United Arab Emirates: Squeeze-out Guide
This guide sets out an overview of the current legal position in the United Arab Emirates (UAE) in respect of the availability of "squeeze-out" rights exercisable by a buyer in connection with the acquisition of a company incorporated in the UAE.
An understanding of the "squeeze-out" rights available in the UAE necessitates a brief outline of the legislative framework which forms the background of such rights.
UAE FEDERAL LAWS
The UAE is a federation of seven emirates comprising Dubai, Abu Dhabi, Ajman, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain and was formed in 1971. The UAE federal constitution provides for an allocation of powers between the federal government and the government of each emirate. Dubai, for example, is subject to the federal law of the UAE but retains the right to administer its own internal affairs and enjoys certain other exclusive rights.
The UAE Federal Law No. 8 of 1984 concerning Commercial Companies (UAE Companies Law) is of relevance to this topic as it is intended to be a comprehensive code on the regulation of companies in the UAE. As the UAE Companies Law is a federal statute, it is applicable in all of the seven emirates of the UAE and supersedes any local laws enacted by the individual emirates. In this regard, but subject to our comments in the following section regarding "Free Zones within the UAE", all commercial companies in the UAE must comply with its provisions.
Foreign ownership restrictions apply to UAE companies and in particular the UAE Companies Law requires nearly all types of foreign-owned companies to have at least 51% of their shares owned by a UAE national or a company wholly owned by UAE nationals (in the case of some activities, this threshold is even higher).
FREE ZONES WITHIN THE UAE
The UAE also hosts a significant number of free zones, which are areas within certain of the emirates of the UAE that permit 100% foreign ownership of companies. The free zones have primarily been established for the purpose of attracting foreign investment in the UAE.
The UAE free zones have their own laws and regulations which are different to those in non-free zone areas (often referred to as "onshore UAE"). In particular, companies established in the free zones are outside the ambit of the UAE Companies Law and have been expressly excluded from its operation.
One particular free zone, the Dubai International Financial Centre (DIFC), will be considered separately to the other free zones in this guide, as it is considered the most advanced of the UAE’s free zones and is the location of one of the UAE’s stock exchanges.
OFF MARKET COMPANIES
A UAE company which is not listed on an exchange in the UAE (an off market company) will only be subject to the laws and regulations of the jurisdiction in which is it incorporated (federal or free zone). Thus, a company incorporated onshore UAE under the UAE Companies Law will only be required to comply with the provisions contained in that law, whereas a company incorporated in a UAE free zone must only comply with the laws and regulations prescribed by that free zone authority (subject to certain exceptions depending on the relevant free zone).
ON MARKET COMPANIES
In addition to compliance with the laws as referred to in the previous section, a UAE company which is listed on an exchange in the UAE (an on market company) must also comply with the rules and regulations of the relevant exchange as well as the rules of the regulator.
The Emirates Securities and Commodities Authority (SCA) is the regulatory body that monitors and supervises securities markets that are considered to be onshore UAE. Any public company which is incorporated under the UAE Companies Law and listed on either of the two onshore UAE stock exchanges, the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX), shall comply with various reporting and disclosure requirements set down by SCA, as well as the rules and regulations of the relevant exchange.
The Dubai Financial Services Authority (DFSA) (which was established with the assistance of the DIFC as the regulator) is the regulatory body that monitors and supervises the stock exchange located in the DIFC, namely Nasdaq Dubai (formerly called the "Dubai International Financial Exchange", or "DIFX"). Any public company which is incorporated in the DIFC and listed on Nasdaq Dubai shall comply with the rules prescribed by the DFSA, which include the Takeover Rules and the Offered Securities Rules, as well as the Nasdaq Dubai Listing Rules.
CONCEPT OF "SQUEEZE-OUT"
Onshore UAE, the concept of a "squeeze-out", in terms of which the minority shareholder(s) of a company is forced to sell their shares to an offeror purchasing the majority shareholding of the company, is not recognized in respect of both off market and on market companies.
Similarly, there are no takeover code or UAE federal laws which deal specifically with such rights of an acquiring party.
In the DIFC however, the laws of such free zone recognize the right of squeeze-out and prescribe the terms and conditions of such a right. This right is available in respect of both off market and on market companies.
In addition, the DFSA has produced Takeover Rules which apply to DIFC registered companies which are regulated by the DFSA.
Download the UAE Squeeze-out Guide
Lawyers Adela Solomon
This guide first appeared on the International Bar Association (IBA) website and is reproduced with the kind permission of the editors. Squeeze-out guides for over 40 other countries can also be found on the IBA website.
