Ahmed Ibrahim Malack El Masry
Partner and Head of Equity Capital Markets Senior Associate
a.ibrahim@tamimi.com m.elmasry@tamimi.com
Al Tamimi & Co
A: Building 4, 6th Floor, Sheikh Zayed Road
PO Box 9275, Dubai, UAE
T: (971) 4 364 1641 F: (971) 4 364 1777
W: www.tamimi.com
The Securities and Commodities Authority of the United Arab Emirates (SCA) has intervened substantially post the global financial crisis in 2008 to re-establish investors confidence in the financial markets and corporate governance, in particular after upgrading the status of the UAE from a frontier market to an emerging market by the MSCI. The myriad of laws, regulations, and directives have kept the legal aspects of corporate governance at the forefront. Largely, as a result of the promulgation of the new commercial companies law No. 2 of 2015 (CCL), SCA has been coordinating with the relevant committees of the World Bank before the issuance of the new corporate governance rules, which aim to complement the new CCL.
On 28 April 2016, the Chairman of SCA issued the Decree No. 7 R.M of 2016 which sets out the new set of Corporate Governance Rules, which repeal the old governance rules issued under the Decree No. 518 of 2009. SCA has ensured that the new Governance Rules include almost all of the key issues and recommendations of the World Bank. The new rules have strengthened the normative framework for conduct of public joint stock companies and established stiffer penalties for non-compliance in the hope of preventing, or at least limiting, public companies deviation from the Governance Rules. In doing so, SCA are demonstrating that they accept responsibility for maintaining a fair and efficient market to heart and, at the same time, to put local and international investors on notice that the UAE stock markets now follow more modern and transparent governance regime.
In principle, the Governance Rules are more exhaustive and detailed compared to the repealed rules. The rules include a lot of incremental reforms, a number of which have been developed by SCA and the World Bank. We aim to highlight below the key aspects proposed by the World Bank and were adopted by SCA in the new rules:
One of the remarkable developments which was recommended by the World Bank and has been introduced in the Governance Rules is for women to be fairly represented on the board of directors of public joint stock companies. The new rules require publicly listed companies to include a provision in their Articles of Association which provide for a minimum representation of women on their board of not less than 20% of the total number of board members. Companies which do not satisfy this requirement will need to disclose why.
In an attempt to fine tune the caliber of board members of publicly listed companies and to ensure that nominated directors have a clean and sound track record, the Governance Rules stipulate that for a candidate to be nominated to sit in the board directors of a public company, the candidate must not have been sacked from his position as a board member in any publicly listed company for the 12 months prior to the date of nomination.
On a different front, the World Bank was conscious that the Governance Rules include enhanced shareholders’ rights. In this regard, the new rules allow shareholders who own 10% of the issued share capital of public companies to call for an urgent general assembly meeting to discuss urgent matters. Similarly, the rules allow shareholders who own 5% of the issued share capital to submit a written request to SCA to include an additional agenda item to the agenda of shareholders meeting, even if the invitation has already been published.
Following the same attempt to have robust shareholders’ rights and in particular with respect to the economic rights and benefits, the new rules oblige public joint stock companies to deposit cash dividends to the shareholders registered on the tenth day following the date of the general assembly meeting which approved the distribution of dividends, provided that in all cases distribution of dividends may not be delayed for more than 30 days from the date of the general assembly.
We genuinely believe that the new rules will have a very positive impact on investors’ confidence in the UAE stock market. This will happen in twofold: (i) direct impact as international investors will be more comfortable to invest in the UAE stock market due to the offering that the Corporate Governance Rules provides in terms of robust governance requirements; and (ii) indirect impact as it is most likely that the new rules will enhance and upgrade the UAE ranking within the World Bank’s doing business reports, which will in turn enhance the inbound investments to the UAE market.
There are other interesting developments and more detailed rules have been included in the new Governance Rules, which come to complement the new concepts set out in the new CCL. We still believe that there will be more rules to come to fill out any legal vacuum left by the CCL.