Interpretation of DMCC Company Law

Can you imagine having to do business without any reasonable expectations from other people? Would you be able to do business if you did not have legal protection to protect your property interests? And additionally, in the event of a disagreement, there will be no known method of settling it without a rule of law system. A company would be chaotic if the rule of law system did not exist.
What if you didn’t know how to play chess but decided to give it a shot anyway? You would actually get irritated easily because the movement of your opponent’s pieces made little sense to you, and you wouldn’t be able to move any of your own pieces as you wanted. Your opponent’s knight will sometimes move two spaces in one direction and then one space in the other direction. For all times, the opponent’s bishop will be moved diagonally. Furthermore, you would not have any idea what you were and were not permitted to do. You’d probably have no idea how to penalize an opponent who made a mistake of his or her pieces in order to achieve an edge or take something from you.
This is similar to how it feels to do business without knowing or understanding the rules of the game. To stop being penalized, the rule of law sets laws that people and companies must follow the rules. The rule of law enables people to consider what is required of them in their personal capacity and establishes guidelines for corporations to follow in their dealings and transactions.
In any aspect of business, the rule of law gives guidelines and direction. It will, for example, be used to bring a complaint against another party to a neutral and impartial decision-maker so that the conflict can be resolved. We know that we are allowed to file a lawsuit in the appropriate court to begin proceedings because of our rule of law system. If we don’t want to go to court, we could find an alternate method of dispute resolution. We know we’re allowed to do these things because our legal system permits us to do so. Furthermore, we can expect some outcome if we initiate such a proceeding. This expectation is only reasonable because we have a legal system.

New Regulations for DMCC, 2020

The Dubai Multi Commodities Centre (DMCC) Authority last year released new rules and regulations (the Regulations) to help with company formation and doing business in the DMCC. The Regulations took effect on January 2, 2020. The rules of the UAE Federal Commercial Companies Law Number 2 of 2015 no longer refer to DMCC companies under the Regulations, meaning that the Regulations are intended to stand alone. A variety of significant amendments have been made to the previous legislation that better meets the business needs of DMCC companies.

Articles of Association

Established DMCC companies are not required to take active action to comply with the Regulations unless their existing Articles of Association (Articles) are contrary to or conflicting with the Regulations. The DMCC Authority will allow transitional provisions under the Regulations to facilitate the transition from the previous company regulations (and any law, legislation, policy, or decision taken under the previous company regulations) to the Regulations easier.
Previously, DMCC Companies had to use the Dubai Multi Commodities Centre Authority’s (“DMCCA”) memorandum and articles of association (“MoA and AoA”) as a form document. When it comes to drafting and adopting Articles, DMCC companies can now have greater flexibility. When it comes to implementing Articles, DMCC businesses have the following options under the Regulations:

  1. to use the DMCCA’s template Articles which are the standard DMCC Articles;
  2. to modify clauses in the standard DMCC Articles; or 
  3. to follow their own version of the Articles, as long as they meet the Regulations standards.

If a DMCC company wishes to create its own version of Articles, it must provide a legal opinion to the Registrar of Companies (the Registrar) that the new Articles do not include any clauses that are contradictory to or incompatible with the Regulations. In addition, if the Registrar notifies a DMCC company that its Articles contain a clause that is considered to be contrary to or conflicting with the Regulations, the DMCC company shall amend its Articles within a prescribed time frame and in the manner directed by the Registrar. It’s worth noting that the previous company regulations allowed for minor changes to the standard DMCC Articles. However, amending the standard DMCC Articles was uncommon, and DMCC business owners would often depend on a separate shareholders’ agreement in addition to the standard DMCC Articles.

Classes of Shares

DMCC companies also have the ability to issue different types or classes of shares pursuant to the Regulations. DMCC companies gain more flexibility in their shareholding structure by being able to delegate different rights and obligations to shares. The MoA and AoA must specifically account for different types or classes of shares if a DMCC company decides to issue them. It is important to remember that at least 80% of all shares must be ordinary shares, with just 20% being allocated differently.

Corporate Governance

One of the key changes made is the introduction of the “Officer Rules,” which is intended to set out and govern the roles, responsibilities, duties, procedures, and arrangements related to officers (i.e., managers, directors, and secretaries) of a DMCC company. Also, a DMCC company may appoint a corporate services contractor as company president. More importantly, the Regulations prohibit a DMCC company from providing any form of financial assistance to directors.

Insolvency

The Regulations include a number of provisions concerning insolvency and the winding up of a DMCC company. The Winding Up Routes include solvent winding up, insolvent winding up, summary winding up, and involuntary winding up. The Winding Up Routes cover, among others, winding up processes, director powers, and the hiring of liquidators. On the other hand, the Regulations keep and maintain the terms of UAE Federal Bankruptcy Law Number 9 of 2016 and any amendments in effect, and the interplay between the two legislations is still blurred.

Winding-up

The Regulations have specific guidelines for how a DMCC company should be wound up. These rules apply in cases where the DMCC company is undergoing an insolvent winding-up, involuntary winding-up, solvent winding-up, or summary winding-up. Furthermore, the Regulations state that DMCC companies are subject to the rules of Federal Law 9 of 2016 (the Federal Bankruptcy Law).

Company Licenses Voluntary Suspension

A DMCC company can now request that its license be suspended for a term of 12 months or longer, subject to the DMCC Registrar’s approval. This may be advantageous for businesses who want to immediately suspend activities in the DMCC without having to officially start de-registration proceedings or face being fined for failing to comply with the DMCC’s licensing procedures.

Auditing

The auditing and reporting of a DMCC company’s financial statements are subject to wider requirements. A DMCC’s financial accounts should be compiled in accordance with the International Financial Reporting Standards. Both violations or non-compliance with the Regulations must be reported to the DMCC Registrar by the auditors and the DMCC company.

Transfer of Companies

Although the DMCC has permitted companies to transfer into the DMCC on a case-by-case basis, this was not explicitly stated in the previous regulations. The Regulations have requirements that simplify and streamline the transfer of companies from other jurisdictions to the DMCC. There are specific guidelines for what constitutes a ‘Continuation Application’ and the reasons for denial of such an application (18.1 to 18.3 of the Regulations).
The Regulations are a positive change for both new and existing investors in the DMCC. They provide a more comprehensive commercial and regulatory structure for company activities and management in the free zone. However, there are also certain areas of uncertainty that need to be addressed by the DMCC Authority when the Regulations are implemented.