The UAE’s new commercial companies law, Federal Law No. 2 of 2015 (the “New CCL”), took effect last year on 1 July 2015. The New CCL provides that any company that is not compliant with the law must amend its memorandum and articles of association (“MOA”) to comply with the law. Companies originally had until 30 June 2016 to amend their MOAs in accordance with articles 357 and 374 of the New CCL.
It has recently been reported that the UAE Cabinet approved a proposal from the UAE’s Minister of Economy to extend this date by one year to 30 June 2017. This is in accordance with article 374 of the New CCL, which provides that the deadline for compliance may be extended by “Resolution of the Cabinet on a proposal made by the Minister [of Economy]”. If a cabinet resolution is published it will be interesting to see whether it specifically extends the deadline to amend MOAs only, or whether it will be more broadly worded to encompass other compliance obligations. It is important to note that the extension of the deadline does not refer to corporate actions going forward – these must comply with the New CCL.
With respect to the amendment of MOAs, article 357 of the New CCL imposes a fine of AED 2,000 (USD 545) per day for each day of delay. This was originally to be levied on the day following the 30 June 2016 deadline, but will now presumably be levied starting from 1 July 2017 onwards.
The New CCL also provides that a company, which does not adjust its “position” to comply with the law, will be deemed to be dissolved. This penalty is separate from and subject to the penalties for a late amendment to an MOA. While it is unclear what is meant by “position”, and how such a dissolution would take place, we would advise that UAE companies review their constitutions, and if they benefitted from any unusual treatment under the old regime, to ensure that they comply with the New CCL.
A strict reading of the New CCL provides that only those MOAs that do not comply with the New CCL must be amended. In our experience, many UAE limited liability companies (“LLCs”) incorporated in accordance with Federal Law No. 8 of 1984 (the “Old CCL”) do not directly conflict with the New CCL. Rather these old LLC MOAs often: (i) provide for longer notice periods (e.g. 21 days to call a general assembly as per article 123 of the Old CCL rather than the 15 days required by article 92 of the New CCL); and (ii) contain outdated article number references to the Old CCL. As many of the LLC provisions in the Old CCL were carried over into the New CCL, it is unlikely that such MOAs will be viewed as not complying with the New CCL. However, the changes in respect of joint stock companies are more far reaching. The sensible approach would be for all UAE companies to use the next year to review their MOAs and if necessary amend these before 30 June 2017. As changing an MOA may involve holding general assemblies, or notarising and legalising shareholder resolutions and appointments with the notary public, we would recommend that this exercise be undertaken sooner rather than later.
