Looking to expand and grow your business with a Mergers or acquisitions in the UAE?
Mergers & Acquisitions (M&A) is a strategic process taken by a company to transfer and combine with another company or to purchase a smaller company to form a single larger entity. M&A is highly used business expansion method that has been applied since the inception of trade and business around the world.
Although M&A are mostly used by businesses to reduce competition, increase market share and profits, it also has a significant impact on influencing the economy and business environment of the countries where these deals are being made and where the business is operated. For these reasons, the M&A process is quite complex, and the laws differ from one country to another.
In the UAE, the laws pertaining to M&A are regulated according to the type of company classified as public joint stock companies and all other companies. The M&A laws for all companies including joint liability companies, limited liability companies, limited partnership, private joint stock and holding companies are governed by the Commercial Companies Law no. 32 of 2021.
Public joint stock companies on the other hand, are subject to the decision of the Chairman of the Securities and Commodities Authority (SCA) Board of Directors no.18/R.M of 2017 concerning the rules of acquisition and Mergers of public shareholding companies and the administrative decision no.62/R.T of 2017 concerning the technical requirements for acquisitions and Mergers rules.
In this article we’ll be discussing the Mergers process of all types of companies as per the Commercial Companies Law, then we will highlight the process applicable on merging public joint stock companies as per SCA board of directors’ decisions.
What is the process of Mergers under the Commercial Companies Law?
Mergers of all companies in the UAE (with the exception of public joint stock companies) are subject to the Commercial Companies Law no.32 of 2021. Here, we’ll be looking at all companies excluding public joint stock companies.
Initially, the company that decides to merge with another company will need to issue a Mergers contract under a special decision issued by the general assembly even during the liquidation process. This Mergers contract will determine the conditions and the method of the Mergers covering the following parameters:
The memorandum of association and statute of the merging company or the new company after the Mergers.
The name and address of each board member or the proposed manager of the merging company or the new company.
The method of conversion of the shares or interests of the merged companies into shares or interests of the merging company or the new company.
Can a holding company merge with one or more of its subsidiaries?
A holding company may merge with one or more of the companies that are fully owned by the holding company into one single company without being bound to a Mergers contract. The Mergers is made under a special decision by such companies and passed by the majority for amending the memorandum of association of each company.
What if one of the partners objects to the Mergers?
With the exception of joint stock companies, the partner who objects to the decision to merge may request to withdraw from the company and recover the value of their shares. The request to withdraw is to be submitted in the form of a written application to the company within fifteen working days from the date of the Mergers decision.
The value of the shares and the reasons for the withdrawal will be assessed and concluded with a mutual agreement. In the event that an agreement is not reached, the matter will be referred to a committee formed by the department of economic development for resolution. Prior to resorting to this committee, the undisputed value of the shares is to be paid to its shareholders in full. In case an agreement is still not reached, the case will be forwarded to the department of justice.
What happens once the Mergers has been approved?
Once the Mergers decision has been approved by the Ministry of Economy or SCA, the particulars kept by the registrar will be amended and the Department of Economic Development will indicate the termination of the merged company. The Ministry of Economy or SCA will then be notified of the same.
The Mergers will result in the termination of the legal personality of the merged company or companies and the merging company, or the new company’s substitution thereof in all their rights and obligations. The merging company will be the legal successor of the merged company or companies.
Now that we’re aware of the Mergers process for all companies except joint stock companies which we will determine it’s Mergers process but first of all, we must clarify what is the meaning of a public joint stock company?
As per article 105 of Commercial Companies Law, a public joint stock company is a company whose capital is divided into equal and negotiable shares. The founders shall subscribe to part of such shares while the remaining shares shall be offered for public subscription.
The shareholder shall be liable only to the extent of his share in the capital of the company. According to Decision No. (18 / R.M) of 2017 of “SCA” such decision will apply to Mergers where any party is a public shareholding company, whether it is a merging or merged company or a new company arising from the Mergers.
What are the types of Mergers?
The Mergers shall be performed by one of the two following methods:
Mergers by amalgamation where two or more companies are merged into an existing company (the merging company) where the legal entity of the merged company/companies elapse and is replaced with the merging company in all the rights, liabilities and it becomes the legal successor of the merged company/ companies.
Mergers by combination where two or more companies merge into a new company (the new company arising from the Mergers) where the legal entity of the merged companies elapses and is replaced with the merging company arising from the Mergers in all the rights and liabilities and it becomes the legal successor of the merged companies.
What are the Preparation and arrangements for the Mergers to take place?
As a first step the boards of directors of the companies seeking to merge shall issue a resolution of the initial approval of the Mergers and the method, conditions, procedures, and schedule thereof based on a study prepared in this regard.
Afterwards, the representatives of the companies seeking to merge shall enter into a Mergers contract.
The terms and method of the Mergers as well as the intentions of the merged parties and the measures agreed upon throughout the Mergers shall be determined in the contract.
Are there any required approvals to finalize the Mergers?
The initial approvals on the Mergers shall be obtained from the competent authorities which are Department of Economic Development, the Central Bank, the Insurance Authority, and the bodies which license the activities with a special nature, each within its field of competence.
To begin with, the representatives of the companies seeking to merge shall file an application to SCA to approve the Mergers in principle and to approve the members of the Mergers committee and the consulting bodies that will take part in the Mergers.
Once SCA receive the application, it shall review it and may request any additional clarifications, guarantees, or information it sees fit and necessary to consider the application. SCA shall issue a decision approving or denying the application within (20) business days from the date of submitting a complete application. SCA may accompany its approval with the conditions or restrictions it decides in accordance with the requirements of the public interest.
Is there an obligation to notify creditors?
Each merging or merged company shall apply to SCA to approve notifying its creditors within ten (10) days from the date of approval on the Mergers by the general assembly. It is worth mentioning that any person with an interest shall have the right to object to the Mergers. However, such objection must meet the following conditions:
It shall be submitted within (30) days from the date of receiving the notice.
It shall be submitted to the head office of the company and a copy thereof shall be submitted to SCA.
The objecting party shall specifically indicate the subject and reasons of his objection as well as the damages he claims to have sustained because of the Mergers.
The company shall respond to the creditor’s objection within (30) days from the date of receiving the objection and it shall suspend all the Mergers procedures during such period. In case the objection is rejected or not addressed during such period, the objecting party may address the competent court to issue an order to suspend the Mergers. The Mergers procedures may not be suspended unless by a court order.
In conclusion Mergers refer to the consolidation of two or more companies into a single entity,
Dr. Ahmed Hatem
Partner and Head of Corporate and Commercial department at Al Safar and Partners Law firm
Dubai, United Arab Emirates
Dr. Ahmed Hatem earned his L.L.B. degree from Alexandria University before moving to the United States to earn his master’s and Ph.D degrees in international business law from North Carolina Central University. He also earned a number of diplomas, including a Diploma in Formats of Islamic Contracts, a Special Diploma in International Arbitration, and a Diploma in Arbitration of Capital Market Disputes.
Dr. Ahmed Hatem is an Egyptian legal consultant who holds several prestigious memberships. Dr. Ahmed has been a member of the American Bar Association since 2009, a member of the Egyptian International Arbitration Centre (EIAC) and the Cairo Regional Centre for International Commercial Arbitration (CRCICA) since 2001, and a member of the Arab Lawyers Union (ALU) since 2000. He has been a member of the Egyptian Bar Association since 1996. These member- ships are a testament to his extensive knowledge, experience, and commitment to his profession.
Dr. Ahmed Hatem’s professional experience ranges from legal advisor to Qatar’s Minister of Economy and Qatar Financial Markets Authority (QFMA) to country director for legal capacity-building projects in the United Nations Middle Asia Area. In the corporate sector, Dr. Hatem has headed the legal departments of major investment groups and advised the CEO of YAS Holding (120 subsidiaries worldwide) in Abu Dhabi and ARTOC Group (28 subsidiaries worldwide) in Cairo. He also has more than a decade of experience as head of the corporate and commercial departments of Lalive, one of the leading international law firms in Egypt.
Dr. Ahmed also has experience as an external evaluation expert for United Nations legal development projects and is fluent in English and Arabic.
Dr. Ahmed has authored numerous legal articles that have been published in both international and local publications.
Dr. Ahmed Hatem’s extensive knowledge makes Al Safar and Partners Law Firm well-equipped to handle complex legal cases in the areas of project finance, mergers and acquisitions, capital markets, and virtual assets.
