GCC Quarterly Review - Q4 2015

The GCC Quarterly Review briefly summarises a selection of the major developments in the laws of the Gulf Cooperation Council ("GCC") region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) in the fourth quarter of 2015, with links to further reading, where available.

Saudi Arabia’s new companies law: The Saudi Arabian Council of Ministers approved a new Companies Law (1437H/2015G) in November. It will come into force in May 2016. Investors in Saudi companies are likely to welcome some of the changes to be made to the outgoing 1965 companies law. Key changes include a reduced minimum number of shareholders for limited liability companies and joint stock companies (JSC), reduced minimum capital requirements and number of directors for JSCs, and new provisions on holding companies. The Ministry of Commerce and Industry and the Capital Market Authority are expected to publish secondary regulations in a range of areas, such as guidelines on memoranda of association and articles of association and rules on mergers involving listed companies. Companies should now think about what action they need to take to comply with the new regime during the one year transition period.

DIFC Court clarifies approach to conflicts of jurisdiction: The Dubai International Financial Centre (DIFC) Court of Appeal judgment in Standard Chartered Bank v Investment Group Private Limited (CA 004/2015, overturning CFI 026/2014) in November illustrates the importance of clearly drafted choice of jurisdiction clauses in agreements. In that case, a clause specifying “the courts of the United Arab Emirates” was deemed to include both onshore UAE and DIFC Courts. Proceedings were commenced in both the Sharjah courts and the DIFC Courts. The case confirms that the DIFC Courts will hear the case where they have jurisdiction. The DIFC Courts will not stay proceedings where both the DIFC Courts and another court in the UAE have competing jurisdiction over a dispute. Specifically, the DIFC Courts will not determine jurisdiction under Federal Civil Procedure Law rules on conflicts of jurisdiction between emirate courts, as these rules do not apply in DIFC as it is an independently regulated free zone. Neither will the courts apply the principle of forum non conveniens to determine the most appropriate forum to adjudicate the dispute, as this principle does not apply where the other court is also a court of the UAE. The UAE Supreme Court has authority to resolve the jurisdictional conflicts between courts of the UAE which have issued conflicting judgments, but the law does not allow it to intervene where proceedings are ongoing.

ADGM consults on dispute resolution regulations: ADGM Courts Regulations and Arbitration Regulations are expected in early 2016. A market consultation on the draft regulations closed in November. ADGM proposes to allow parties to opt in to the jurisdiction of the English language, common law ADGM Courts at their discretion. It intends to facilitate confidential arbitration conducted in ADGM under a regime based on the UNCITRAL Model Law on International Commercial Arbitration. The draft regulations propose that judgments of foreign courts and courts of emirates other than Abu Dhabi will be afforded substantial reciprocity of treatment with judgments of the ADGM Courts in those foreign or emirate courts. The Board of ADGM must designate the relevant court as a “recognised court” in order for the ADGM Courts to allow reciprocal treatment. Some questions remain around how this will work in practice. As yet, there is no clarification on the procedure for the enforcement of ADGM Court judgments “onshore” in the emirate of Abu Dhabi. Businesses will be interested to know if reciprocity will be enshrined in law or under a protocol between the courts, as it is between the DIFC Courts and Dubai courts. The ADGM Court should apply the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 in proceedings before it to recognise and enforce a foreign arbitral award. This should allow for straightforward recognition and enforcement, with limited grounds for refusal. Parties may have the flexibility to refer disputes over payment of judgment debts to arbitration and so more easily enforce payment in a wide range of jurisdictions which are party to the New York Convention. This follows the lead of the DIFC which issued a Practice Direction on this process in early 2015. This approach, if enacted, should offer a degree of familiarity and certainty to parties considering doing business in ADGM. Looking ahead, ADGM may become an attractive forum for dispute resolution for regional and international businesses.

Saudi Arabia’s restructuring and insolvency law reform: ​Saudi Arabia is preparing for a wide-ranging reform of insolvency law which is proposed to take effect in 2016. Ministry of Commerce and Industry published a policy paper on the proposed reform earlier in 2015. A new law is expected to place greater emphasis on company rescue. Two rehabilitation procedures (to be known as “enhanced protective settlement procedure’ and “rehabilitation procedure”) are proposed for companies in financial distress. The procedures are expected to have features familiar to international lenders, including moratorium, cram down mechanics and priority to new funders over non-preferential unsecured creditors. A liquidation procedure will regulate the winding-up of insolvent companies with no realistic chance of rehabilitation. The proposed new law may apply to Saudi registered companies and foreign companies with operations in Saudi Arabia. Debt restructurings are likely to become more common if the law is enacted.

Competition clearances in Oman M&A deals: The merger control authority in Oman, the Public Authority for Consumer Protection (PACP), is receiving applications for prior approval of merger, acquisition and joint venture arrangements which may result in an economic concentration. New rules requiring clearance came into effect in early 2015 under the Oman Competition Protection and Control of Monopoly Law (Royal Decree No. 67 of 2014). Notification and approval of a proposed transaction is required where it will result in an economic concentration which enables an entity or entities to dominate or influence the relevant market (which is defined by products and geographical scope). The threshold at which dominance or influence of a market will occur is not prescribed in detail in the law, but is indicated to be a market share exceeding 35%. The law prohibits the creation of an economic concentration with a relevant market share of greater than 50%. The PACP must issue its decision within 90 days of the written application for clearance, otherwise clearance is deemed to be given. Parties can appeal decisions approving or prohibiting a notified transaction. Parties wishing to invest in Oman will need to consider whether their transaction requires PACP clearance, and should be aware that the transaction cannot be completed before clearance or the waiting period has ended. Penalties for failing to obtain clearance are severe, and may include fines, imprisonment and reversal of a transaction.