New implementing regulations made under the UAE Bankruptcy Law
The UAE’s Bankruptcy Law (Federal Law Decree No.51 of 2023 concerning Financial Restructuring) came into force in May 2024 and its accompanying implement regulations, set out in UAE Cabinet Decision No.94 of 2024, in September 2024.
The implementing regulations fill gaps in certain aspects of the Bankruptcy Law, such as the de minimis debt thresholds for applications to open proceedings. They provide further detail on other aspects of the law, including the new Bankruptcy Register, debtor actions requiring trustee approval in a restructuring and the sale of assets in the context of bankruptcy and liquidation.
The revised insolvency framework is a rescue-focussed regime that should support stakeholders in managing risks and dealing with distressed debt scenarios. Three procedures, preventive settlement, restructuring and bankruptcy, are available to various types of UAE entities, including companies subject to the Commercial Companies Law (Federal Decree-Law No.32 of 2021).
SCA regulates special purpose vehicles
There is greater clarity around the regime for special purpose vehicles (“SPVs”) established under the Commercial Companies Law (Federal Decree-Law No.32 of 2021), following new rules for SPVs issued by the Securities and Commodities Authority (“SCA”) in July 2024 (Decision No.25/RM/2024 on the Regulation of Special Purpose Vehicles).
SPVs can be established for the purpose of separating the obligations and assets associated with a specific financing operation from the obligations and assets of its parent entity and used in credit, borrowing, securitisation, bond issuance, and transfer of risks associated with insurance, reinsurance, and derivatives. The Decision introduces classifications for SPVs, with differing objectives and levels of regulation:
- Qualified Special Purpose Vehicles (“QSPVs”): may issue bonds and asset-backed sukuk and securitised financial instruments, must meet certain conditions as to incorporation and management and must comply with additional requirements relating to listing and trading, as relevant.
- Unqualified SPVs (“USPVs”): may be set up to separate assets and risks. USPVs are subject to less restrictive regulation that QSPVs.
Generally, the provisions of the Commercial Companies Law relating to limited liability companies apply also to SPVs, unless otherwise stated in the Decision. The SCA has also clarified the maximum number of shareholders and the minimum capital requirements in the Decision, as well as confirmed that SPVs are bankruptcy remote from their founder and manager. There is an exemption for Federal and Emirates Government authorities and companies wholly owned by them.
Regulator cooperation on Virtual Assets licensing
The SCA and Dubai’s Virtual Assets Regulatory Authority (“VARA”) have signed a memorandum of understanding to enhance co-operation between the Federal and Emirate regulators and to clarify the position on the status of a VARA licence within the rest of the UAE. Under the MOU, it is agreed that Virtual Asset Service Providers (“VASPs”) operating in or from Dubai that apply for a regulatory licence from VARA are registered by default with the SCA, so that the VASP can service the rest of the UAE. VASPs wishing to operate out of any other Emirate, must be licensed by the SCA to do so. The MOU also provides for mutual supervision of VASPs, the exchange of information between the two regulators and an agreement to cooperate in employee training and supervision.
New regulations on bonds and sukuk for UAE issuers
UAE public joint stock companies (“PJSCs”) and special purpose vehicles (“SPVs”) (established under the Commercial Companies Law (Federal Decree-Law No.32 of 2021)) proposing to issue bonds and sukuk must comply with new rules issued by the SCA (SCA Decision No. 22/RM/2024 Concerning the Regulation of the Private Offering of Debt Securities, Sukuk and Securitised Financial Instruments).
The process for approving private offerings and issuances by PJSCs and SPVs includes requires initial SCA approval, shareholder approval and final approval from the SCA. Shareholders must be supplied with detailed information on the proposed issuance, including a report prepared by an independent financial adviser. Shariah compliant issuances will also require a decision of the company’s Shariah Supervisory Committee. Convertible issuances will require a directors’ report. Issuers will need to factor in the timing requirements for attending to the application requirements and obtaining external expert advice for the reports.
The offering can be made by way of a program, provided it meets certain conditions (including as to a maximum two year duration and corporate authorisation requirements). Where the bonds or sukuk are to be listed and traded in the UAE, they may only be traded by professional investors and SCA listing requirements must be met.
New rules for branches and offices of foreign companies in the UAE
Foreign companies operating or planning to operate in the UAE through a branch or representative office should be aware of the administrative requirements mandated by UAE Ministry of Economy Ministerial Decision No.138 of 2024 On the Controls and Procedures for Registering Branches and Representative Offices of Foreign Companies, which was published in July 2024.
Each branch or representative office of a foreign company licensed to operate in the UAE must be registered on a new online Register of Branches and Representative Offices of Foreign Companies. Renewals and amendments to registered details, suspension, re-registration and deletion of registration must also be noted on the Register. The Register will be searchable. The branch or office must also appoint an auditor.
