Author: afridi-angell

Dubai Family Ownership of Common Property Law

On 13 August 2020, the Ruler of Dubai issued Law 9 of 2020 to regulate family ownership of common property in the Emirate of Dubai (the Law). The Law aims to establish a legal framework for family ownership of common property in Dubai and to facilitate its transmission among successive generations. This concept of undivided family assets introduced by the Law also exists in other jurisdictions.

 

There are many family run businesses in Dubai. These businesses have been in existence for many years and are often in the name of one or more senior family members even though other family members are beneficiaries of such businesses. This ownership of businesses and family assets in the name of a select few senior family members (without written agreement on ownership, management or succession) can create disputes between the family members, especially in case of the death of the owner of record of such assets.

 

The Law also aims to provide a legal framework for maintaining continuity of family ownership and avoiding division of businesses amongst family members to the detriment of the businesses and families.

 

Family Property

 

A family is defined under the Law to include the spouse, blood-relatives and lineage up to the fourth degree. Although the Law does not specifically mention that only UAE nationals can avail benefits under the Law, the Law has primarily been enacted for the benefit of UAE nationals. However, nationals of other countries and of any religion are not excluded from the Law.

 

The Law permits family members who have a common property to classify such common property as a family property. A family property may be contributed by any member of the family. The term family property in not restricted to real estate and can include shares/interest in companies (except public shareholding companies), assets in individual establishments, movable and immovable properties and other intellectual property.

 

Family Property Contract

 

A family property may be created, regulated and managed by a family property contract entered into between family members. Property subject to a family property contract shall be treated as common property of the family members. A family property contract is the fundamental document governing the family property and must be drafted carefully to avoid any ambiguity. It must meet the following conditions:

 

a) the parties (also referred as partners) to a family property contract must be members of one family;

 

b) the parties must have one business or common interest;

 

c) the share and interest of each party must be identified in the family property contract;

 

d) each property (which is part of the family property) must be owned by one or more persons who has the right to transfer the property;

 

e) the contract must be signed by all the parties in the presence of a UAE notary public; and

 

f) must not violate public order.

 

Amendment to a Family Property Contract

 

Any amendment to a family property contract requires the consent of persons holding at least 75 per cent of the family property. The family property contract may provide for a higher approval threshold.

 

Term of a Family Property Contract

 

The term of a family property contract can be a maximum of 15 years. The term may be renewed by unanimous consent of the partners provided that each such renewed term does not exceed 15 years.

 

Note that for renewal of any term, unanimous consent of the partners is required. A single partner (irrespective of the share of such a partner in the family property) can therefore withhold the renewal of a family property contract.

 

If partners fail to agree to a term for renewal of a family property contract, any partner may, by giving six months’ notice, apply to a committee (to be established pursuant to the Law to settle disputes arising out of a family property contract) for permission to take his shares out of the family property.

 

Management of Family Property

 

The family property is to be managed by one or more managers appointed by partners holding two thirds of the family property. The number of managers must be an odd number. The manager(s) can be a partner or a third party including a corporate entity.

 

A family property contract can also provide for formation of a board of directors to supervise the manager(s). The rules and regulations regarding appointment, governance and powers of board of directors may be included in the family property contract.

 

The manager(s) shall have general powers to manage the family property including but not limited to distribute profits to the partners, represent the family property before third parties and such other responsibilities and powers as may be specified in a family property contract.

 

The manager(s) can be held liable and be required to indemnify the partners for any losses caused due to his negligence or breach.

 

Partner’s Transfer of Shares in a Family Property

 

If a partner wishes to transfer his shares in a family property, he must offer such shares to the other partners in proportion to their shares. However, if such a transfer by a partner is an assignment of his shares to his spouse or any of his first-degree relatives or any specific partner, the partner transferring the shares is not obligated to offer the same to the other partners, unless otherwise agreed in the family property contract.

 

Additionally, a partner may transfer his/her shares to third parties (other than the partners) or impose a right in kind in favour of third parties, provided that he has the consent of partners holding at least 51 per cent of the family property. Although not expressly stated by the Law, such third parties must presumably be other family members who are eligible to be partners in the family property.

 

In case none of the partners are interested in purchasing the shares of a partner or an heir or the partners do not agree to a transfer to a third party, the affected partner or heir may approach the committee (discussed earlier) which may permit the transfer to a third party provided that (i) there is a strong justification for transfer of shares to a third party; and (ii) such transfer will not affect the continuity of the family property.

 

Acceptance by Government Authorities

 

The Law should bring order in the management and succession of family property and businesses in the Emirate of Dubai. All government authorities in Dubai are required to take appropriate steps (such as preparation and maintenance of commercial and real estate registers) to ensure acceptance and enforcement of the Law. It will be interesting to see how other Emirates will recognise a Dubai family property contract.

 

The Law is an effort to simplify succession issues and to prevent major family assets from being sold to generate liquidity for distribution among heirs upon the death of a patriarch. ■

‘Retire in Dubai’ programme announced in Dubai

Afridi & Angell was pleased to have advised Dubai Tourism on the testamentary and inheritance framework in Dubai in the process leading up to the much-welcomed announcement of the ‘Retire in Dubai’ programme.

 

The announcement, made on Wednesday 2 September 2020 offers resident expatriates and foreigners aged 55 and above an opportunity to retire in the Emirate. As part of the programme, eligible applicants will be provided a Retirement Visa, renewable every five years.

 

The new scheme, unveiled under the directive of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, intends to showcase Dubai as the world’s preferred retirement destination. Led by Dubai’s Department of Tourism and Commerce Marketing (Dubai Tourism) in collaboration with the General Directorate of Residency and Foreigners Affairs – Dubai, the global retirement initiative aims to boost economic development in the country and enhance its global reputation as a business investment centre.

 

The initial phase of the programme will focus on UAE residents working in Dubai who have reached retirement age. Interested retirees must apply through the Retire in Dubai website and qualify as an eligible applicant under specified requirements. Applicants must be at least 55 years of age at the time of applying, have valid UAE health insurance and need to meet one of the financial requirements: earn a monthly income of at least AED 20,000 or have savings of AED 1 million or own AED 2 million worth of property in Dubai. Applicants may also make an application for their spouse on the condition the retiree continues to meet the criteria.

 

A competitive offering is confirmed through the collaborative work of Dubai Tourism and their partners in developing key propositions for retirees covering healthcare, real estate, insurance and banking. The newly introduced global retirement initiative revolves around seven key factors that make Dubai the ideal destination for retirees: a unique lifestyle, convenience, recreation, an active and fit society, proximity and connectivity, a world class healthcare system and legacy management with the DIFC Wills Service Centre offering discounts of up to 35-45 per cent on fees for registration of wills.

 

Should you have any questions with respect to applying for a retirement visa or on legacy management matters, please contact the authors or your usual Afridi & Angell contact. ■

A Customs-free access?

The Federal Decree-Law 19 of 2018 on Foreign Direct Investment (the FDI Law) permits majority foreign investment in certain business sectors and activities. Although majority ownership is attractive, it is not the only factor that a potential foreign direct investor should consider.

One additional factor is whether the proposed business would qualify for the 5 per cent GCC customs duty exemption that is discussed below. Customs-exempt access to the larger GCC market could be a critical factor to the success of a business.

COVID-19 and Commercial Leases in the UAE

The Covid-19 pandemic has swept the globe like a tsunami and it continues to impact countries and their economies worldwide. The UAE is no exception. Businesses have come under increased cost pressure as revenues decline. Such cost pressure primarily involves real estate leasing costs.

 

In this inBrief, we look at the impact Covid-19 has had on commercial leases.

 

Rent Deferment 

 

From a real estate perspective, the authorities in the UAE have introduced a series of initiatives to support commercial tenants in response to Covid-19.

 

During March and April, the Government of Dubai temporarily suspended all eviction judgements and cheque dishonour complaints/actions in the Emirate.

 

In Abu Dhabi, Administrative Resolution 92 of 2020 was passed which grants tenants in the restaurant, tourism and recreational sectors a refund of 20 per cent of the rent value collected during 1 April 2020 to 30 September 2020.

 

The Dubai Free Zones Council announced a major relief package at the end of March for companies operating in the free zones of the Dubai Silicon Oasis Authority, the Dubai Airport Free Zone Authority, Jebel Ali Free Zone, the Dubai World Trade Centre, the Dubai International Financial Centre, the Dubai Development Authority, Dubai South, Meydan City Corporation and the Dubai Multi Commodities Centre (DMCC). Measures included an up to six months’ rent postponement period and easy installment plans.

 

In the DMCC, tenants benefitted from a waiver of rent for two months for commercial tenants impacted by the Dubai Economy Directive requiring them to temporarily close; a three months’ suspension of rent for Flexi Desk and DMCC Business Centre tenant renewals or a monthly/quarterly instalment plan with no discount; and a waiver of outdoor area rents for JLT retail tenants where DMCC is the building owner/landlord.

 

From April to June, retail tenants in DIFC’s Gate Avenue, Gate Village and Gate District were not required to pay basic rent.  The DIFC also allowed deferred rental payments with respect to all properties owned by DIFC Investments for a period of up to six months.

 

Sharjah Asset Management, the investment arm of the Sharjah Government, waived commercial rents for all tenants of Haraj and Jubil markets for three months from March.

 

Suspension / Termination by Force Majeure 

 

Apart from government initiatives to support commercial tenants, a force majeure clause is often found in a lease and typically excuses one or both parties from performance of their obligations under the lease following the occurrence of a force majeure event. A force majeure event is generally defined as an event beyond a party’s control (i.e. an act of god). Often the clause will provide that, if the force majeure event continues for a period of time, then either party shall have the right to terminate the lease.

 

If a lease does contain such a force majeure clause and it defines a “pandemic” or “epidemic” as an event of force majeure, then the tenant is likely to be protected contractually either by a suspension of the tenant’s obligation to pay the rent or a right to terminate.

 

UAE Law

 

However, if the lease does not contain such a force majeure provision, then the tenant will have to rely on its rights under UAE law.

 

Under the UAE Civil Code, a tenant may apply to the court to terminate a lease in circumstances of “force majeure” or an “exceptional event”.

 

UAE law requires performance of the lease to be impossible in a force majeure event and courts require force majeure to be unforeseeable. Both of these are arguable and may be hard to satisfy in order to fall under the protection of force majeure under Article 273 of the Civil Code.

 

However, if the event does not qualify as a force majeure event under UAE law, then it can be argued that it is ‘an exceptional event’ (Article 249 & 794 of the Civil Code). The law requires an exceptional event to be unforeseeable and that performance of the contractual obligations to be so onerous so as to threaten grave loss.   This must be proven factually.

 

There have been three high profile court cases reported in the media recently where tenants were permitted to terminate their leases on the basis of the above Articles of the Civil Code and using the Covid-19 pandemic as a reason. Nevertheless, the application of these Articles is still subject to the discretion  of  the  judge  and the facts and the law must be properly presented and argued.

 

 

Conclusion

 

The Covid-19 pandemic will lead to continued uncertainty in the real estate market in the UAE and worldwide.

 

We expect that some businesses will continue to seek to negotiate or terminate their commercial leases during this pandemic on the basis of “force majeure” or “exceptional event”. ■

Compliance with DIFC Data Protection Law 2020 – Deadline 1 October 2020

DIFC entities have until 1 October 2020 to ensure that their data processing activities are compliant with the new Data Protection Law (DIFC Law 5 of 2020) (the DP Law).

 

Who is subject to the DP Law? 

 

  • • DIFC entities.

 

  • • Non-DIFC entities that regularly engage with DIFC entities as part of a “stable arrangement”, which involve data being processed in the DIFC and/or transferred out of the DIFC.

 

Practical Guidance 

 

1. Maintain a record of Personal Data.

 

2. Delete Personal Data when the purpose for processing ceases.

 

3. Maintain (written) consents obtained from Data Subject(s).

 

4. Have in place technical and organisational measures.

 

5. Have in place a data protection policy.

 

6. Ensure that notification of processing operations was submitted to the Commissioner.

 

7. Have in place a legally binding agreement between: (i) Joint Controllers, (ii) a Controller and a Processor, (iii) a Processor and a Sub-Processor.

 

Additional Guidance – Entities carrying out High Risk Processing Activities

 

An entity carrying out High Risk Processing Activities has the following additional requirements:

 

8. Appoint a Data Protection Officer.

 

9. Submit an Annual Assessment to the Commissioner.

 

10. Undertake a Data Protection Impact Assessment prior to conducting High Risk Processing Activity.

 

Transfer of Personal Data outside of DIFC

 

Personal Data can be transferred outside of the DIFC if it satisfies one of the conditions under the DP Law.

 

Country with Adequate Level of Protection: Personal data can be transferred out of DIFC if the recipient country has an adequate level of protection. The Commissioner determines the countries that have an adequate level of protection.

 

Country without an Adequate Level of Protection: If the recipient country does not have an adequate level of protection, then the transfer can be done only if certain additional requirements are satisfied.

 

 

Sanctions and Compensation 

 

The sanctions are substantial for non-compliance of the DP Law with the maximum fine ranging from USD 20,000 to USD 100,000 depending on the breach.

 

Where a Data Subject suffers material or non-material damage by reason of any contravention of the DP Law, the Data Subject may apply to the DIFC Court for compensation from the Controller or Processor in addition to, and exclusive of, any fine imposed on the same parties.

 

In terms of the apportionment of liability between Controllers and Processors, where the Controller and Processor are held liable for the damages caused:

 

  • A Controller involved in processing that infringes the DP Law shall be liable for damages caused.

 

  • A Processor shall be liable for damages caused by processing only where it has not complied with the obligations specifically directed to Processors or where it has acted outside or contrary to the lawful instructions of the Controller.

 

  • Where multiple Controller(s) or Processor(s) are involved in the processing and where each is responsible for any damage caused by the processing, each shall be held jointly and severally liable for the entire damage. ■

COVID-19: Entry into the Emirates of Dubai and Abu Dhabi

On 12 September 2020, the UAE Ministry of Health and Prevention (MoHAP) reported 1007 new COVID-19 cases in the UAE. With the number of cases rising both within the UAE and in most other countries, the UAE government has reiterated the importance of adhering to preventive guidelines and has further placed safeguards, particularly in Abu Dhabi, to ensure that those traveling to the UAE are confined to prevent the transmission of the virus.

 

Currently, individuals traveling to Abu Dhabi from outside the UAE must first update the details of their visas on the website of Federal Authority of Identity and Citizenship (ICA) and confirm their entry to the UAE. (The same is true of passengers arriving in the UAE via airports other than those in Dubai). An instant response message from the ICA with a “green status” indicates that the entry has been confirmed by the ICA. A message with a “red status” indicates that the request to enter the UAE has been rejected and the applicant must wait for a few days to re-apply. Travelers who are not UAE nationals or holders of UAE residence visas are not permitted to enter. Following receipt of the “green status” message, the traveler can proceed to book a flight and comply with any additional requirements of the airline. Most important, a negative COVID-19 PCR (Polymerase Chain Reaction) test result must be provided at the airport and must not have been taken more than 96 hours prior to departure. The test result must be printed and be either in English or Arabic. The test must be conducted at a UAE government approved testing center.

 

Upon arrival at Abu Dhabi airport, travelers will be tested again for COVID-19. Unlike in Dubai, passengers arriving from certain jurisdictions (no published list is as yet available) are made subject to a mandatory institutional quarantine of 14 days (irrespective of the test results, whether positive or negative) at a government facility. The traveler is also mandated to wear a tracker provided by the health officials. After 12 days of the 14-day quarantine, travelers are required to re-test themselves and with the confirmation of a negative test result (usually received by message) they are permitted to return the tracker and formally end the quarantine. Additionally, upon entry, travelers are required to sign an undertaking at Abu Dhabi airport to comply with the rules and guidelines of the UAE authorities and also to install the AlHosn App to assist the authorities in contact tracing.

 

Last month, the Dubai government announced that travelers by air to Dubai are required to first obtain approval online from the General Directorate of Residency and Foreigners Affairs in Dubai (GDRFA). Travelers (those having a Dubai residence visa) must now apply for the approval via the new smart platform of GDRFA Dubai on https://smart.gdrfad.gov.ae/ and provide the details of their visas. Travelers must submit to the airline and the airport a printed negative COVID-19 PCR test result in English or Arabic which again must not have been taken more than 96 hours prior to departure. Upon arrival, travelers will be tested again at the Dubai airports. Post-arrival, a home-quarantine is mandatory in Dubai until the results of the PCR test are obtained, if negative. However, a traveler who tests positive must self-quarantine for 14 days from the time of arrival in Dubai. Similar to Abu Dhabi, a signed undertaking and a declaration to abide by the rules and install the DXB Smart App, a contact tracing app, must be submitted at the time of arrival at Dubai airports. Unlike Abu Dhabi, foreigners without UAE residence visas may enter the UAE via Dubai’s airports.

 

Within the UAE, those traveling into Abu Dhabi from any other Emirate must also provide a negative PCR test result or a negative DPI test (Diffractive Phase Interferometry) both conducted no earlier than 48 hours prior to their entry into Abu Dhabi. Individuals who will then stay in Abu Dhabi for six consecutive days or more must also take a PCR test on the sixth day of each visit to the Emirate.

 

The UAE government has further reiterated that failing to comply with the rules and guidelines shall attract heavy fines and can also lead to criminal prosecution if the offense is repeated. ■

DIFC Increases Scope and Fines

The DIFC has expanded the scope of the common reporting standards, meaning more people must make filings plus increased fines for non-compliance.

 

With effect from 16 August 2020, DIFC Law 6 of 2020 (the CRS Law Amendment Law) was enacted to amend the Common Reporting Standard (CRS) Law, DIFC Law 2 of 2018 (the CRS Law). This enactment follows the issuance of the new CRS Regulations, which came into effect on 30 July 2020.

 

Briefly, the CRS Law serves to apply CRS on the financial institutions within the DIFC (known as the ‘Reporting Financial Institutions’ in the CRS Law). CRS is a standard developed by the Organisation for Economic Cooperation and Development (OECD) by which the DIFC (and other participating jurisdictions) are required to obtain financial account information from financial institutions and automatically exchange them with the other participating jurisdictions on an annual basis. Under the CRS Law, Reporting Financial Institutions that fail to report such information shall be subject to a fine for non-compliance, ranging between USD 280 (with an additional fine per each day of non-compliance up to a limit) for a minor non-compliance and USD 70,000 for a significant non-compliance. The main purpose behind CRS is to limit tax evasion.

 

The CRS Law Amendment Law made the following changes to the CRS Law:

 

  • The CRS Law now additionally applies to a Controlling Person (as defined in the CRS Law). This means that where an account with the Reporting Financial Institution is held by an entity, the natural persons exercising control over such entity are also subject to the CRS Law.

 

  • New offences and penalties are introduced in the CRS Law. An account holder or a Controlling Person that provides inaccurate or incorrect self-certifications where he knew or ought to have known to be inaccurate or incorrect shall be fined USD 5,500. A Reporting Financial Institution that fails to obtain valid self-certifications when a new account is set up shall be fined USD 300.

 

The amendments to the CRS Law are aimed to elevate the compliance requirements of Reporting Financial Institutions thereby aligning DIFC’s legal and regulatory framework with international best practice. ■

New Law on Registering Security over Movable Assets

Federal Law No. 4 of 2020 on Guaranteeing Rights Related to Movables (the New Mortgage Law), which came into effect on 1 June 2020, has updated the regime for registering security interests over movable assets in the UAE.

 

The new regime

 

The New Mortgage Law repealed Federal Law No. 20 of 2016 on Mortgaging of Movable Property as Security for Debts (the Old Mortgage Law). The Old Mortgage Law had been a welcome development as it introduced a whole new regime for registering a security interest over movable assets located in the UAE and addressed a number of shortcomings inherent under the earlier security registration regime, including the ability to create a security interest akin to a common law “floating charge” over future assets, dispensing with the requirement to deliver possession of the secured asset, the ability to perfect a security interest through registration, and a public register for registered security interests.

 

Whilst the New Mortgage Law retains most of the positive features of the Old Mortgage Law (as discussed above), it contains some key differences (as outlined below). The most significant differences are the introduction of a new security registry, to be established by a resolution of the Council of Ministers, and new implementing regulations (the Implementing Regulations) to be issued by the Ministry of Finance, which will regulate the operation of the new security registry. The New Mortgage Law provides that the Implementing Regulations will be issued within six months of the publication date of the New Mortgage Law (i.e., by 2 December 2020). This new security registry replaces the current Emirates Movable Collateral Registry (EMCR) which is operated by the Emirates Development Bank.

 

Key developments

 

Whilst the New Mortgage Law largely replicates the provisions of the Old Mortgage Law, it also introduces some other key changes including:

 

1.  The list of assets that cannot be registered in the security register has been reduced and no longer includes (i) objects intended for personal or home use necessary for the person and his dependents, unless used as a mortgaged property to finance the purchase thereof, (ii) entitlements of the insured or beneficiary of an insurance contract, unless these entitlements are considered proceeds of the security asset and (iii) future rights entailed from inheritance or Will.

 

2. The definition of an accounts receivable (i.e., a right to receive money owed to the security provider by a third party) now specifically excludes the right to collect payments established in endorsable deeds, the right to collect payments deposited in accounts payable at the banks and the right to collect payments under securities/financial instruments.

 

3. It is now possible to register a security interest before the conclusion of the relevant security contract (i.e., the agreement creating the security interest), provided the security provider has given written consent to the same.

 

4. If secured assets are sold or disposed of in the ordinary course of business, then they shall pass to the purchaser free from any security interest, provided that the purchaser was unaware of the secured party’s interest over the security assets, at the time that it entered into the sale agreement. This is in contrast to the position under the Old Mortgage Law, where the goods could be disposed of (without any security interest) even if the purchaser was aware of the security interest, provided that the disposal was made at market price.

 

5. Where the security interest relates to acquisition financing (for example, of equipment, inventory or IP rights), the security interest over the financed assets must be registered in the register within seven working days of the security provider gaining possession of the same.

 

6. In the event that multiple security interests are enforceable over the same fungible product or mass, these rights shall have equal priority status over the product or the mass and every secured party may claim their right from the product or the mass at the ratio of their security interest to the mass or the product at the time of integration.

 

7. A security interest under the provisions of the New Mortgage Law shall survive commencement of any bankruptcy procedures against the security provider and shall remain as such, and it shall retain the priority that it had prior to the commencement of the bankruptcy procedures. This is in contrast to the provisions of the Old Mortgage Law, which provided that none of the execution procedures on the mortgaged property under the Old Mortgage Law would be valid, in case of commencement of bankruptcy procedures against the security provider. This will be of particular concern to lenders who may need to enforce their security interests against bankrupt security providers.

 

Implementing Regulations

 

Like the Old Mortgage Law, the New Mortgage Law leaves a number of key procedural matters to be addressed by the Implementing Regulations. These include public access rights to the register, the requirements for registering a security interest in the security register, and additional priority terms associated with certain classes of security interests or assets. Whether the popular and useful features of the previous movable registration regime will be continued under the New Mortgage Law will be clear only once the Implementing Regulations have been issued.

 

Status of registered security in EMCR

 

Unfortunately, the New Mortgage Law makes no references to the security registered on the EMCR or the legal status of the same. The New Mortgage Law provides that any regulations, resolutions and decisions implemented under the Old Mortgage Law shall continue (until replaced by the Implementing Regulations), to the extent they do not conflict with the provisions of the New Mortgage Law. Combined with the fact that the Old Mortgage Law has been repealed in its entirety, this means that there is currently some uncertainty regarding the rights of a secured party which holds a registered security interest on the EMCR, in accordance with the Old Mortgage Law. In particular, it is not clear how the Courts would treat an application under the Old Mortgage Law (which has been repealed) to enforce a security interest registered on the EMCR. This issue needs to be urgently addressed, possibly through an amendment to the New Mortgage Law, providing recognition of the existing registered security rights under the Old Mortgage Law.

 

As a worst-case scenario, secured parties could find that their EMCR registered security interest does not give them any enforceability or other benefits under the Old Mortgage Law (e.g., as regards a security akin to a floating charge) or the New Mortgage Law. In this case the only option would be to enforce their contractual rights under the provisions of the relevant security agreements. This can cause additional complications for enforcement, particularly in the case of security agreements that are governed by foreign laws.

 

Actions by secured parties

 

In light of the above, parties with security interests registered on the EMCR should take urgent action, including:

 

  • Ensuring that the all security agreements are in compliance with their governing laws.

 

  • Remaining alert regarding further developments under the New Mortgage Law, particularly the issuance of the Implementing Regulations, so as to understand the new requirements for registering a security interest and ensure that they register any security interest with the new security registry within the six months of the Implementing Regulations coming into force (as required under the New Mortgage Law).

 

  • Undertaking a thorough review of all security interests registered on the EMCR, to understand their enforcement risk exposure. ■

 

* * * *

 

We are continuing to monitor developments with the New Mortgage Law and will provide further updates in due course. Please feel free to contact us should you wish to discuss any of the issues raised in this InBrief. 

 

 

Recent Amendments to the Commercial Agency Law

As many will know, Federal Law 18 of 1981 (the Commercial Agency Law; or CAL) regulates agency, distributorship and franchise relationships in the UAE, regardless of the nomenclature used to describe them.  The CAL requires that all commercial agency agreements be registered with the UAE Ministry of Economy and further offers the distributor (termed an “agent” under the CAL) protection from termination (and a guarantee of exclusivity) once a commercial agency agreement is so registered in accordance with the CAL.

 

Until recently, it was the case that in order to be registered as a commercial agent under the CAL, the proposed agent had to be either a natural person holding UAE nationality, or a body corporate ultimately wholly owned by UAE nationals.

 

On 28 May 2020, UAE Federal Law 11 of 2020 (the CAL Amendment) introduced certain amendments to the CAL. Most notably, the CAL Amendment extends the types of legal persons that can be registered as commercial agents to include the following:

 

a) a public joint stock company incorporated in the UAE; and

 

b) a private company (for example, a limited liability company) wholly owned by a UAE public joint stock company.

 

The CAL Amendment provides that to the extent an application for registration of a commercial agency is submitted by an entity falling within either (a) or (b), the requirement under the CAL for a body corporate commercial agent to be wholly owned by UAE nationals will not apply. Instead, such an applicant can qualify for registration under the CAL provided its capital is ultimately owned at least 51% by UAE nationals.

 

Amongst the objectives of the CAL Amendment is to encourage established family owned trading businesses in the UAE to list on the UAE public markets, thereby improving the depth and breadth of the UAE equity capital markets. The CAL Amendment is therefore an important (and arguably revolutionary) change and removes a key impediment to commercial agents registered under the CAL from seeking access to outside equity through the UAE public markets.

 

The CAL Amendment contemplates the issuance of regulations to be issued by the UAE Ministry of Economy and thus we anticipate additional clarity to the UAE commercial agency regime in the near future.■

 

Repeal of UAE Boycott of Israel Law

Following the announcement of the Abraham Accord with Israel, President His Highness Sheikh Khalifa bin Zayed Al Nahyan issued Federal Decree Law 4 of 2020, repealing Federal Law 15 of 1972 (the Boycott Law).

 

Brief overview of the Boycott Law

 

Pursuant to the Boycott Law, the United Arab Emirates (UAE) joined the Arab League boycott of Israel (the Boycott).

 

Under the Boycott Law, the following activities were prohibited:

 

  • entering into any agreements, directly or indirectly, with individuals or bodies corporate in Israel or those having Israeli nationality; and

 

  • trading of any nature of goods produced in Israel, wholly or partially, or manufactured using any Israeli material.

 

The UAE Boycott Law applied to all companies incorporated or operating in the UAE (including companies in the free zones of the UAE).

 

The UAE Boycott Law implemented a primary, secondary and tertiary boycott of Israel. The terms “primary,” “secondary” and “tertiary” were not used in the UAE Boycott Law. However, the primary boycott was generally viewed as a boycott by the UAE against Israeli products, services, nationals and companies and on direct trade with Israel. The secondary boycott was generally viewed as a boycott against parties that do business with Israel (who are placed on a blacklist), and the tertiary boycott was generally viewed as a boycott of parties that do business with blacklisted parties.

 

The policy of the UAE with regard to the Boycott was formally amended pursuant to Cabinet Resolution 462/17M of 1995 dated 20 November 1995 (the Resolution). Through the Resolution, the UAE Federal Cabinet declared that the UAE would no longer enforce the secondary and tertiary aspects of the Boycott.

 

Repeal of the Boycott Law

 

The repeal of the Boycott law will allow individuals and companies in the UAE to enter into agreements with parties in Israel, to transact business and to import and trade in Israeli goods and products. ■