SPACs and SPV under New Commercial Companies Law in the UAE

At its 50th anniversary, the United Arab Emirates has launched various legislative modifications by issuing Federal Law Decree No. 32 of 2021 on Commercial Companies (hereafter called New Law) to glorify the country’s status globally for the purpose of business, trade and commercial activities. These laws came into force on 2nd January 2022.The United Arab Emirates has excelled the region due to revolutionized legislation pertaining to commercial and financial activities though insignificant improvement to the provisions correlated to Limited Liability Companies (“LLCs”) and some significant changes to certain provisions related to PJSCs and the introduction of a regime to allow for the division of Joint Stock Companies (“JSCs”).

Legislative history of Commercial Companies Law:-

The New Law rescinded and substituted Federal Law No. 2 of 2015 (hereafter called Old Law), which was further modified in Decree No. 26 of 2020 (hereafter called the 2020 Amendment). The aim of the 2020 Amendment is to smooth the progress of foreign direct investment and pleasing to the eye the regulation of companies i.e. public joint stock companies, Limited Liability Companies (LLCs) etc.

Key amendments in new companies’ law 2020:- 

The New Law has now strengthened the modifications initiated in the 2020 Amendment and has also brought forth certain key changes as discussed below:-

• Introduction of the SPAC and the SPV
• Key changes in Limited Liability Companies (LLCs) Law
• Key changes in   Public Joint Stock Companies (PJSCs) or Joint Stock Companies (JSCs)

Introduction of the SPAC and the SPV:-

The new law amendments 2020 introduces two new company structures 

• The special purpose Acquisition Company or “SPAC” 
•  The special purpose vehicle or “SPV”);

SPAC (Special Purpose Acquisition Company):-

The special purpose acquisition company (SPAC) is categorized as a Public Joint stock company (PJSC) established as a special purpose acquisition company by the United Arab Emirates under Securities and Commodities Authority (“SCA”) and designed for the exclusive reason of getting or amalgamation with another company. 

• Exemptions:-

There is no application of new companies laws on the special purpose acquisition company (SPACs).They are specifically exempted from the New Law and only Securities and Commodities Authority (“SCA”) regulations will be applicable on them.

• Objective

The commencement of the SPAC harmonize the launching of the provisions associated to the splitting up of Joint Stock Companies with the objectives to offer more flexibility and facilities in following:-

•   Public offerings, 
• Spin-off, merger 
• Demerger transactions.

The special purpose vehicle (SPV)

• According to “Abu Dhabi Securities Exchange (ADX)”

According to Abu Dhabi Securities Exchange (ADX), “A SPAC is a special purpose acquisition company formed for the sole purpose of raising capital through an Initial Public Offering (IPO), with an ultimate goal of acquiring or merging target companies. Target companies tend to be privately owned with high potential for growth, and may be held by private equity or venture capital companies that wish to exit”.

Abu Dhabi Securities Exchange (ADX) is the first market in the region to introduce complete listing rules under the newly formed regulatory framework for SPACs issued by the UAE’s Securities and Commodities Authority (SCA).

• Definition under new companies law

Under the new companies law, a special purpose vehicle is referred as a company established with the purpose to separate the assets and obligations interconnected with the particular financial process from the person who incorporated and used it in credit operations, borrowing, securitization, issuance of bonds, transfer of risks associated with insurance, reinsurance, and derivatives operations, in accordance with the provisions of a decision to be issued by SCA.   

• Definition under the Dubai International Financial Center (“DIFC”)

According to regulations of the Dubai International Financial Center (“DIFC”) The definition of the SPV is the Prescribed Companies offered by which may be used as investment holding companies in broader transactions, in respect of financing or asset management structures.

• Exemption:-

The SPV is also exempt from the New Law and will be regulated by the SCA upon the issuance of the relevant regulations.

Conclusion:

The New Companies Law construes the special purpose acquisition companies (SPACs) and SPV by setting them up as public joint-stock companies (PJSCs), sanctioned by UAE Securities and Commodities Authority (SCA). The most important purpose behind this is to build up different companies collectively. By following the United States’ idea of promising companies to boost foreign investment.  The Securities and Commodities Authority (SCA) is supporting the practical implementation of SPACs and SPVs by applying the New Companies Law to be processed. Under this scenario, the obligations and assets affiliated with a particular financing operation from the obligations and assets of its parent entity are inaccessible. The Securities and Commodities Authority (SCA) utilizes these regulations by working on the discharge of duties and other financial transactions.

How HHS Lawyers Can Assist You

HHS Lawyers provide a wide-ranging service to assist in understanding the new regulations and making your business operations smooth and successful.

Our Services Include:

• Legal Consultation: Providing expert advice on the implications of the New Commercial Companies Law.
• Entity Setup: Assist in setup and registration of SPACs, SPVs, and other vehicles.
• Regulatory Compliance: Advise on how your business will be compliant with all regulatory requirements prescribed by the SCA and other concerned regulators.
• Investment Strategies: Advise on how best SPACs and SPVs can be used for investment and risk management purposes.
• Ongoing Support: Providing regular legal advice to resolve various issues arising in the course of your business.

Contact HHS Lawyers today to learn how we can help you navigate the new business landscape of the UAE and have your business thrive.

Your business will flourish by understanding and utilizing the SPACs and SPVs for the new dynamic and investor-friendly environment of the UAE. If the right legal guidance is provided, there is no legal issue concerning compliance for any commercial venture.