreme Council for Planning and Developmentand to the cabinet as a matter of urgency. The government is already in progress of creating a harbor on the Boubyan island which is a multibillion-dollar project with an objective of inviting national and international private companies for financing and executing the free zone operations. The government is under planning to complete the project in 2030 with plans to introduce various incentives to attract foreign investors.

     

    ]]>
    Mon, 14 May 2018 10:43:16 GMT
    <![CDATA[Final- majority Minority V.1]]>                                 BALANCING THE UN-BALANCED

    "The Majority is always wrong and the minority is rarely right"

    -Henrick Ibsen

    Corporate law is the yardstick for the business sector which chaperons and molds the behavior of a Company. Corporate Law establishes the structure of the corporate form as well as formulates rules for the smooth flow of operations in the company.The other vital function of corporate law is to control the conflict of interests amongst the corporate constituencies such as the shareholders, directors, creditors etc. These conflicts are referred to as the 'Agency Problems where the wellbeing of one party, depends on the actions of another party. Title 8, Chapter 1 of the Delaware General Corporation Law (the Delaware Code) is the statute governing corporate law in the U.S. state of Delaware.The Delaware General Corporation Law has been a vital authority in the United States corporate law since the early 20th century. In the USA, every state has their own corporate governance law, however, since Delaware has a more developed and flexible approach to corporate law that provides greater guidance and transaction liability issues, most larger corporation choose Delaware General Corporation Law.

    The typical corporate governance framework views shareholders as the principal, and the objective of the management of a corporation is to maximize the interests of the shareholders. Even though shareholders delegate the board of directors to guide and monitor the management, they are given privileges and opportunities to participate directly in monitoring and operating their firms.

    Categorically, we can outlook four (4) main agency problems in a company on which the Law has paid utmost attention, as follows:

  • Shareholders v. Managers
  • Controlling Shareholders v. Minority Shareholders
  • Shareholders v. Non-Shareholder Constituencies
  • Shareholders v. Bondholders.
  • Tug of War between Majority-Minority

    A key agency problem that exists in any corporation is the struggle between the minority shareholders (the principal) and the majority shareholders (the agents). This is a high occurrence issue in jurisdictions where the concentrated shareholding dominates. It is an evident fact that the majority shareholders have more control over the governance of the company and therefore it holds an advantageous position for the minority shareholders.Protecting minority shareholders dates back to 1970s in the USA. The states rely on its underlying concept of democracy in every aspect, starting from the government to the corporate governance in companies. They believe that it is vital to protect the rights of all individuals. Therefore, it is important that majorities keep minorities in their mind when they make decisions that affect everyone in corporations. The nature of shareholders and their share structure in the USA in public holding companies differ from other jurisdictions. Investment institutions own most of the shares in public US companies. Therefore, each of the state laws, USA stock exchange regulations, and the federal law tend to protect public shareholders by regulating mandatory disclosure and establishing a relationship between minority shareholders and directors. All these issues get worse when the majority shareholding is concentrated among a limited number of shareholders. The senior management and even the Board of Directors of such companies are directly appointed or associates of major shareholders, so ultimately the decisions taken by the company are more favorable towards the major shareholder. This situation is deteriorated in large US public corporations which is mostly owned by a shareholder or group of shareholders who take all the possible benefits from the company.

    The main resources in the USA for minority protection includes Statutes, Common law, Company by-laws and the USA federal law securities. Each of the 50 states has its own corporate law. Most large incorporation chooses Delaware, where a minority shareholder in a company incorporated in Delaware state protects its minorities from the Delaware General Corporation law, company's bylaws, and common law. However, these developed in addition protection fail to fully provide the required balance between majority and minority shareholders. The corporate law has been developed in a manner to give additional protection to the minority shareholders to protect them as they do not have the contractual protection other parties like the employees or the third-party constituencies enjoy. The corporate law can either empower the minority or can limit the advantages enjoyed by the majority shareholders. The USA allowing public companies to cap vote, mandatory disclosure and shareholder-friendly accounting methodologies are some instances where the corporate law has protected the interest of the minority shareholders by constraining the activities of the major shareholders.

    Communal Issues

    Generally, there are three (3) common issues that arise between these two parties which are as follows:

  • Profit expropriation
  • Tunneling of assets
  • Improper dilution
  • In addressing agency problems, the law repeatedly turns to a basic set of strategies. There are two types of legal strategies used to address these agency problems, namely the Regulatory Strategies and the Governance Strategies. Under Regulatory Strategies, the law aims at constraining the behavior of the parties.

    Strategic Move

    Governance Strategies aims at facilitating the principal in controlling the Agent's behavior. To achieve these aims, the Corporate Law uses three toolsCompliance, Enforcement, and Disclosure that are designed for Corporate Law as a solution for this agency problem. The governing strategy has suggested several approaches to resolve these issues between the majority and minority shareholders. Appointing Non-Executive Directors for the main committee roles is one such way to protect the interest of the minority in a sense that it is strongly believed that the Non-Executive Directors shall act in an impartial manner for the best interest of the Company. Strong representation of independence shall constrain the controlling power of the majority shareholders as well as of the managers who bear allegiance to the controlling shareholders. The effectiveness of the practical appliance of these solutions bears a heavy question as we consider how independent are, these so-called "Non-Executive Directors" in a company. The selection of these independent directors is done by the Board of Directors of the Company who inadvertently bears fidelity towards the controlling shareholder. There are some instances where the controlling shareholders screen the proposed "Non-Executive Independent Directors" prior to their appointment. Therefore, even this method does have some positive effect to limit the activities of the controlling shareholders it cannot be distinguished as an immaculate method to protect the minority shareholders.

    There are other methods like derivative actions, mandatory disclosures, pre-emptive rights that are used to protect the minority. These methods do have a strong effect on a company to say that most of these methods are pertinent to the shareholders but also to the capital and labor markets in the broader picture.

    The minority shareholders can be empowered by awarding them excellent voting powers such as overweighing the votes carried by minority shareholders, reserving board seats, giving key committee roles, tag-along rights, vote capping, assigning veto powers etc. Countries like UK, USA, France, and Germany have the aforementioned methods in practice to safeguard the minority shareholders in such jurisdictions. Nevertheless, in general, these minority shareholders lack expertise and have fewer facts to decide on every matter of the corporation. Few wrong decisions can damage large corporations long aim of maximizing profit. However, despite this lack of intelligence in minority shareholders, US law and courts keep supporting and encouraging them with shaping and changing the law according to their requirement.One good example for that is the Delaware court of chancery supporting minorities in many circumstances.

    Case Laws

    The watermark case of Halpin v Riverstone National Inc[i]is one such example, in which, the company proceeded for a merger without the vote count of the minorities and they decided to file a class action against the majority shareholders decision.  Delaware court ruled in favor of minorities by setting an example. Therefore, the corporate law plays the role of finding the balance between different shareholders.

    Having some level of controlling power at the Board level or containing the power to screen and supervise the actions taken by the major shareholders which concern the profit expropriation, asset tunneling and improper dilution of shares, can assist the minor shareholders to protect their wellbeing at the company level, as a group. The protection from the above-mentioned regulation can help the minorities on the aforementioned then the bylaws of the companies as it is always written and it favors the majorities or the founder of the large companies in the USA. The right to bring a class action lawsuit against the company is another right given under Delaware General Corporation Law and New York to minority shareholders. They can bring the action in violation of their rights. For example, violations of disclosure obligations. Similarly, Delaware, New York, and many other states law give the rights to inspect corporate books and related books for a proper purpose. The mechanism will allow the group of minority shareholders in a corporation to investigate corporate mismanagements. Minority shareholders encourage the development of new laws protecting themselves and the other stakeholders of the company. They believe, it is important for the corporate law to provide protection to minorities. Nevertheless, they are minorities, they are a large number of shareholders when they are taken into the account in overall.

    However, the dictators of the US public companies believe that it is not inevitably necessary to empower minorities in public companies. They argue promoting minority can harm in the long run of the corporations.  According to one study, some of the largest public companies in the USA such as Walmart, Ford, and Berkshire have concentrated shareholder structure with empowered majority shareholders domination and success in long run. Finance scholars study the balance maintained between shareholders in large public companies such as Google, Fiat, Lego, and Facebook and how a small group of shareholders helped the corporation in long run. The framework of dual class structure and concentrated shareholding protects the major investors and entrepreneurs who risk most at the beginning of the corporations. They believe minority shareholders must rely on exit option rather than on their "voice". They are always given the option of leaving the company whenever they wanted to leave. In contrast, Majority shareholders are well known for the abuse of their power 'private benefits of control'at the expense of the minority shareholders. It includes entering into conflicts-of-interest transactions, misusing corporate resources for personal ends, expropriating corporate opportunities, and building a conglomerate empire.

    Conflicts and consequences

    The conflict between shareholders can lead to the expropriation of funds and assets that will affect the corporate overall.  For example, managers of corporations will steal and shirk from the corporation as well as promote the proposals that will support the majority shareholders to diverge the interest of the minority. Similarly, most of the time the majority shareholders interests are not aligned with the interest of other shareholders. Which can lead the majorities to promote self-dealing transactions, damaging the entire corporate interest?

    As Kraakman argues in his book called the Anatomy of Corporate Law, that to a greater extent, the regulations come to save the minority shareholders at the beginning or end. Which is a successful strategy for majority-minority shareholder agency problem as it can bring more minority shareholders to the public firms and benefit in overall?Current USA approach of balancing the majority-minority shareholders in public company considered to be successful. Active involvement of minority shareholders in large public firms improves the quality of the protection of investors which will improve the public trust in the stock market and develop the economy in total. Minority shareholders must feel secure and safe from all the powerful entities in the corporation. Delaware is the best-known state in theUS for identifying agency problems in advance and providing a solution for that. Delaware finds help from all the legal parties who can help to improve the regulations. The bar association guides and shape Delaware regulation in every step and therefore, the corporate matters advised by the best corporate lawyers in advance.

    Conclusion

    Companies can accomplish their corporate objectives and goals of advancing company growth and profitability by executing balance between shareholders right. It can increase the ability to raise funds through stock offerings, offer a feasible stock option program to court executives, and prevent hostile takeovers by other company can be done by mutual understanding between shareholders. The leaving of shareholders (majority or minority) can damage the reputation of a corporation and will not attract more shareholders to the company. Therefore, the companies require the help of regulatory framework to bring the regulations to govern the problem and also to develop strategies time and time according to the needs of the large corporations. 

    [i] C.A. No. 9796-VCG 

     

    ]]>
    Mon, 26 Mar 2018 16:36:57 GMT
    <![CDATA[Special Purpose Vehicles]]>  

    Special Purpose Companies or Vehicles (the SPCs or SPVs) are temporary companies set up to achieve a precisely structured financial operation. SPCs provide an alternative mode of financing transactions. Put simply they are subsidiary companies of a parent company, whose assets are protected from the actions of the parent company. In short, they limit financial risk to the property of the SPC.    Special Purpose Vehicles have played a significant role in the seamless operation of global financial markets. Commercial objectives of corporates, multinationals and institutional, as well as non-institutional investors, could be realized by raising capital, securitizing the assets, risk sharing, tax benefits, and carrying out planned activities. These practical features of special purpose company absolve corporations from the risk element.   SPCs can choose to operate on separate balance sheets than their parent companies (called 'off-balance sheets'). SPCs provide their shareholder's limited liability. SPVs generally operate on independent balance sheets instead of recording transactions on their parent or holding companies. For this reasons, parties often consider SPVs as off balance sheet vehicles. Firms can use these entities as synthetic lease to possess assets independently and is treated as an expense in revenue statements rather than a liability on company's balance sheet. SPVS are commonly used for following transactions:-   •    Securing Projects: - SPCs can help firms secure projects from financial, commercial or operational failures of entity •    Securitizing loans and receivables. SPVs play a significant role in securitizing loans and other receivables. Governments, for instance, set up SPVs to fund their projects in particular sectors and the SPC entity acts as a catalyst to channelize funds for projects in different areas.  •    Transfer of Assets: SPCs can safeguard firms in the event of bankruptcy or liquidation given that assets once transferred to SPC they become unidentifiable. That said, courts in many countries have ruled that SPC's assets and funds should be linked to the originating firm. Likewise, assets that are difficult or impossible to transfer (for example, power projects or gas plants), parties can transfer such assets as a self-contained package and thereby avoid undergoing a multitude of compliance and permits.  •    Regulatory and Compliance: SPVs can be set up within orphan-like structures thereby preventing regulatory and compliance mandates. •    Financing and Raising Capital: SPCs can be used to finance new projects without increasing costs or altering the shareholding. This aspect makes SPVs an obvious choice to finance aircraft(s), power projects, and infrastructure projects.   The Dubai International Financial Center   In the Dubai International Financial Center (the DIFC), foreign owners are entitled to incorporate SPCs which are used to finance routine transactions. The company which establishes the SPC (the Initiator) is authorized to operate the SPC in the areas of acquisition, granting security interests over assets, financing other SPCs, as well as the parent company, or any other activity approved of in writing at the time of incorporation with the Registrar. These areas of practice are officially known as "exempt activities." Acting outside the scope of exempt activities subject the SPC to a fine of USD 5,000.    The DIFC itself provides an attractive venue for establishing one's SPC due to its separate regulatory framework, including the Dubai Financial Services Authority (DFSA) and Courts. These structures operate on a common law basis, in the English language, providing investors across the globe an easy access point to the Dubai investment market.    SPCs do not have their accounts filed nor audited annually. Also, there is no formal requirement for shareholders to be based physically within the DIFC itself. The Corporate Services Providers (CSP) can act as majority directors and company secretary of the SPC. These CSPs are entitled to receive administration services from third-party management providers and are not required to be appointed directly. However, the majority of directors of the SPC must be employees of the Corporate Service Provider.    It is possible to incorporate SPC as the person(s) (natural or legal) including a shareholder; the CSP; or through any law firm or accounting practice. Incorporation of SPCs in DIFC is carried out per the DIFC Law Number 2 of 2017 (the Companies Law), and the respective Companies Regulation. Formation of SPCs is also possible electronically, by attaching electronic documents submitted within one month of submission. Failure to provide these documents within the one-month time frame subjects the SPC to a fine of USD 2,000.   Incorporation costs are nominal, with the minimum values of shares totaling USD 100. The cost of company formation itself is a mere USD 1,000, with no requirement of obtaining a commercial license. Despite this, SPCs have a limitation in their general scope of action within the meaning of the previously outlined activities. Voluntary winding up of SPCs is possible only in the event a declaration is filed in writing that there are no outstanding liabilities, and (if accepted) the dissolution shall be published on the DIFC online site.   The Abu Dhabi Global Markets   The inflow of investments into the country plays a vital role in the elevation of its economy. Dubai plays an important part in this regard since it houses numerous free zones such as the DIFC that confers with the international corporate governance and financial sector regulation norms. Abu Dhabi, realizing this potential for investments in the financial sector, established the Abu Dhabi Global Markets (the ADGM). Since then, the ADGM has played a vital role in the attracting foreign investors into the country, especially those wishing to incorporate special purpose vehicles.    The ADGM grants investors with a comparatively lenient SPV regime than that of the DIFC since there is no explicit constraint on the number of shareholders. Investors may opt for one of the following legal structures to set up an SPV in the ADGM:   i.    RSC or Restricted Scope Company   The main advantage of an RSC is the curb on the information that should be disclosed to the public (although, investors should note that they may be required to provide all the information regarding the SPV to the registrar). This form of legal entity is used as a family office or a subsidiary of a public company.   ii.    LTD or Company Limited by Shares   Investors who wish to incorporate a holding company or intends to undertake operational activities opt for LTD. These are private limited companies and one of the most common forms of SPVs in the ADGM.  We have noticed a growing trend whereby investors around the globe prefer to establish their SPVs in the ADGM due to their (relatively) flexible regulations. Investors do not have to attest their corporate documents, and there is no minimum share capital for company formation in the ADGM. Although, SPVs in the ADGM may have to provide a registered address in the free zone at the time of company incorporation. But this rule does not necessitate them to have a physical office space. There are numerous options whereby an investor can obtain a registered office address without actually having a physical office space in the free zone (such as choosing a physical space or appointing an agent). ADGM also offers investors with the option of relocating their existing companies from certain other jurisdictions (as long as the firm is authorized to make this transfer by the domestic laws of that jurisdiction). Investors should take the advice of a law firm in Abu Dhabi that provides bespoke legal advice in company formation and is well-conversant with the regimes of the ADGM before initiating the company formation process.   The common law jurisdiction of the ADGM along with their flexible legal regime has attracted an immense number of investors in the past years. Numerous SPVs have been set up in the ADGM for investing in the real estate sector, acquiring and holding intellectual property, asset transfer, risk sharing, raising capital, etc. To know more about setting up an SPV, the documents required, procedural requirements, etc. at the DIFC or the ADGM, contact us!   ]]>
    Sat, 22 Jul 2017 00:00:00 GMT
    <![CDATA[Новый Кодекс Сингапура о Слияниях и Поглощениях]]> Новый Кодекс Сингапура о Слияниях и Поглощениях   Наше нынешнее капиталистическое общество создало атмосферу интенсивной конкуренции. Конкуренция - это не самое худшее в мире, это одна из самых важных причин, по которой мы получаем высококачественные продукты и услуги. Потребительские настроения только усиливаются и увеличиваются из-за чрезмерного количества выбора, с которым мы сталкиваемся каждый день.    Как бизнес справляется с этим соревнованием, когда оно становится слишком чрезмерным  и грозит утянуть его на дно? Умные предприятия и владельцы бизнеса осознают ценность своих конкурентов. Они понимают спрос и потребность в продуктах своей оппозиции и находят способ предоставить эти продукты потребителям, которые были бы разочарованы их отсутствием. Они делают это путем организации слияния и поглощения.   Google славится своей способностью распознавать опасность на рынке, опережая своих конкурентов, о чем свидетельствует их приобретение YouTube в 2006 году, всего через 20 месяцев после основания веб-сайта (за цену в размере 1,65 млрд долларов). Несмотря на утверждения о проблемах с авторским правом и возможностях судебного разбирательства, скептики должны были съесть свои шляпы после того, как признали явную технологическую и инновационную силу, которую Google получил с приобретением YouTube. Это, пример того, как конкуренция может быть использована для взаимной выгоды.   Одним из самых ошеломляющих предложений о слиянии в новейшей истории стало приобретение Facebook WhatsApp за гигантскую сумму в 19,6 млрд долларов в 2014 году. Эта компания зарабатывает около 20 миллионов долларов в год, так зачем же Facebook беспокоился о приобретении этой компании за эту огромную цену? Два слова. Рост пользователей. Только около 62% пользователей Facebook активны ежедневно, тогда как WhatsApp видит активность в 70% своих пользователей. Он добавляет миллион пользователей в день, и в настоящее время его услугами пользуются 500 миллионов человек. Несмотря на запуск в 2009 году, ожидается, что в скором времени он достигнет 1 миллиарда пользователей. Facebook был запущен в 2004 году и достиг миллиарда пользователей только в декабре 2014 года.    Обе эти компании принимали разумные и обоснованные решения для обеспечения собственного успеха, принимая во внимание потребности потребителя. Когда дело касается юридических вопросов, подобные слияния, конечно же, связаны с определенными сложностями и нюансами. Если бы ясность и простота могли быть введены в эти юридические структуры, бизнес бы процветал.     В этой статье рассматривается, как Сингапур признал необходимость ясности и внедрил это в свои законы и кодексы.   Сингапур - одна из самых успешных стран в мире со свободной рыночной экономикой. В нем создана удивительно открытая, свободная от коррупции среда, стабильные цены и ВВП на душу населения выше, чем в большинстве развитых стран.    Его экономика в большой степени зависит от экспорта, в частности от потребительской электроники, продуктов информационных технологий, медицинских и оптических устройств , фармацевтических препаратов. Это также зависит от его развитых транспортных систем, бизнеса и сектора финансовых услуг. Однако главной движущей силой этой экономики является ее четкая и простая нормативная база, которая обеспечивает значительные преимущества для инвесторов, которых, следовательно, привлекают  инвестиционные возможности в этой стране.   Одним из последних изменений в вышеупомянутой нормативной базе Сингапура является Сингапурский кодекс о Слиянии и Поглощении (Кодекс). Кодекс был пересмотрен Денежно-Кредитным Управлением Сингапура (MAS) по рекомендации Совета Индустрии Ценных Бумаг (SIC). Кодекс был пересмотрен MAS в соответствии с Разделом 139 (6) Закона о ценных бумагах и фьючерсах с 25 марта 2016 года.   В свете последних событий на рынке и развития международной практики, Сингапурский SIC выпустил документ для консультаций, в котором предлагаются поправки к Кодексу, которые помогут:   i. Обеспечению большой определенности в отношении применимых процедур и сроков для предложений конкурентного поглощения, ii. Предоставлению дополнительных указаний относительно поведения во время предложения и правил для своевременного предоставления информации и iii. Систематизации и упорядочению существующей практики   Следуя обратной связи во время консультации, предлагаемые изменения были в основном приняты в том виде, в каком они были предложены, за исключением нескольких корректировок, которые изложены ниже.   Ключевые Изменения   Ключевыми изменениями в Кодексе являются:
  • Уточнение, что в конкурентной ситуации расписания предложений будут согласованы с последним предложением;
  • Предписание процедуры аукциона по умолчанию, если ни один из оферентов не объявил свою окончательную цену предложения на более поздних этапах периода предложения;
  • Продление срока для потенциально конкурирующего оферента с целью разъяснения его намерений;
  • Разъяснение того, что ходатайство по конкурирующему предложению или ведение процесса продажи не равносильно расстройству существующего предложения и в том числе заявление о том, что в случае сомнений следует провести консультации с SIC;
  • Уточнение того, что правление офферента может рассмотреть возможность совместного обсуждения прогнозов в области управления с его независимым финансовым консультантом;
  • Изменения в том случае, если никакое увеличение и никакие заявления о расширении не могут быть отменены после выпуска новой информации компанией-адресатом;
  • Обеспечение расчетов по акцептам в течение 7 рабочих дней (вместо 10 дней);
  • Требование оперативного раскрытия любых существенных изменений в информации, ранее опубликованной в предложении, с тем чтобы акционеры и инвесторы были своевременно информированы о существенной информации; а также
  • Систематизация и упорядочение существующей практики, относящейся к предварительным условиям, позволяющим размещать предложения в адрес компаний-оферентов в более ранний период в пред-условном предложении, а также расчет стоимости сопоставимых предложений для разных классов акций.
  •   Процедура Измененного Аукциона - процедура открытого аукциона, которая повторяет конкурентный процесс, который может продолжаться до 46 дней без какого-либо ненадлежащего продления. Эта процедура аукциона должна быть надежной и простой, и применяться повсеместно к конкурирующим предложениям, охватывающим все формы рассмотрения. По замыслу, это прозрачный процесс, который фокусируется на финансовых условиях предложений для достижения финализации.   Предлагаемые Изменения   С учетом отзывов, полученных в ходе консультаций, были внесены предлагаемые поправки. К ним относятся:
  •  Оплаченный пресс-релиз - Согласно примечанию 7 к Правилам 3.1, 3.2 и 3.3, платная реклама может быть опубликована в самой широко распространенной ведущей англоязычной газете, а не в двух ведущих английских газетах. SIC также пояснил, что «публикация ежедневно» во избежание сомнений, это «публикация каждый день, кроме воскресенья».
  • Запрос конкурирующего предложения - SIC разъяснил, что намерение заключается не в том, чтобы налагать обязательство по поиску конкурирующего предложения, и что он считает предлагаемые поправки  достаточно ясными. Тем не менее, он добавил в примечании 8 к Правилу 5 заявление о том, что с ним следует обращаться в случае возникновения сомнений.
  • Существенные изменения в новой или опубликованной информации - Предложения, сделанные во время консультации, включали согласование требований Кодекса для быстрого раскрытия изменений ранее раскрытой информации или новой информации в правилах SGX по раскрытию информации, включая исключения, предусмотренные в этих правилах. Это не было принято. SIC указал, что стороны могут консультироваться с ним в случае необходимости и добавить примечание 1 к Правилу 8.1, чтобы напомнить сторонам об этом.
  • SIC также считает, что Кодексу не представляется возможным изложить все обстоятельства, при которых существенное изменение информации потребует от совета оферента и независимого финансового консультанта («IFA») обновить свои рекомендации. В примечание 1 к Правилу 8.1 были внесены поправки, предусматривающие, что такая информация должна быть принята во внимание, и в          случае необходимости правление получателя и IFA должны внести поправки в свои рекомендации и что в случае сомнений следует проконсультироваться с SIC.

  • Акционерное Общество и Сделки - В правило 24.3 внесены поправки, разъясняющие, что применимый период раскрытия информации о сделках должен составлять 3 месяца в случае добровольных предложений.
  • Расписание предложения после окончания аукциона - Корректировки были внесены в расписание после окончания процедуры аукциона. Предельный срок для публикации пересмотренных оферт-документов -через 7 дней после окончания аукциона. Получатель оферты должен опубликовать свой циркуляр в пересмотренном предложении не позднее, чем через 7 дней после опубликования пересмотренного документа о предложении. Самая последняя дата, по которой конкурирующее предложение может стать безусловным в отношении акцепта, - через 7 дней после публикации пересмотренного документа о предложении..
  •   Главная Цель и Ожидания от Нового Кодекса   В Кодекс были внесены поправки, с тем чтобы:   i.    Уточнить стандарты, которые требуются от предварительных условий в предварительном условном предложении,  ii.    Разрешить компании-получателю ходатайствовать об одобрении публикации документа о предложении на более раннюю дату в пред-условном предложении и iii.    Уточнить, как должна рассчитываться стоимость предложения для другого класса акций.   Слияние и объединение компаний в Сингапуре регулируются неконституционными правилами в Сингапурском кодексе, который администрируется Советом Индустрии Ценных Бумаг (SIC). Кодекс о Слиянии стремится обеспечить условия, чтобы овладение и объединение осуществлялись в соответствии с хорошей деловой практикой для справедливого и равного отношения ко всем акционерам. SIC не занимается коммерческими преимуществами овладений и объединений.   Эти изменения, которые были предприняты Сингапуром, создали отличный прецедент для принятия ясности и прозрачности, когда дело доходит до конкурсных предложений об объединении, к которым может обратиться наиболее развитые страны.   ]]>
    Sat, 20 May 2017 09:00:00 GMT
    <![CDATA[Asset Securitization in the UAE]]> Asset Securitization in the UAE 

    (Part II of II)

    In part one of our series on Asset Securitization, we defined asset securitization, reinforced its importance and illustrated the ways in which it useful for financing purposes. In fact, asset securitization transactions had evolved centuries back and were also, incredibly pervasive during the late seventeenth and the early eighteenth centuries.

    Anyone from the Republic of India would easily be able to recognize the name 'East India Company.' This company, a mercantilist corporation of Britain, and South Sea Company, jointly held nearly eighty percent (80%) of the British Crown's national debt by 1729 through the process of asset securitization. They essentially became 'Special Purpose Vehicles' (the SPV) for the British Treasury. Clearly, this process has been pervasive and prevalent for much longer. This part two explores and discusses the concept of securitization within the UAE Regulatory Framework and further highlights the manner of enforcement of security created to secure the rights of creditors.

    Regulatory Framework in the United Arab Emirates

    The securitization market in the United Arab Emirates (the UAE) is at a nascent stage. Hence there is no proper law from which securitization could derive its regulatory framework. However, since its emergence as a leading financial center, the Dubai International Financial Centre (the DIFC ) has been a robust platform for undertaking asset securitization in the country. DIFC has a sound legal structure to facilitate securitization transactions in the country, within conventional and Islamic structures alike. Moreover, in 2008, the DIFC passed the DIFC Special Purpose Company Regulations, which eased the securitization framework within the DIFC for foreign investors and the local businesses. DIFC legal framework comprises of the Law of Security, the Real Property Law, and also the DIFC Security Regulations, which categorically safeguard security created over assets within the DIFC, and by entities based and operating from within the DIFC. Notably, there are several free zones in the UAE, and each such free zone has its regulations for creating security interests by entities licensed within that zone and over assets located therein.

    Any financial transaction is effected and perfected by executing documentation governing the terms of understanding and intent of parties. These documents include the financing documents, which cover the terms and structure of proposed transaction, including security documents, and creating a right over assets of the obligor for its creditors. These documents are a mechanism which ensures a lender's ability to enforce their rights, including taking possession of the property/assets secured, selling it and appropriating the proceeds to repay their debt, in the event obligor, fails to perform. Importantly, the laws applicable to documenting, registering and enforcing security interest created (either in the form of a mortgage or pledge) over assets in the financial transaction are governed by the UAE Commercial Transaction Law (the Commercial Code) and the UAE Civil Transactions Law (the Civil Code).

    In the absence of a separate legal framework for securitization of assets under Dubai law (or; UAE law), the agreements executed between the parties evidencing an Islamic securitization shall be Sharia compliant and adhere to the terms of Civil Code and Commercial Code, both.

    Mortgage

    Article 1399 of the Civil Code defines a mortgage contract to mean "a contract by which a creditor acquires, over an immovable property allocated for the payment of his debt, a real right by which he obtains preference over creditors and creditors following him in rank, for the repayment of his claim out of the price of such property, no matter into whose hands it has passed."

    Article 101 of the Civil Code defines Immovable Property (Real Property) as "anything of permanently fixed nature which cannot separate without damaging or altering its surrounding."

    The Civil Code and Commercial Code (read with Law number 14 of 2008, in cases where the real property located within the Emirate of Dubai) cover the mortgage of 'real-estate' upon terms that are recorded by way of a mortgage deed, by and between the parties. The only way to create a valid and enforceable mortgage is to register the mortgage deed with the appropriate authority (where the immovable property locates). For instance, a mortgage deed gets recorded with the Dubai Land Department and the local Municipality in the Emirate of Abu Dhabi is responsible for registration of mortgages.

    We now examine mortgages created over a 'Musataha' right. Musataha is a form of long-term lease which allows the holder (the Musatahee) the right to use and exploit (including development) the land belong to the land owner for a term of fifty (50) years. The lease is renewable by mutual consent (or; as agreed contractually) for a further period of up to fifty (50) years. Once vested with musataha rights, the musatahee may dispose of such rights in any manner he deems fit. For musataha rights to become active, the musataha agreement granting those rights must be registered either with the Land Department or, the Municipality, as the case may be.

    Similarly, the usufruct is also a form of long-term lease for ninety-nine (99) years. However, usufruct form of 'lease-contract' varies from 'Musataha' as it does not entitle the leaseholder to develop the property.

    It is essential to highlight here that both - Musataha and usufruct can potentially apply to underlying assets for ijara based Sukuk (the Sukuk Al Ijara).

    For safeguarding the interest of the party in whose favor the security creation take place, it is vital to execute and register the security document in the jurisdiction where the property locates, even if the laws of another jurisdiction apply to the financing document.

    Pledge

    • Movable Assets

    Article 1448 of the Civil Code defines pledge to mean "a contract giving rise to a right to retain a property in the hands of an obligee, or a stakeholder by way of security for a right which may be required, in whole or in part, giving such obligee priority over other obligees.

    The Civil Code further provides that it is essential that a pledge must be capable of delivery and auctioned. A 'pledge' must be provided in consideration of an ascertained debt specified at the time of creation of a pledge and created over the movable property. An essential requisite of a perfect pledge is that the creditor must take possession of the movable asset. The asset to be pledged must be in existence at th time of creation of pledge.

    The parties must also record the terms and conditions of the pledge by way of an agreement, which must either be in Arabic or have Arabic translation. There is no formal registration process for pledges created in the UAE and therefor as a prudent step, the document should be executed before the Notary Public to create a record of such security creation, and registered with the local traffic police with a notation of charge on the vehicle's title.

    • Shares

    Creating a pledge on shares involves a written agreement in which all the details of the pledge are set out. Such particulars include the amount, period, event of default, and the terms and conditions pertaining the share pledge.

    Pledging of Shares in joint stock companies and Free Zone companies can effect by delivering the share certificates to the pledgee (mortgagee) as provided for under the UAE Commercial Companies Law (Federal Law Number 2 of 2015, as amended). To effect a valid and enforceable pledge, the 'pledger' should undertake to request the company to register the pledge in the register of shares of the company to secure the full payment of the facility or loan. The pledger shall have the right to receive the dividends and utilize the rights related to the shares unless otherwise agreed in the pledge agreement.

    The Council of Ministers' Decision Number 12 of 2000, shares of a public joint stock company, subject to certain exceptions, must be listed on one of the stock exchanges in the UAE. A pledge over the shares of a listed company is recorded in the share register maintained by the relevant stock exchange where such shares pledged are listed.

    In light of recently amended position about the pledge of shares of a limited liability company (the LLC), Article 79 of the UAE Commercial Companies Law permits shareholders in LLCs to pledge their shares. Any such pledge must be per the company's memorandum and articles of association, under and agreement notarized before the notary public and entered into the Commercial Register maintained by the Department of Economic Development in the relevant Emirate.

    Article 81 of the UAE Commercial Companies Law further provides for a mechanism of enforcement against a defaulting shareholder or partner's pledged shares in the LLC. The creditor enforcing his rights over the shares may agree with the shareholder or the partner and the LLC on the method and terms of sale, by way of private arrangement. Otherwise, the pledged shares shall be offered for sale at court controlled public auction. The shareholder or partner will have the right to buy back the shares from the winning bidder in the auction within fifteen (15) days of such 'auction' on the same terms and conditions.

    For the purpose of enforcement of security, the UAE courts have a vital role in enforcing any security upon a claim being filed by security holder for the realization of debt for the security created. The asset so created shall be realized upon an order passed to that effect. However, since there are no blanket regulations for the enforcement of securities and each case gets decided at the sole discretion of the court, it may sometimes raise uncertainty in the minds of parties.

    An essential factor where UAE scores over other financial markets undertaking securitization transactions are the zero tax regime and non-payment of any stamp duty. The UAE Ministry of Economic Development does not prescribe payment of any amount of stamp duty on any securitization transaction transaction, which otherwise is quite high in other countries, including India. However, withholding tax may have to be paid on remittance of receivables from an entity in the UAE to another outside the UAE.

    Conclusion

    UAE Economy is still emerging in the field of securitization but it has to act swiftly in order to reap the benefits of risk management and liquidity associated with securitiation activity. Though Islamic securitization like conventional structured finance purports to generate equal financial opportunities for the originating entity, each transaction of Islamic securitization may invite different interpretations of Sharia law. This may adversely affect the growth of this activity in comparison to conventional securitization. At the same time, the DIFC legislative framework has extended a great support to the UAE economy to jump start financial activities, including Islamic finance. DIFC has set regulations in place to streamline Sharia compliant financial frameworks. It is extremely promising that DIFC has already become the largest global platform for the Sukuk market. Additionally, with the emergence of the Abu Dhabi Global Markets (the ADGM) in the Emirate of Abu Dhabi, there is a scope for infrastructural development in the country which may make securitization a viable source of financing. There is enough scope for development of the securitization on a viable source of financing. There is enough scope for development of the securitization market in the UAE. It is imperative, however, for the Government to push the envelope and develop laws and regulations to facilitiate securitization activity with ease.

    ]]>
    Sun, 26 Mar 2017 00:00:00 GMT
    <![CDATA[Post-Closing Transactional vs Ongoing Enterprise Due-Diligence]]>  Post-Closing Transactional vs Ongoing Enterprise Due-Diligence

    "Diligence is the mother of good fortune."

     -        Miguel de Cervantes Saavedra

    Introduction

    In July 2016, the Australian Securities and Investments Commission (ASIC) stated that it's review of 12 initial public offerings (10 of which were small and mid-sized companies), found incredibly poor due diligence processes. These companies often seem to lack documentation to back up the claims they make in their prospectus. This is a very worrying sign for investors and tells us of the immediate need to promote better due diligence practices.

    With the surge in an ever growing landscape of corporate litigation, shareholder activism and a number of disclosure obligations, smaller and mid-sized companies are now seeking the smartest route forward in their growth strategies.  In such situations, companies cannot afford to make a mistake in acquisitions and assume unanticipated liabilities. At the same time, companies do not want to overburden the targeted acquisitions with diligence requests that might disrupt the deal.  Hence, to succeed amidst these competitive conditions a professional process of critical analysis is vital for positive acquisitions or partnerships. It prepares buyers as well as investment partners and lenders with a clear understanding of the story. This needs to be executed by a due diligence process that is planned and implemented in a systematic manner so that there is no space for an unnecessary intrusion.

    The notion of due diligence is often misconstrued to apply solely to mega-deals between large companies. Small and mid-sized companies generally have less sophisticated financial reporting, which could be a prerequisite when a company is trying to secure sources of funding for a transaction. Clearly, due diligence is a necessity in all matters.

    In order to clarify the aforementioned misconception, it is important to define the term. Due diligence is a program of critical analysis that organizations undertake prior to making business decisions in areas, such as corporate mergers and acquisitions, or major product purchases and sales. This process analyzes an organization's previous financial performance records and other necessary reports that help provide business owners and managers with authentic background information on the planned business deal. This, in turn, helps them make cognizant decisions on whether they must carry on.

    Types of Due Diligence

    Commencing the process of due diligence appropriately is of paramount importance. Appointing skilled members to the team is, hence, critical to ensure the information gathered is understood and evaluated precisely. The identification of these team members takes time and money. Buyers must keep an open mind in order to not misjudge the risks and liabilities involved in the transaction.

    After the due diligence investigation has been completed, there are two important steps that must be followed. The first is to create a detailed written report of the investigation conducted. The results obtained must be analyzed thoroughly. This will be important for both parties to develop a plan incorporating the information into the transaction agreement. The second step is as important as the first one but is often disregarded. This step deals with analyzing the information and determining any impacts on the proposed transaction. One must be cautious while dealing with such circumstances. For these purposes, an action plan must be developed to manage the information disclosed. If any buyer determines that information disclosed by the seller is not substantial, he may be precluded from a subsequent claim for recovery based on those liabilities.

    There are two main due diligence processes that need to be considered by organizations: post-closing transactional due diligence and ongoing enterprise due diligence. An organization's post-closing transactional due diligence is designed to check whether key assumptions used to rationalize the transaction are being comprehended. If they are not, the management can be informed and steps for redemption can be taken as soon as possible. It also makes sure that the target company is being integrated into the organization competently.

    Several factors lead to discontent in an acquisition and one of the major factors is the lack of due diligence. In recent years the importance of ongoing due diligence has escalated to a new level by new legislations such as the Sarbanes-Oxley Act of 2002. Ongoing enterprise due diligence is mainly focused on to meet the needs of an organization. It must be viewed as a dynamic process that changes depending on the circumstance of the organization.  An organization's ongoing enterprise due diligence must be structured in such a way that it ensures the organization avoids redundant losses and expenses. The organization's governing body, including the board of directors, trustees or governors must be able to exhibit that it is involved in effective oversight and that job-and-bonus- threatening hostile events are actively being avoided. Ongoing monitoring of the organization's operations and plans is very important while dealing with customers and suppliers.

    Importance of Due Diligence

    This process is crucial to the ongoing success of an organization. This also makes sure activities within the organization are all in compliance with the corresponding law. The due diligence team should keep in mind that apart from taking necessary steps in helping the organization, it must also take steps to keep up with the current trends in new legislation and take proactive action to work on recommendations.

    Hence, organizations that are planning an acquisition or merger should plan to assign sufficient time and resources to discover potential problems with the seller. A failure in reviewing the documents carefully might result in a clash of agreements between the buyers and the sellers. Further, if any action of fraud is discovered after the sale is completed the buyer might be prohibited from bringing an action to court.

    If a serious problem has arisen in an organization, the senior officials are usually the ones who suffer the repercussions. Due-diligence, however, could have furrowed out the problem and the individuals involved could have been terminated. For many senior officials meeting the financial goals is the most important test. It could be very exasperating to motivate the junior workers to achieve high performance and yet suffer due to unexpected liabilities that could have been avoided by due diligence.

    Even after the due diligence processes have been conducted, in order to make sure that none of the provided financial information changes negatively and affects the ongoing relationships of a transaction, Investors, and business partners have to initiate constant monitoring to ensure everything is functioning in order.

    Monitoring is also a useful way for investors and business partners to stay conversant of the current status of litigation or negative events established during the course of initial due diligence processes. If an organization is found to be involved in litigation matters, investors and business partners should consider monitoring these issues until they are resolved. This monitoring can be useful in determining any financial responsibility ordered to be paid by the organization. This is also a method to determine whether the decision-makers of an organization remain the same as when post-transactional enterprise due diligence process was being conducted.  

    Conclusion

    In conclusion, in the midst of the current economic crisis, increasing regulatory and media scrutiny, post-closing transactional and operative ongoing due diligence processes remain as valuable tools to ensure that business transactions, relationships, or investments are not jeopardized. These are not only in the best interest of the organizations as a whole but, also in the rational self-interest of senior management. Both these processes require effort and operational discipline to plan and implement. Monitoring these processes also provides an insight and indications of the current standing of a potential business partner. This up-to-date insight attained through monitoring provides the investors and business partners with the knowledge they need to make decisions that will help in the growth of the business and minimize the potential risks.

    ]]>
    Sun, 08 Jan 2017 14:00:00 GMT
    <![CDATA[Создание компании в международном аэропорту Шарджи Бесплатная зона: FAQ | Юридическая фирма STA]]> Company Formation in Sharjah International Airport Free Zone (SAIF Zone)

    1. What law established this Free Zone?

    Sharjah Emiri Decree Number 2 of 1995 established both the Free zone at Sharjah International Airport and the Sharjah Airport International Free Zone Authority.

    2. What are the main internal regulations governing this Free Zone?

    Rules and regulations are issued by Sharjah Airport International Free Zone (SAIF) for internal management of the free zone. Any specific regulations governing the governance of company or it's activities are not published on the SAIF website or stated to be applied specifically by the SAIF Authority. Accordingly it can be implied that the Federal UAE laws shall regulate the activities of the companies unlike some Free Zones where internal regulations applies along with UAE laws.

    3. Does this Free Zone have any reciprocal arrangements with other Free Zones?

    SAIF has not publicized any reciprocal arrangements that it could have entered into with other Free Zones in the UAE.

    4. What are the key areas of UAE and Emirate legislation businesses operating in this Free Zone must still comply with? What are the most important examples of how this impacts operations?

    Businesses operating in this Free Zone must comply with several areas of UAE and Sharjah legislations. In general, UAE and Sharjah legislations remains applicable in any area of law such as employment laws, competition laws, intellectual property laws, etc.

    5. What are the key UAE and Emirate onshore agencies a business operating in this Free Zone would need to register or comply with?

    The Ministry of Interiors or the UAE Directorate General office guidelines need to be complied with. These relate to admissible nationalities, profile checks, etc.

    6. How does a company set up in this Free Zone?

    SAIF provides a three-step process of incorporation through the Commercial Department, Leasing, licensing and Legal affairs and the Client and Investor Services Department.

    The first step includes an application for license, project provisional approval and document presentation concerning the company's formation, ownership, and management. The second step includes receiving a license, lease agreement and supply of the keys of an office, warehouse, etc. The third step includes receiving a visa, ID card and other such documents required for entry and working in this Free Zone.

    7. What features do companies set up in this Free Zone have?

    Companies within the SAIF zone are one hundred percent exempt from all commercial levies in addition to 100% import and export tax exemption, 100% corporate and income tax exemption. The companies can be 100% foreign-owned along with 100% repatriation of capital and profits.

    8. What can companies set up in this Free Zone do?

    The companies set up in this Free Zone can carry out activities based on the type of licenses obtained by the company (See Question 16 for type of License issued by SAIF). Accordingly, any medium or light industry can obtain license in this Free Zone. By light and medium industry the emphasis is not on size of business but on type of business activity. The company's business activities may include logistics, general trading and such other manufacturing activities..

    10. What types of business are allowed to operate in this Free Zone?

    SAIF allows a broad spectrum of business sectors to operate in its Free Zone. Business sectors include services such as business consultancy, management consultancy, IT consultancy, selective industrial businesses such as trading in oil and gas products, import and export, technical equipment, logistics, warehouse distribution and storage, etc.

    Business set-ups in SAIF are varied in their nature, type and scope of work. However, due to its close proximity to Sharjah International Airport this Free Zone is one of  the largest air cargo hub in the Middle East and North Africa and it therefore attracts trading companies in a large scale.

    11. What inheritance laws apply in this Free Zone?

    Like any other Sharjah Free Zones, matters of inheritance are governed by Federal Law No. 5/1985 that is Civil Transactions Law (the UAE Civil Code) and by Federal Law No. 28/2005 that is UAE Personal Affairs Law. As a general rule, inheritance issues for Muslims are dealt in accordance with Sharia law, whereas for non-Muslims, the law of the deceased's home country can apply in  case a will. Succession under Sharia law principally operates by a system of reserved shares under which shares of inheritance are pre-determined depending on whom the deceased is survived by. As per the Personal Affairs Law No. 28/2005, a non-Muslim expatriate who is resident in the UAE can opt for the law of their home country to be applied to the distributions of its UAE assets through will. However, the option to choose the personal law of home country is not available to Muslim expats as the sharia law will apply to them.

    12. What taxation applies?

    SAIF exempts the companies established in the free zone from all commercial taxes. However as certain activities are allowed only in the Free Zone, customs duty applies when a Free Zone entity wishes to sell their product onshore UAE.

    13. What accounting and auditing rules apply to businesses operating in this Free Zone?

    The general rules of UAE Commercial Transactions Law Federal Law No. 18 of 1993 (the Commercial Laws and UAE Commercial Companies law Federal Law No. 2 of 2015 (the federal Commercial Companies Law) for accounting and auditing would apply for companies incorporated in SAIF, as no specific body or authority is stated to be authorized to look into the matter. Further, there is no requirement to file accounts within the free zone if that is not provided by the Freezone authority. However, as a matter of practice, companies are required to provide audited account statements for trade license renewal.

    14. Where do businesses operating in this Free Zone generally locate their bank accounts?

    There is no specific provision governing the location of bank accounts in the SAIF Companies Registration Regulation, therefore, the federal Commercial Companies Law applies.

    15. Are there any specific rules governing when movable property in removed from the Free Zone area or transferred into the Free Zone area from another jurisdiction?

    Generally, a Free Zone company may only operate within the Free Zone boundaries and is not allowed to trade directly with the UAE market. However, SAIF Companies and Establishments can sell their products onshore in the UAE subject to the payment of relevant customs duties; hence the same rules may apply for movable property being sold outside.

    16. Are any specific licenses required to operate as a specific type of company in this Free Zone?

    Three different types of licenses are issued in the SAIF - Industrial licenses, Service licenses, and Trade licenses. The Trade license is further sub-divided into Commercial Licences and General Trading Licences).

    The types of legal entities are Free Zone Establishment (FZE), Free Zone Company (FZC) and branches of local or foreign companies. An FZE would be a single shareholder limited liability company and an FZC would be a multi Shareholder limited liability Company with 2 to 5 shareholders.

    17. Is there any specific ongoing regulation or monitoring of firms operating as particular types of company by this Free Zone authority?

    There is no regulation or monitoring of firms/companies by this Free Zone authority, hence general Commercial and Federal Commercial Company Laws would apply. A case against incorporation of a company in the Freezone, or for liquidation, can be filed with the courts of the Emirate of Sharjah.

    18. How are disputes settled with companies in this Free Zone?

     

    Since this Free Zone do not have separate dispute redressal forum or authority the disputes are settled through the general course of judicial redressal system such as courts, Ministry of labour, etc as they are available for other civil disputes. The exception is when another forum such as arbitration or another original court jurisdiction is agreed upon by the parties in the contract. A case against incorporation of a company in the Freezone, or for liquidation, can be filed with the courts of the Emirate of Sharjah.

    19. How are disputes between onshore companies and companies in this Free Zone settled?

    A case would be filed with the courts of the Emirate of Sharjah provided no other forum has been agreed upon between the parties to the dispute. If the parties sign an agreement with an express clause on arbitration in Dubai or the DIFC or any other international arbitration centre, the matter shall be referred to that particular forum. However, in case of jurisdictional issues courts of Sharjah will always have discretionary power to adjudicate upon their own jurisdiction if the case if filled with the courts.

    20. What are the main rights and duties of an employer and employee working in this Free Zone?

    The Free Zones may have their own labour law regulations. However, the UAE Labour Law - Federal Law No. 8/1980 (the UAE Labour Law) still applies and governs the rights and duties of an employer and employee working in the free zones. The Labour Law imposes minimum requirements or provisions applicable, inter alia,  on termination of employment, working hours, annual vacation time and safety standards, which applies to the parties even if contracted otherwise as they are mandatory and cannot be contracted out of it. It is provided that an employee should work only for their employer inside the free zone. Accordingly wages can be paid on a monthly, weekly, daily, or by piece basis in any currency with no minimum wage prescribed.

    Employees are entitled to annual leave of two days per month if their service lasts more than six months but less than one year, and a minimum of 30 days paid leave annually if their service exceeds one year. Employees are also entitled to leave with a full wage on all official UAE public holidays, maternity leave of 45 days with full wage and an additional 10 days unpaid, sick leave of 15 days full wage and an additional 30 days at half wage.

    21. How are employment disputes between employers and employees working in this Free Zone settled?

    The role of SAIF is more of a reconciliatory body in nature. It has no judicial or quasi-judicial authority. A complaint can be made by the aggrieved party to the SAIF Authority, however an application is required to be made to the Ministry of Labour office in Sharjah where the parties must then state their issues and arguments before a Ministry representative. After assessing the matter, a representative makes a recommendation. If the parties fail to resolve the dispute as recommended by the Ministry, the matter is referred to the labour court for litigation and a decision is made on the merits of the case as contended before the judge by the parties to the suit.

    22. What entry qualifications and permits are required for staff working in this Free Zone?

    The investing company and its employees working at SAIF are assisted with their application and in receiving a visa for working in SAIF. The requirements are:

    • The minimum age limit for applying for an employment visa is 18 years and the maximum is less than 60. However special approval can be obtained for the shareholder/managers. The manager of the company's SAIF's operations whose name is mentioned in Trade license.
    • The owner, shareholder and the manager whose names are mentioned in the Trade license, are exempted from the Bank Guarantee. For other employees it is mandatory to deposit with SAIF Authority's Visa & Residence Department Bank Guarantee/Cash Deposit equivalent to one month's salary and a return ticket fare to the country of origin..
    •  The investing company should acquire a Health Card issued by the UAE Ministry of Health for its employees. This requires a medical check-up, obtaining an Emirates ID card, and enrolling in suitable medical insurance. The entire process is facilitated by SAIF
    •  After entering the country, a medical check-up should be done and a report is submitted along with a residence application, within 14 days from the date of arrival to avoid the penalty.
    • SAIF sponsored employees shall work only inside its boundaries.

    23. How are staffs working within this Free Zone registered with the authorities?

    Staffs are registered with the authorities through the guidance of the departments of SAIF in various matters differently.

    24. What rules govern the remuneration and minimum benefits of staff working in this Free Zone?

    The UAE Labour Law governs the remuneration and minimum benefits of staff working in SAIF. (See Question 20 and 25)

    25. What rules govern the working time and leave of staff working in this Free Zone?

    The UAE Labour Law governs the working time and leave of staff working in SAIF. The maximum allowable working hours for an adult employee is eight hours a day or forty eight hours per week, and is allowed to be increased or decreased depending on the profession and working conditions. However, working hours for the employees of commercial establishments, hotels, restaurants, watchmen and similar operations may be increased to nine hours per day as determined by the Minister of Labour. Likewise, working hours per day in respect of hazardous work or work detrimental to health, may be decreased by decision of the Minister of Labour and Social Affairs. During the month of Ramadan, normal working hours shall be reduced by two hours. Employees may not work for more than five consecutive hours per day without breaks. Every employee is entitled to at least one rest day a week. If employees work on a Friday, they are entitled to an additional 50% of their wage; employees cannot be asked to work two consecutive Fridays except for labourers on daily wage.

    26. What are the main features of a property lease in this Free Zone?

    There are various zones hence SAIF provides various options depending on the license of company and its business activities. The property and its lease features are:  

    • Offices: office areas start from 24 square meters.
    • Land plots can be taken on a 25 year lease with a minimum plot size of 2500 square meters. Grace period for construction is 6 months.
    • The Industrial Park provides a minimum plot size of 2500 square meter with a grace period of 6 months for construction.
    • The Prebuilt Warehouse is available in four different sizes of 125, 250, 400 and 600 square meters, including an office.
    • A Temporary Warehouse of 600 square meters is available with additional annual charges.
    • SAIF Zone's Labour Accommodation complex includes 82 buildings to accommodate junior staffs.
    • Terms of lease are usually annual with an option to renew for one year.
    • The leased property may not be used except for the permitted use stated in the lease agreement.
    • SAIF also offers the Business Desk Scheme where a company can have a dedicated desk instead of an office for a cheaper annual lease rate compared to that of an office.

     

    27. Is it possible to apply for a building permit in this Free Zone? How is this done and what steps are required?

    A company wanting a building permit can acquire it through application to the Sharjah municipality, and by following its rules and regulation. This permit is issued for six months for any construction and modification to an existing facility. The permit is issued against approval of drawings, including an approved and valid site plan, the appointment of a Consultant and Contractor, a Building Completion Certificate, and the application of a Building Permit along with valid licenses of Contractor and Consultant, contracting agreement, , and original receipt of security deposits. The Responsible department in Sharjah Municipality is Building permit section -  Al Nasiriya. Further information about this process can be obtained on the website of the Sharjah Municipality.

     

    28. What environmental requirements must construction companies building in this Free Zone consider, e.g. form of building, landscaping or building height?

    Construction companies building in this free zone must comply with all health and environmental standards as set out by the Sharjah Department of Town Planning and Survey (DTPS) as per the Environment regulations. Companies must also comply with the Sharjah Building Code in the construction of their facilities. DTPS advise builders on the use of land, height of buildings, parking areas, loading and unloading points in industrial areas, and locations of petrol stations, commercial centres and other projects. Sharjah Municipality looks into the requirements regarding the number of storeys in a building, minimum space inside rooms, ventilation, lighting, exit and entrance points, passages, elevators and allied aspects.

    29. What are the key restrictions when leasing a property in this Free Zone?

    Only companies incorporated in this Free Zone are allocated land or other property on a lease.

    30. What are the rules governing the use of utilities in this Free Zone?

    The standard terms and conditions of the use of utilities are included in the lease agreement with the rental charges including any utility charges which are usually standard however may differ from party to party on the basis of the type of property leased such as warehouse or office, etc

    31. How do retail premises establish themselves in this Free Zone?

    The rules and regulations specifically governing retail premises are not set out on the website or on any form. However, the brochure specifies restaurants as business activity under any of three license hence it is implied that there is no restriction or any rule specifically relating to retail establishments operating in this Free Zone. Therefore, the same procedure for establishing or incorporating would apply as any other type of business activity.

    32. Is it possible for hotels to operate in this Free Zone - how do they establish themselves?

    There are no specific rules regulating hotels operating in this Free Zone. Hence it would seem that no restriction is imposed on hotel operations. Therefore, the same procedure for establishing or incorporating a company would apply as any other type of business activity.

    ]]>
    Thu, 10 Nov 2016 12:00:00 GMT
    <![CDATA[Upsurge of IPOs in the UAE: Legal Involutions ]]>"In a world that's changing so quickly, you are guaranteed to fail, if you do not take any risks"                                                                              Mark Zuckerburg (before facebook IPO)   Introduction   The transitions to a public company is a very important development in the history of companies and the next major step in the evolution of any private company, not to mention its role in the deepening of capital markets. The Initial public offering (IPO) launches an immense growth for any company. However, the procedures involved are rigid and require strict due diligence pre IPO and post IPO. Materialization of new listings in the United Arab Emirates (UAE) is however not that efficacious despite the country's market rallying at or near the fastest pace in the world. According to the latest survey , the Dubai Financial Market General Index is up 126.8 per cent in the past year, with Abu Dhabi Securities Exchange Index rising 69.7 percent. The IPO extends substantive capabilities to the public company in terms of growth and development, or in terms of dedicating the concepts of transparency governance and effective management.   Experts are saying that long awaited changes in commercial laws of UAE are boon to the UAE market. UAE economy aims to compete with global standards and ensures transparency in the system with a view to sustain a global economy in this competitive world. To attract more foreign investment in the country this was a need of an hour. The commercial companies law (Federal Law No 2 of 2015) has diversified the avenues.    The main aim for passing UAE Federal Law No (2) of 2015 is to enrich and diversify the UAE economy in order to compete on a regional and global  level, and to enhance the way in which commercial companies operate in the UAE. The idea is that greater transparency and clarity in the system will naturally result in an increase in investor confidence in the UAE market, the ultimate objective of which is to attract a larger volume of foreign investment into the UAE.   The recent proposed change to the UAE companies law will penetrate the IPO market. Under the new companies law, the percentage of ownership that must be sold in an IPO will be cut to 30 per cent from 55 per cent. This is a hindrance for companies going public in the UAE and companies which are looking for massive expansion of their activities are opting for other exchanges in the world, for instance London stock exchange being the most preferred option for the companies in UAE. Recently the big names have come up with their IPOs like Damac holding, a top developer in the UAE which listed their shares on London Stock Exchange. Even Emaar is considering its first issue in the near future. One Abu Dhabi based company has also planned to sell shares on the London Stock Exchange to feed its expansion.     Another constraint under the local listing is regarding the pricing of shares. There is a lack of flexibility for owners in structuring sales as shares are to be priced at a par value of Dirham 1. As per Emirates Securities and Commodities Authority (ESCA) guidelines 2, 45 percent of the shares need to be subscribed by founders before the remaining 55 percent of the shares are offered to the general public via IPO.   Regulatory framework of IPOs - local listings   In the UAE, there are three stock exchanges. Abu Dhabi Securities Exchange (ADX) lists mostly local UAE companies and NASDAQ Dubai deals in the trading of international stocks. The two stock exchanges namely DFM and ADX fall under the regulation of Securities and Commodities Authority (SCA) which is a governing body and both stock exchangs have to comply with the standards of SCA. SCA is a watchdog authority to protect investors', brokers' and listed companies' rights.      Similarly, Dubai Financial Services Authority (DFSA) is the governing authority of NASDAQ Dubai which follows the international standards of listing on the similar lines as of EU norms. In line with the international regulatory framework, a listing on NASDAQ requires certain formalities, however the rules and regulations purported are to be favorable and intuitive and close to the DFSA objectives. The Markets Law 2012 3  and the Market Rules came into force in 2012 after a public consultation process and based on the rules published by Financial Regulation Authority, United Kingdom. A company formulating an IPO would require establishing a concurrent dialogue with both the DFSA and NASDAQ Dubai. The most essential document which sets out all the details and terms of offerings is the Company's prospectus. A requirement that the company must have a market capitalisation of at least USD 10 million and that it must normally list at least 25% of its shares 4 .   Conclusion   In the view of above, the UAE is expected to be a very strong market for IPOs this year. The policy makers are keeping a liberal view and expecting the positive growth of the market. According to a new report from Ernst & Young, capital raised in the country and the wider MENA region saw their highest levels since 2008. 23 IPOs in the region raised USD 3 billion last year marking a 64% increase in terms of volume when compared to 2012 5 . Three IPOs from the UAE, including Al Noor Hospital, DAMAC Real Estate Development and Action Hotel, secured over USD 740 million from foreign listings on the London Stock Exchange .6  ]]>Wed, 09 Dec 2015 12:00:00 GMT<![CDATA[Share Pledge for Commercial Facilities ]]>

    Diageo, a company more commonly associated with alcoholic beverages Smirnoff, Guinness and Johnnie Walker in the United Kingdom- held almost 27.8 percent stakes in a company called United Spirits Limited, one of the leading spirits company in the Indian market by volume.  A series of share pledges by United Spirits Limited in favor of banks for raising capital later resulted in the stake of Diageo being raised to be more than 57 percent. 

      A fierce and debatable subject which can be an interesting case study on the subject of share pledge is the story behind United Spirits. United Holdings pledged shares of the company United Spirits to raise funds for a distressed business. As it now holds, the bank decided to recall the loans given to Kingfisher Airlines by selling part of the collateral - the shares in United Spirits.    In a more structurally advanced legal system, share pledges have evolved as means of fund raising for businesses. In the United Kingdom for instance, a 'floating charge' can be created over the assets or shares of a company. Such a form of security is created in assets which are not constant. The security interest therefore floats over funds. Commercial companies or limited liability partnerships agree for events that trigger crystallization of 'floating charge'. Once the floating charge has crystallized due to occurrence of event of default, the owner can exercise his rights over the assets.   Countries like the United Arab Emirates are one of the most sophisticated economies in terms of the transactions they witness between the fine print.    Legally speaking, the region has evolved from the stages of infancy to that of toddlerhood. As such, it would be interesting to understand whether the United Arab Emirates in fact recognizes the concept of share pledges as collateral security for fund raising or not.    Within the UAE, there are at least six different types of mortgages or securities depending on the nature of collateral, pledge being one of the kinds. Before discussing the effectiveness of pledges, let us understand what kind of assets qualify as security and could create on what is known as 'charge'.   UAE Civil Code defines immovable property as something which has a permanent fixed nature and may not be removed without damaging or altering its structure. Movable property is therefore anything but immovable property. In terms of movable property, a further sub classification exists, i.e., tangible and intangible. Goods, cash, machines and related are tangible. Intellectual property, capacity to contract, debts, licenses and shares are intangible.1    Let us now take into consideration the concept of share pledge. Shares are part of a commercial business and covered under Article 39 of the Commercial Transactions Law. The general rules relating to a 'movable' property by definition are not necessarily applicable to 'commercial businesses' although it is classified as movable. Pledge by definition means the actual parting away of or delivering of possession from the pledgor (mortgagor) to the pledge (mortgagee). However, pledge within commercial businesses does not follow this rule. In commercial businesses, the mortgagor may continue to enjoy possession of the commercial business.    Article 49 of the Commercial Transaction Law states that pledges in commercial businesses can only be created in favor of banks and not other lenders. In order for a pledge to be valid or effective against third parties, it must be recorded in writing at a registry along with particulars of the pledge to be well specified in such recording documents- the deed of pledge.    Based on the definition of pledge, lenders have been careful in creating share pledges in the UAE especially given the fact the most common form of company- an LLC does not involve issuance of nominal or bearer forms of shares. A nominal share is one where the name of the registered shareholder appears on the share certificate, while bearer form of shares do not have a name appearing on the share certificate. Therefore the transfer of rights or shares for nominal shares is effected by a share transfer deed. In case of the bearer form of shares, such transfer can be effected by physically handing over the share certificate custody to the pledgor.    With the amendment to the Commercial Companies Law, the complexities surrounding the aforesaid have been resolved to great extent. Article 79 of the amended law provides that: 'a partner may transfer or pledge its shares  in the company to another party or third party. Such transfer shall be made in accordance with the terms of the MOA of the company under an official document in accordance with the provisions of this law. Such transfer or pledge shall not be valid against the company or third parties until the date of its entry in the commercial register with the competent authority' In light of above, it is inferred that as long as the pledge can be registered on a commercial register- maintained by the regulating authority of a free zone, the economic department or the stock exchange regulators- the pledge will be considered valid and enforceable.

     

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    Thu, 03 Dec 2015 12:00:00 GMT
    <![CDATA[Limited Liability Companies: ]]>the implications of the new Commercial Companies Law   Although the primary objective of companies law is to safeguard interests of shareholders, modern/current day investment climate dictates that the legislation dealing with companies should i) serve the interests of business at large; ii) provide for simple and easy regulatory and compliance procedures; iii) keep pace with complexities of traditional and modern commercial dealings; iv) address issues governing insolvency, bankruptcy, securities and other key elements; and v) provide continuity, certainty and stability to business community.   Dubai has been at the forefront of adapting to the economic demands of the United Arab Emirates and has continually shaped the laws accordingly. The Commercial Companies Law no. 2 of 2015(the CCL) was published in the official gazette in the March 2015 edition and is to be implemented from July 1, 2015.   The main objective of the CCL is to keep pace with the tremendous development in trade relations, economic openness and global variables as Article 2 of the law aims to contribute to the development of the business environment. The law endeavors to organize the capabilities and economic status of the companies in line with global variables particularly in relation to corporate governance rules, protection of rights of shareholders and partners to ensure an influx of foreign investment in the region and promote social responsibility. The remainder of the law outlines the implementation of the law and the achievement of these objectives. This first article of three part series discusses each of these key provisions with a particular focus on Limited Liability Companies- the effect and implication of the new law on both – existing as well as future entities and.   Scope & Exclusions   The scope of the application of the CCL applies to all commercial companies that are incorporated within the UAE, foreign companies including branch of foreign  companies and representative office(s). The new CCL sets out a clear explanation to its applicability and explicitly lists the kind of companies that are covered within its scope. While the old law did provide for the companies that were excluded from its scope the new law to some extent adds further explanation to the companies that qualify for these exemptions. For instance, the old law provided that all companies owned by federal or local governments or that are subsidiaries of government entities were exempt from the scope of the law.   The new law retains this provision but makes a sector wise sub-division as follows:    'in the event a company is involved in oil exploration, water desalination, transmission and distribution of energy as set out in their constituent documents, such companies should at least have 25% capital contribution by federal government, local government or any of its subsidiaries or organs in order to qualify for such exemption.' In addition to the aforesaid, following companies are also exempted from the scope of the CCL: a. companies in relation to which a Ministerial Order or   Cabinet Resolution has been passed are exempt. b. companies which are exempt by virtue of special Federal Laws; c. free zone companies. However, if such companies are permitted to conduct business activities outside such free zone; the new CCL will be applicable suo motu.    Definitions Interpretation of the law impinges on clearly defined terms that result in its ad rem applicability. The previous law only contained very few definitions of key words in the legislation. The new law includes extensive definitions and expressions for instance a definition of a careful person which is defined as "a person who has sufficient experience and commitment to duty in the performance of his work."   Careful man  The law defines careful man in Article 1 as a person who has the adequate experience and commitment required in his work.   Governance The law defines governance under Article 1 as a set of criteria and procedures which allow for the achievement of corporate governance in accordance with the international standards and practices, by determining the duties and responsibilities of the Directors and the executive management of the company, taking into account the protection of the rights of the shareholders and the concerned parties.   Strategic Partner   The law defines strategic partner in Article 1 as a partner whose contribution provides for technical, operational or marketing support to the company, for the good of the company   Price Construction The law defines construction price under Article 80 as a price assessed by one or more experts with technical and financial experience in the subject matter of the share, as nominated by the competent authority on demand by the applicant for preemption and at his cost.   Limited Liability Companies The law defines a company in Article 8 as a contract through which two or more people participate in an economic project with the aim to make a profit, by providing a certain share of money or expertise; and sharing any profits and losses that arise from this  project. Article 71 defines a limited liability company as a company that has not less than two partners and not more than fifty. However, the new law has provided for an exception which allows a UAE national or juridical person to incorporate a single person limited liability company. The liability of this company will be limited to the capital contribution.  This addition will present itself as a negation to the concept of a company.  The law has retained the requirement of 51% shareholding to be held by a local in a limited liability company, there have been significant and fundamental changes that have been incorporated pertaining to certain issues relating to establishing a limited liability company. The law has now requested The Council of Ministers to issue a decree to determine the minimum share capital of the company which was not a requirement under the old law. We must note that the scope and concept behind the draft Anti Fronting Law has been impressed upon in the new CCL under Article 10(iii) which classify any waivers of shareholding from the UAE national to other shareholders as a breach of the law and it will stand null and void.  The law has integrated this within its scope to extend the UAE nationals' shareholding rights. In the past, the Dubai Court of Cassation has ruled that by virtue of shareholders' agreeing to an assignment of the shareholding percentage, such assignment if being contradictory to the mandatory percentage of the shareholding under CCL; would deem the company illegal.  However, the court held that although the form of the company was illegal due to it being in contravention of CCL guidelines, the actual dealing between the partners were real and the foreign shareholder had the right to claim any loss or profit on account of above decision from the local partner- who had in fact agreed to sign such assignment willingly. Any claims against the company would be unjustified.  It would have been a welcome step if the amended law would have taken into consideration the above decision instead of allowing the local shareholder a statutory right to claim shares in a company that he is not involved in.    Share Transfer Article 80 of the CCL deals with the shareholders' rights relating to the transfer of shares. It also stipulates that if one of the partners desires to waive its share of people from non-partners in the company - with or without compensation - it shall notify the other partners through the company's director along with the details of the assignee or buyer and the conditions of the sale. The director must notify the partners as soon as he receives the notification.  Although the regulating provisions remain the same, a distinct hiatus from this has been that if one or more shareholder's wish to exercise their pre-emption rights, and the valuation of the shares is in dispute, the disposer shall appoint a technical expert or competent authority for the valuation of these shares as opposed to the previous requirement of employing the services of the company's auditor. The regulating provisions remain the same as per the above save that if a shareholder or a partner desires to dispose of his shares to people who are not shareholders and/or partners in the company-with or without compensation; the partner who is withdrawing out of the partnership has the right to choose a competent authority at the request of the applicant at his/her own expense. subject of share choose the competent authority at the request of the recovery by the applicant  at his own expense, and that if used right of redemption more than one partner split shares or share sold them by the share of each of them in the capital, and that if the elapsed period referred to without using One of the partners the right of redemption, the partner will be free to dispose of his share.     Share Pledge Since the shares of the company are considered to be its fortune, the law authorizes the disposal of the shares as the company deems fit and involving itself in actions such as assignment, mortgage as long as it is done in accordance with the Memorandum of Association. The pledge of the shares should be recorded in official documents, notarized and registered with the authorities. Such a pledge only becomes enforceable against third parties after the date of the pledge being registered. The shareholders have rights over the pledging of their percentage of shares and this right is unrestricted as long as it is compliant with the company's constitutive documents or against the provisions of the CCL.  The new Law allows the creation a pledge over the shares of a Limited Liability Company and also allows for the pledge to be registered in the Commercial Register. This will facilitate a company to avail better financing options such as mortgages. The old law was silent on the concept of Limited Liability Companies' pledging shares though it was a possibility; there was a considerable risk involved.    Rights and Removal of the Manager The CCL stipulates that a company can have more than one manager . The appointment of the manager can be done from within the shareholders or from outside the scope of the shareholding structure. If the Memorandum of Association does not specify the appointment of the manager, the shareholders have the right to appoint someone via a separate agreement. If the Memorandum of Association and the shareholders are quiet on the appointment of the manager, the General Assembly has the right to appoint the same Pursuant to the old law, the manager of the company remains liable for any company's actions against any third parties. The rights of the manager remain the same as the old law.   Article 85 of the CCL deals with the removal of the manager. The manager may be removed in the following ways: i) by decision of the General Assembly; ii) by an order of the Court upon request for the shareholder/s upon production of a legitimate reason for the removal;   The new CCL also provides for a manager to submit his resignation to the General Assembly that must advise the relevant authority. It is required that the General Assembly submit its decision for the acceptance of resignation within 30 days of receiving the notification from the manager. If no decision is reached upon after the expiration of the thirty days, the resignation is deemed accepted   General Assembly Article 92 of the New CCL retains provisions for the annual General Assembly Meeting, to be held at the invitation of the Director or the Board of Directors- at least once a year- within a period of four months immediately following the last fiscal year. The extra-ordinary general meeting can be called by the any of the partners representing at least 25 percent of the capital.      The matters for consideration in the annual General Assembly Meeting are set out under Article 94 of the New CCL and stated below:   1. Manager's report on the company's financial position during the financial year, auditor's report and the report of   the Supervisory Board. 2. Balance sheet, profit and loss account and ratification.   3. Profits that are distributed to the partners. 4. Hiring managers and determine their remuneration.   5. The appointment of members of the Board of Directors (if any).     6. Appointment of members of the Supervisory Board (if any).   7. Appointment of members of the supervisory committee and non executive members if the company operates in   accordance with the provisions of Islamic Sharia. 8. The appointment of one or more accounts auditor and determine their remuneration. 9. Other matters that fall within its jurisdiction under the provisions of this Act or the provisions of the Memorandum of Association.    In Article 93, the new law has retained the key provisions with regards to General Assembly and Annual General Assembly meetings. The new law has paved the way for employing different methods of communiqué in relation to the method employed for the same. In the past, it was essential to use registered mail to send invitations for meetings, communication and such twenty one (21) days prior to a meeting. The new CCL allows for the use of modern technology and permits the shareholders to decide the mode of communication for invites to meetings. The use of modern technology means that the notification period has been reduced to fifteen (15) days.   The new CCL in Article 96 has changed the quorum requirements for the shareholders' meetings. In the old law, it was required that shareholders holding fifty percent (50%) of the share capital had to be present for the meeting to reach a quorum; the new CCL has raised this to seventy five percent (75%). If a quorum cannot be reached in the first meeting, the next meeting is to be scheduled within fourteen days and should be attended by shareholders with a stake of at least fifty percent (50%); the third meeting should be scheduled within thirty days of the second meeting and should be attended by at least one shareholder.   The New CCL is only one of several significant legislative changes that have been eagerly awaited by the UAE business and professional community in recent years. There are no major changes that current operating companies need to comply with or any deadlines to be met. It is hoped that efforts to diversify the UAE economy by encouraging increased entrepreneurship and foreign investment.     ]]>Tue, 24 Nov 2015 12:00:00 GMT<![CDATA[Закон о Запрете Фронтирования в ОАЭ]]>Совет) опубликовал Федеральный Закон №17 в 2004 году (Закон № 17), касающийся Закона о Запрете Фронтирования, который запрещает использование побочных контрактов или номинальных соглашений с гражданами ОАЭ. Закон №17 гласит, что «фронтирование» находится под запретом и оно определяется как «предоставление права иностранному лицу – физическому или юридическому – предпринимать любую экономическую или профессиональную деятельность, которую он не имеет права осуществлять по законам ОАЭ». Впоследствии Совет выпустил резолюцию кабинета в 2007 году, и эффективное принятие закона не вступило в силу до 2009 года. В отсутствие дальнейших пояснений от Совета, остается неясным являются ли положения Закона №17 эффективными на сегодняшний день.   Несоблюдение положений Закона ОАЭ о Запрете Фронтирования влечет за собой штраф и уголовную ответственность за повторное нарушение. Важно отметить, что санкции, указанные в Законе №17, относятся ко всем сторонам побочных контрактов и номинальных соглашений. В прошлом они именовались по-другому – соглашение, соглашение о займе, соглашение о займе и управлении, соглашение номинальных акционеров, или договор о намерениях, но по сути все эти договоры служат одной цели и идут вразрез с Законом № 17.   Грамотная, профессиональная консультация и совет юриста в данном случае имеют большое значение, чтобы убедиться, что договор не является нарушением Закона №17. ]]>Sat, 25 Apr 2015 12:00:00 GMT<![CDATA[Whistle-Blowing - A Silent Noise ]]> Should I not hear, as I lie down in dust, The horns of glory blowing above my burial?

                                                                                                                                                 Conrad Aiken

    Vuvuzelas, firealarms and whistleblowing-sounds that can result in bleeding ears. The legal maxim Quis custodiet ipsos custodes or who will police the police is why whistleblowing, as annoying as it may be is an essential element to counteract corporate corruption. It is an alarming fact that corporate wrongdoing has become a routine occurrence. It makes one question if corporations have lost track of their ethical compass or is it that we are paying more attention to their activities?

    There has been a significant increase in the number of international legislations to combat corruption in organizations. As a result of this, a number of employers have adopted these legislations in the form of employee codes of conduct, whistle blowing policies, anti-fraud and misconduct policies.

    The accounting scandals of Enron and Worldcom dominated news headlines for months and it seemed that the concept of business ethics would become archaic, two whistleblowers emerged assymbols of integrity to the American public. Indeed, Sherron Watkins and Cynthia Cooper were among "The Whistleblowers" named as Time magazine's "Persons of the Year" in the year 2002. At a significant risk to their careers, financial stability and mental weel being, the two alerted high  level executives at their respective companies to accounting fraud. Unfortunately, most whistleblowers take all these risks when they report illegal activities occurring within their organizations. The magnitude of these frauds is startling and, unfortunately appears to be indicative of a widespread problem.

    Protection for whistleblowers

    In the United States, the Sarbanes Oxley Act of 2002 provides financial rewards to the whistle-blowers who bring these wrong doings/misconducts of fellow employees or about the organization to the forefront.  In order to enhance anti-bribery and corruption law practice and to avoid such bad practices many countries in the world have promoted such things as important part of employer and employer relationship andencouraging them to sign these policies at the time of joining the organization. Many jurisdictions have provided protection for employees who highlight wrong doing in the workplace. Also employees who are involved in wrong doing at the workplace can be sent behind bars or risk seeing their careers annihilate in front of them. Similarly in the United Kingdom, the Employment Rights Act 1996 provides protection to the employees who disclose wrong doings and mismanagement, which is considered a part of public interest. It is also possible that an employee can seek benefits if he blows the whistle being a part of offshore company irrespective of its presence in the US or UK.

     In the UAE, there are no regulations in relation to employees' protection for any whistle blowing actions if taken by them. However, many companies have started enacting and adopting such policies to address accountability and candor at work place. The UAE's sole anti-corruption authority, the state audit institution provides a mechanism on its website through which wrongdoing within state-owned entities and central government departments can be reported. Complaints can be made anonymously, which may encourage reporting without fear of retaliation. There are no blanket protection mechanisms for employees in the private sector in UAE.  To this effect, the Dubai Financial Service Authority (DFSA) which is an independent authority  has taken certain initiatives to address such corporate misdemeanors and to disclose information to DFSA authority about the issues involving market misconduct, financial crime or money laundering.

    In June 2013, UAE legislators put forward a bill to create a new anti-corruption authority named "The Federal Authority for Combating Corruption" (the FACC). This new legislation under discussion shall derive its structure from the United Nations Convention against Corruption and the definition of corruption includes money laundering; embezzlement; bribery; breach of trust; abuse of public functions or authorities; damage to public property; or the concealment of the proceeds of any of these crimes. The legislation would empower the FACC to issue regulations to protect whistleblowers from being prosecuted criminally, civilly or administratively. This protection will extend to whistleblowers who report information in relation to corruption in good faith. Whistleblowers will be presumed to act in good faith & public interest and enough evidence exists to justify their initiative. 

    Conclusion

    It can be understood that the position in relation to whistle-blowing legislations is still its infancy. A number of countries across the globe are attempting to combat the effect of corporate scams with the help of key personnel within organizations. There is now considerable international pressure for countries to adopt standard laws and practices on whistle-blowing, but if these laws are adopted in a vacuum, it is unlikely that they will succeed. It is imperative that laws and policies are enacted and it is understood that perpetrators and fradusters do their best to hide their dirty deeds from the public. This makes it close to impossible to process its effect on the common man as fraud and corruption cannot be measured. 

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    Tue, 18 Nov 2014 12:00:00 GMT
    <![CDATA[корпоративная реструктуризация и спин-офф]]>Говоря простыми словами, изменение означает переход одного состояния в другое. Хотя «изменение» довольно общее понятие и может иметь как положительную, так и отрицательную коннотацию, вероятность положительного и оптимистичного исхода «изменений» не всегда может быть предопределена. Однако хорошо продуманные и планируемые перемены могут привести к положительному результату, если все идет по плану   В корпоративном праве в компании могут наблюдаться изменения в структуре при прибавлении или уменьшении уставного капитала. С коммерческой точки зрения, компания меняет свою бизнес-модель или подвергается внутренней реструктуризации для достижения желаемых целей. Один из аспектов корпоративной реструктуризации – это образование новых предприятий (спин-офф), который набирает обороты в ОАЭ и других странах Персидского Залива. Компании пришли к пониманию и осознали основную идею спин-офф в отделении бизнес-единицы более крупного юридического лица и установление его в качестве отдельного бизнеса. Фирмы осуществляют слияния и поглощения в соответствии с понятием, что компании после слияния образуют новую единицу, чья рыночная оценка будет больше, чем сумма ее составляющих. Точно также образование дочерних предприятий, как правило, связано с общим увеличением стоимости, как например, всплеск цен на акции, улучшение финансовых показателей и т.д.    Чтобы проиллюстрировать вышесказанное, приведем пример: компания АВС занимается производством технологического оборудования для нефтяной и газовой промышленности, в области строительства нефтебаз, сосудов под давлением, трубопроводов, теплообменников и другого специализированного оборудования. С течением времени АВС создала бизнес-подразделение, осуществляющее техническое обслуживание и ремонт нефтяных вышек, которое продемонстрировало беспрецедентный рост прибыли для АВС. Командой менеджмента АВС единогласно было принято решение во время ежегодного общего собрания о выделении подразделения по обслуживанию буровых установок в новое юридическое лицо JKL. Это решение стало результатом нескольких ключевых вопросов, в том числе будущей продажи бизнеса, эффективного управления и независимой оценки бизнес-единицы в качестве нового объекта.   Такие сделки, как выделение дочернего предприятия, обычно являются результатом привлекательных подсчетов разнообразного расширения. Хотя эмпирические данные могут предлагать множество преимуществ таких сделок, именно реализация и выполнение может быть сложной задачей. В большинстве юрисдикций сделки спин-офф должны пройти через налоговых консультантов, адвокатов, проектную группу и, наконец, согласование с властями.   Отделение подразделения компании в ОАЭ требуют детального планирования, и компании должны проявить высокую степень осторожности до фактического осуществления разделения. Закон о Коммерческих Компаниях ОАЭ (Федеральный Закон №8 от 1984 года, с поправками) регулирует деятельность иностранных предприятий в Дубае, и свободные экономические зоны регулируются в соответствии с их внутренними правилами. Несмотря на то, что создание компании в Дубае или ОАЭ может быть одним из самых простых и привлекательных вариантов для инвесторов, спин-офф включает в себя несколько ключевых решений менеджмента по вопросам, связанным с передачей земельных участков или недвижимости, администрацией и назначением аренды, передачей научно-технических знаний, составом акционеров, назначением ключевого управленческого персонала, разрешением регулирующих органов, переходом сотрудников, передаче интеллектуальной собственности, это только некоторые из них.   В одном из недавних случаев компания с ограниченной ответственностью, занимающаяся товарами массового потребления, решила отделить подразделение по продаже одежды в самостоятельную структуру. Первоначальная проверка предположила, что отделение магазина одежды может быть практически несложным. Тем не менее, в ходе полной экспертизы были подняты вопросы относительно присвоения франшизы, открытия новой единицы на территории фризоны, распределения непосредственных обязанностей, относящихся к магазину одежды и перевод почти 7000 сотрудников из нынешней компании в новую. Отделение дочерней компании может повлиять на рейтинг, а также на цены на акции, если компания намерена отделить свой основной блок бизнеса, что может вызвать вопросы о значимости первоначальной компании после отделения основного блока. Хотя комплексная правовая и финансовая экспертиза может спасти от нежелательных сюрпризов, должное внимание должно уделяться информационным системам управления и связанных с ними источникам.   Компании в ОАЭ может понадобится разделение акционерного капитала в вопросах, связанных с приглашением в публичное размещение акций (IPO). Например, Дубайский Финансовый Рынок (DFM), который осуществляет свою деятельность в соответствии с правилами и положениями DFM и Управления Ценных Бумаг и Товаров ОАЭ (SCA) требует от фирм, заинтересованных в IPO, публичного размещения минимум 55% доли акций    Недавно, в марте 2014 года, один из основных застройщиков в Дубае решил отделить свой бизнес, связанный с торговым центром, и его доход вырос до 2,5 биллионов долларов.   С течением времени отделение дочерних компаний начало набирать темп, когда большинство компаний пытается отделить свои непрофильные виды деятельности, чтобы не только сосредоточиться на основной деятельности, но и оптимизировать свои непрофильные работы. Отделение дочерних компаний также обеспечивает иммунитет от проблемных активов и помогает компаниям не быть подверженными влиянию долгов и обязательств друг друга в пределах группы.   Очень важно наметить четкий план, который будет не только давать представление о доходах и расходах компании, но и иметь план действий на будущее этой компании, иначе отделение может в конечном итоге обратиться в катастрофу.   Спин-офф является способом повышения стоимости компании, но, если он не выполняется должным образом, то может оказаться массовым разрушителем вместо золотого дна.  

     

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    Mon, 22 Sep 2014 12:00:00 GMT
    <![CDATA[ОАЭ: Корпоративное управление ]]> Корпоративное управление

    «Легче болезнь предупредить, чем потом ее лечить»..

      Эта старая пословица оказывается как нельзя кстати, когда речь идет о принципах корпоративного управления и их применении в странах Залива. Использование правильных принципов корпоративного управления играет даже более важную роль, чем споры о собственности, вопросы правопреемства и споры заинтересованных сторон.

    В ходе опроса, проведенном в Международном Финансовом Центре Дубая (DIFC), выяснилось, что руководители большинства ключевых компаний считают, что их внутреннее управление выстроено на хорошем уровне. Однако этот же опрос показал, что мнения сотрудников на различных позициях в этих организациях совершенно различны. И в то время, как многие компании, в особенности упомянутые выше, претендуют на часть инициативы Правительства ОАЭ по рационализации и укреплению внутреннего кодекса корпоративного управления, то предприятиям малого и среднего бизнеса (SMEs), а также семейным предприятиям (FOEs), предстоит еще научиться применять данные практики.

    Корпоративное управление определяется как «совокупность правил, норм и процедур, направленных на достижение корпоративной дисциплины в управлении компании в соответствии с международными стандартами и методами через определение ответственности и обязанностей членов совета директоров и исполнительного руководства компании, принимая во внимание защиту прав акционеров и заинтересованных сторон» 

    ОАЭ продемонстрировали позитивный взгляд на внедрение политики корпоративного управления, так как она руководствуется строгими законодательными принципами, утвержденными в определении Управления Ценных Бумаг и Товаров ОАЭ (SCA) No. R/32 от 2007 года с поправками от Постановления Министров No 518 от 2009 года, касающихся Норм Корпоративного Управления и Стандартов Корпоративной Дисциплины, с дальнейшими поправками от Постановления Министров No 84 от 2010 года (Кодекс) и Федеральной Резолюции No 17 от 2010 года о создании Центра Корпоративного Управления в Абу Даби.

    В этой статье мы рассмотрим существующие практики корпоративного управления и необходимость их применения всеми компаниями.

    КОРПОРАТИВНОЕ УПРАВЛЕНИЕ НА ГОСУДАРСТВЕННОМ УРОВНЕ

    Компании, зарегистрированные в системе NASDAQ Международного Финансового Центра Дубая, Финансовой бирже Абу-Даби (ADX) и на Финансовом рынке Дубая (DFM), должны в обязательном порядке придерживаться правил, установленных регулирующими органами этих организаций. В то время как NASDAQ регулируется Управлением по регулированию финансовых услуг Дубая (DFSA) и подчиняется правилам Международного Финансового Центра DIFC, который будет рассмотрен в последующих выпусках, ADX и DFM регулируются SCA в рамках установленного Кодекса.

    Представители отрасли, управляемой Кодексом корпоративного управления SCA, включают в себя нефинансовые учреждения и открытые акционерные общества, которые должны соответствовать следующим стандартам::

    a. Разделение полномочий и определение обязательств – Кодекс предусматривает четкое указание на разделение власти, дифференциации между вопросами управления и собственности. Он устанавливает, что любая компания, зарегистрированная на рынке, должна управляться советом, который должен быть избран акционерами. По крайней мере одна треть членов совета должны быть независимыми и «неисполнительными». Позиция председателя и управляющего директора должна заниматься разными людьми. Кодекс гласит, что собрание совета директоров должно проходить дважды в месяц. Кодекс также предусматривает формирование комитетов по аудиту, вознаграждениям и назначениям, а также сотрудника по соблюдению корпоративного контроля.

    b. Внутренний контроль и информация – Положения Кодекса получили одобрение и небольшую критику за основные пункты, относящиеся к внутреннему контролю и информации для членов совета директоров. Основные пункты Кодекса о разглашении и заявления SCA несколько расходятся в суждениях. Компании обязаны внедрить и использовать строгую политику внутреннего контроля и осуществлять информационную и консультативную поддержку внутри совета директоров. В дополнение к этому члены совета должны предоставлять подробную информацию в SCA в отношении деятельности компании, рисков и их операций.

    c. Ежегодный отчет – SCA обязывает компании предоставлять ежегодный отчет помимо прочих документов, также входящий в список Статьи 8 Кодекса. Отчет должен разъяснять решения совета директоров и их соответствие (или несоответствие) установленному Кодексу. 

    КОРПОРАТИВНОЕ УПРАВЛЕНИЕ ДЛЯ ФИНАНСОВЫХ УЧРЕЖДЕНИЙ

    Финансовые организации, регулируемые Центральным Банком ОАЭ подчиняются Циркуляру Номер 23/00 Центрального Банка, который предлагает обязательные рекомендации для структур корпоративного управления. В дополнение к этому Центральный Банк выпустил руководящие принципы, которые не являются обязательными по закону. Председатели правления банков ОАЭ, директора и руководители компаний получили соответствующие официальные руководства к действию для избежания злоупотребления властью и предотвращения хищения денег..

    ДЛЯ ЧЕГО НУЖНО КОРПОРАТИВНОЕ УПРАВЛЕНИЕ В СЕМЕЙНЫХ ПРЕДПРИЯТИЯХ (FOES) И ПРЕДПРИЯТИЯХ МАЛОГО И СРЕДНЕГО БИЗНЕСА (SMES)

    В ОАЭ существует несколько местных семейных компаний, которые имеют разветвленную сеть в различных направлениях бизнеса. В рабочем документе Торгово-Промышленной Плате Дубая, опубликованном в 2005 году, семейный бизнес определяется как «бизнес, который полностью принадлежит гражданам ОАЭ». С практической точки зрения под это определение подходят все компании, в которых 51% собственности принадлежит гражданину ОАЭ. 

    К предприятиям малого и среднего бизнеса (МСП), с другой стороны, относятся компании, в которых годовой оборот составляет менее 250 миллионов дирхам и число сотрудников менее 250. 

    Обсуждая необходимость корпоративного управления, руководящие органы зачастую спорят о том, что семейный бизнес и МСП это более мелкие единицы и поэтому основательная корпоративная политика для подобных компаний не является существенной необходимостью. В то же время необходимо извлечь урок из опыта компьютерного гиганта Intel, 90% продаж которого в январе 2013 года были получены от программных продуктов, которые еще даже не были завершены в декабре 2012. Пример Intel подчеркивает один важный аспект экономики любой страны и любого бизнеса – изменения. Развитие экономики, слияние доходов, объединение корпораций – это то, что понимается под словом «изменения» в экономике. Согласно исследованию, опубликованному в DIFC, на которое опирается данная статья, бывший директор Международного Финансового Центра Дубая заявил, что «почти 95% семейного бизнеса не существует дольше третьего поколения собственников из-за недостатков последовательного планирования». На таком конкурентном и меняющемся рынке цена пренебрежения принципами корпоративного управления может оказаться больше, чем потеря нескольких заинтересованных сторон..

    МСП и семейные предприятия должны понимать сам процесс корпоративного управления и его ключевые принципы, включающие следующее::

    • Последовательное планирование;;
    • Разделение ролей владельца и управляющего;
    • Поддержание отношений с заинтересованными сторонами;
    • Избежание конфликта интересов;
    • Определение исполнительных ролей;
    • Поощрение неисполнительного участия для продвижения принципа беспристрастности;
    • Увеличение внутреннего контроля; и
    • Создание позитивной рабочей среды.

    ЗАКЛЮЧЕНИЕ

    Не взирая на статус и тип компании, политика корпоративного управления должна быть внедрена в ее рамках для обеспечения устойчивости в долгосрочной перспективе. Внешние правила сами по себе не могут помочь предприятиям развиваться и процветать без наличия внутреннего контроля и управления. В заключение, следует сказать, что основная необходимость для компаний это осознание, что руководство компанией в некоторых аспектах отличается от организации работы компании.. 

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    Fri, 21 Mar 2014 12:00:00 GMT