News

News

Al Dahbashi Gray Expands its Construction Team in Dubai

We are delighted to announce the continued growth of our construction and infrastructure team at Al Dahbashi Gray with the arrival of Scott Lambert, who joins us as a Partner.

Scott has over 32 years’ experience and has been in the Middle East for more than 6 years. In the region, Scott has previously worked as the Regional Head of Construction and Infrastructure at Al Tamimi, and more recently as a partner at Beale & Co. Before coming to the Middle East, Scott was a partner at the well-regarded Australian firm Holding Redlich.

Scott brings a wealth of experience to the firm and bolsters its construction and infrastructure offering.  He has worked on all aspects within construction and infrastructure sector including advising consultants, contractors, developers and facility operators across a range of disputes, procurement, contracts and projects advisory matters including a major regional rail project, solar parks, oil and gas FEED issues, desalination plants, cooling plants, commercial and mixed-use developments and shopping malls, throughout the Middle East and North Africa.

Scott is also a regular speaker at industry events for RICS across Dubai and Abu Dhabi and brings with him a focused marketing and business development strategy. He was also the winner of a UAE Client Choice Award 2018 for construction law.

“We are delighted to welcome Scott to the team in Dubai where he will work alongside our other Construction Partner, Josh Kemp. The addition of Scott strengthens the transactional and project advisory aspect of what is already an extremely talented and experienced construction and infrastructure team.  Having previously worked together for several years, Scott and Josh offer a depth of experience to assist premium construction industry players to achieve the best results” – Co-Managing Partner Mohammed Al Dahbashi

Update – New Data Protection Law, DIFC Law No. 5 of 2020

The new Data Protection Law, DIFC Law No.5 of 2020 (“DP Law”), came into force on 1 July 2020, replacing the Data Protection Law, DIFC Law No.1 of 2007.

The DP Law will bring the DIFC closer in line with international models which have been adopted in Europe and the US, such as the EU’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act. It also aims to strengthen the DIFC’s reputation for data protection, which may pave the way for future recognition by foreign states as an ‘adequate’ jurisdiction.

The DP Law is also accompanied by a new Data Protection Regulation which set outs procedures for notifications to the Commissioner of Data Protection, accountability, record keeping, fines and a list of ‘adequate’ jurisdictions for cross-border transfers of personal data.

The DP Law will begin to be enforced from 1 October 2020, providing several months for businesses subject to the law to review and amend their existing data protection policies, processes and contracts, in order to be compliant from the outset.

 

Key Changes

Below we take a look at some of the key changes brought in by the DP Law.

Application:

  • Whereas the old law only applied to businesses registered in the DIFC, the new DP Law also applies to any business which processes data within the DIFC as part of stable arrangements and those which process data on behalf of either of the two.

Higher penalties for non-compliance:

  • Failure to notify the commissioner of an unauthorised data intrusion – an increase from $5,000 to $50,000;
  • Failure to implement and maintain technical and organisational measures to protect personal data – an increase from $10,000 to $50,000;
  • Failure to maintain records of processing – an increase from $5,000 to $25,000.

A wider range of offences (with fines up to $100,000) including:

  • Failure to comply with data subject rights of access, rectification and erasure of personal data;
  • Failure to comply with new requirements relating to data portability; and
  • Failure to comply with the new right of a data subject to object to any decision based solely on automated processing, including profiling, which produces legal or other seriously impactful consequences.

Higher governance standards have been imposed, including the maintenance of a record of processing activities, as Controllers and Processors are required to demonstrate compliance with the DP Law.

Data Protection Officers (DPO): DIFC bodies and companies conducting High Risk Processing Activities will need to appoint a DPO. The definition of High Risk Processing Activities includes:

  • Adoption of new or different technologies or methods that materially increase the risk to data subjects or renders it more difficult for data subjects to exercise their rights;
  • Processing a large amount of personal data (including staff and contractor data) where such processing is likely to result in a high risk to the data subject;
  • Systematic and extensive automated processing, including profiling, with significant effects; and
  • Processing of special categories of personal data (i.e. sensitive data) on a large scale.

Data Protection Impact Assessments: controllers will be required to conduct data protection impact assessments before undertaking any new High Risk Processing Activity.

Data Protection Principles: there is a requirement to process personal data in a transparent manner and in accordance with the application of data subject rights. Currently, there is no guidance on the meaning of a “transparent manner”. However, under the old law, personal data had to be processed fairly, lawfully and securely.

Rights of Individuals as ‘data subjects’ have been strengthened, as there are now the following additional rights:

  • to withdraw consent at any time. An absolute right available to a data subject if the basis for the processing of the personal data is consent;
  • to access information on their personal data. There is a timeframe of one month to respond to data subject access requests at no charge. Complex requests can be extended by a maximum of two further months;
  • to data portability, where the processing of personal data is based on consent, the performance of a contract, or is carried out by automated means. The data subject has the right to receive a copy of their personal data in a structured, commonly used, machine-readable format that supports re-use;
  • to object to automated decision making, including profiling, and the right not to be subject to decisions based solely on automated processing which significantly affects them;
  • to non-discrimination. If an individual exercises any of their rights under the DP Law, controllers may not deny any goods or services; charge different prices or rates, including through the use of discounts or other benefits or imposing penalties; or provide a lesser quality of goods or level of service.

Cross-border transfers: the new law mirrors the GDPR. Personal data can be transferred outside of the DIFC without permission from the Commissioner if a country falls under the ‘adequate jurisdiction’ list. Otherwise, it is permitted to transfer the data, so long as appropriate safeguards are in place (e.g. by adopting standard data protection clauses approved by the Commissioner, by legally binding instruments between public authorities, and through (approved) binding corporate rules within the same group of companies).

 

How to prepare your business for compliance

Businesses covered by the new law will need to conduct a review of their current data protection policies and procedures. This should focus on, at least:

  • Mapping the type of data the business is and expects to be processing;
  • Reviewing whether the data being collected is for a legitimate reason;
  • Confirming whether a Data Protection Officer is needed and make such an appointment;
  • Ensuring any outsourcing of processing is subject to contractual obligations to comply with the DP Law, in the form set out in the DP Law;
  • Establishing a procedure for notifications to the Commissioner and responses to data subjects, in accordance with the new time limitations;
  • Conducting employee training on the new requirements.

Should you require any assistance in adapting to the DP Law, please contact Josh Kemp at jk@adglegal.com.

Written by Josh Kemp and Kamila Sielski.

Egypt’s Economic Transformation

ADG Egypt Series Part 1: Logistics, Manufacturing, Agriculture and Healthcare

Written by Josh Kemp, Dina Assar and Shams Elkodama
June 2020

After several years of instability in Egypt which has brought difficulties for its economy, the country is experiencing a resounding recovery. It has become one of the fastest-growing economies in the region, as the IMF reported that GDP increased from 5.3% in 2018 to 5.6% in 2019. Projections for the 2020-21 fiscal year also remain strong, despite recent events.

Indeed, given the slowdown in the region’s mainstay economies such as the UAE and Saudi Arabia, it is inevitable that Egypt will resume its place as one of the leading economies in the MENA region. The country can maintain that trajectory by strengthening its long-held competitive advantages – its strategic location and intersection with the Middle East, Africa and beyond. Further, revitalising and expanding its infrastructure, including by drawing in more private investment, will play a pivotal part in reshaping its economic progress.

In this first instalment of our multi-part series on Egypt’s growth and opportunities, we take a look at various projects and initiatives across the logistics, manufacturing, healthcare and agriculture sectors, which are tipped to drive Egypt’s growth towards 2030 and will be of interest to investors and practitioners.

1. Suez Canal Economic Zone (SC Zone)

Launched in 2015, the SC Zone was established as part of Egypt’s sustainable development strategy, Vision 2030.

The SC Zone consists of six ports and four industrial zones scattered along the waterway, through which passes almost 10% of world trade, or 18,000 ships a year.

These infrastructure upgrades are aimed towards attracting foreign investment, especially to the country’s fast-growing manufacturing industry, and to transform the Canal area to a global hub for logistics, maritime services, information technology and power industries. The Government has also spoken of its intentions to create an investment arm to channel funds to projects along the Suez Canal, engaging in partnerships with developers, lending and investment banks.

The overall infrastructure project includes a new city (New Ismailia City); an industrial zone; seven new tunnels, improving the existing port infrastructure; and a new canal parallel to the Suez Canal.

The main projects in the SC Zone are at various stages of completion. For example, those recently completed include:

• The two tunnels in Ismailia, which were completed in May 2019.
• Five out of the seven tunnels have been completed, as of 25 April 2020. Most recently, 22 April 2020 marked the opening of the Martyr Ahmed Hamdy Tunnel 2, the two-way tunnel in Suez.
• The Port Said tunnel, completed in November 2019, shortening travel time across the Suez Canal. A trip which previously would have taken days, now takes between 10 to 20 mins.

Some of the zone’s ongoing major projects include:

i. Ports, Transport and Logistics

• Upgrading ports at Adabeya, West Port Said, al-Tor and al-Arish to meet the expected increase in volumes.
• The remaining tunnels to connect the Sinai Peninsula to the Egyptian homeland.
• A new container terminal in Abu Qir port by China’s port operator, Hutchinson Ports.
• DP World’s US$520million container port and container yard Basin 2 is expected to become operational in Q2 2020. The project will nearly double the capacity of the port to 1.75million TEUs per year.
• Construction of Egypt’s first RoRo terminal at East Port Said, by a consortium led by Japan’s Toyota Group. The project scope includes a 600-metre quay and a new 21.2-hectare terminal.
• A US$7billion Russian industrial zone of 5.25m square metres in the SC Zone. The project will be completed in three phases and is expected to be fully operational by 2031.

ii. Power and Water

• Several additional water desalination and electricity-generating plants, to be carried out to 2025.

iii. Tahrir Petrochemical Complex (TPC)

The TPC is a circa US$10 billion project for the construction of a 1.5 million tonne-per-year (t/y) ethylene cracker and a polyethylene facility with a capacity of about 1.4 million t/y, as well as other major petrochemical products. Once completed, it will be the largest naphtha cracker plant in the world, with access to key markets such as Sub-Saharan Africa, Asia and Europe.

Despite several delays, the contracts were signed in June 2019 for the project management consultancy (PMC) and engineering, procurement, and construction (EPC). While financial close is understood to be yet to occur, project site preparations and dredging are underway, and recent reports suggest that construction will commence by the end of 2020.

2. The Golden Triangle

The Golden Triangle project (located in the area between Qena, Safaga and Qusair) is critical for the country’s economic recovery. The project aims to establish a new industrial city through assembling a global mining, commercial, agricultural, touristic, industrial, and basic infrastructure zone.

The area is the richest in Egypt in terms of minerals – such as iron, copper, gold, silver, granite, and phosphates – and boasts 75% of the country’s mineral resources. It will offer opportunities to exploit phosphate for fertilisers, raw materials for cement produced from schist and limestone, gold ore and the production of petrol from oil shale.

65% of the project will be composed of modern industrial zones, whilst 35% will be residential, commercial, and touristic. The project will be completed in five-year phases and will be funded by international financial institutions and donors.

In January 2020, Egypt also announced its plan to construct a multipurpose plant in Safaga Port to receive general cargo ships and containers. The sea port of Safaga is considered the most important port for the African continent on the western coast of the Red Sea, and is located on the sea route of the Road and Belt Initiative that extends through the South China Sea, the Indian Ocean and the Bab Al-Mandab strait to the Suez Canal. This is in addition to its connection to a local road network that reaches Sudan through Hadraba land port.

3. Damietta Logistics Project

In 2019, Egypt’s Damietta port signed an MoU with two European companies, Eurogate and Contship Italia, to develop the largest logistics system in the Middle East. The project scope includes a container terminal, a railway line, a dry port, and a cargo distribution area. The total investment is approximately US$825million for the first phase.

The project is expected to be completed by 2022, which will position Damietta port as a critical link for the Eastern Mediterranean region, open foreign markets via direct shipping, and attract foreign investment.

4. Manufacturing Hub

The manufacturing sector is at the forefront of the Egyptian government’s substantive plans for economic growth. The newly expanded Suez Canal and its proximity to Asian, African and European markets, and a number of free trade agreements and special economic zones are key elements which make Egypt a strong manufacturing destination.

The industry has been undergoing a period of growth guided by the Sustainable Development Strategy: Egypt Vision 2030, and the Industry and Trade Development Strategy 2016-2020. Both initiatives have set ambitious goals for the manufacturing sector, including increasing the percentage of GDP to 18%, increasing the manufacturing growth rate to 10%, and increasing high-technology exports as a percentage of Egyptian manufactured exports to 6% by 2030.

Egypt already has well-established manufacturing subsectors such as F&B, steel, pharmaceuticals, and automotive, and is well-positioned to become a premier destination for global manufacturing. Egypt’s strong economic growth (2019 being its highest) has been in part due to an unprecedented number of greenfield foreign investment projects in this sector.

Further, recent infrastructure projects aimed at improving and diversifying the energy supply in Egypt (e.g. Siemens’ megaproject connecting 14.4 GW to the Egyptian national grid and Benban Solar Park) will help significantly boost the manufacturing sector.

5. Agriculture

Agriculture remains an important sector of the Egyptian economy. It contributes nearly one-eighth of GDP, employs roughly one-fourth of the labour force, and provides the country with an important part of its foreign exchange.

Egypt’s investment in agricultural infrastructure will also assist domestically in navigating the Covid-19 crisis.

Noteworthy projects recently completed or currently being developed are:

i. The Mahsamma Agricultural Drainage Treatment Plant

A US$100million, recycling and reuse plant. This is the world’s largest agricultural drainage treatment plant (42,000 m2) and has a capacity of 1 million m3/day.

ii. Canal Sugar Project, Al Minya

Canal Sugar is an integrated Agro-industrial project with 70% Emirati investment and 30% held by Al Ahli Capital Holding. The project will incorporate reclamation and cultivation of 181,000 acres of land, making it the largest agricultural project in Egypt since 1952.

The facility will produce 400,000 tonnes of white sugar per year when it starts production in 2021 and will produce 900,000 tonnes of white sugar by 2023 once it reaches full capacity. The project will cost around US$1billion and intends to fill the domestic supply gap and render Egypt self-sufficient in sugar.

iii. Grains Terminal, Damietta

Canal Sugar, owned by Dubai-based Al Khaleej Sugar Refinery, announced in July 2019 the plan to build a pier and grains terminal in Egypt’s port city of Damietta at a cost of around US$200 million. The new terminal will have a discharge capacity of 3,000 tonnes of grains per hour and will increase Egypt’s grain export capacity.

iv. Development of Greenhouses

Egypt is currently implementing a national project to establish more than 10,000 greenhouses in an area of 100,000 hectares in Matrouh, Sharqiya, Ismailia, Fayoum, Beni Suef and Minya. It is the largest greenhouse project in the Middle East and aims to support 20 million Egyptians. The project is expected to be completed by 2021 and will provide more than 1.5 million tonnes of vegetables and fruits annually to meet the growing production-consumption gap.

6. Healthcare

With the population growing at a rate of 2.2% annually, Egypt will need to improve quantitatively and qualitatively in order to meet the growing demand for healthcare services.

The country recently laid down the foundation stone, with construction commencing on the Capital Med Healthcare City located in Badr City in Cairo. The project is being developed by Egyptians for Healthcare Service and will be the Middle East’s largest integrated private medical city.

The entire project consists of three phases, to be constructed over 7 to 10 years. The project includes a 350-bed state-of-the-art general hospital, clinics plaza, a hotel, and 11 specialised medical excellence centres. Once operational, the medical city is expected to create 10,000 to 30,000 jobs.

There is significant opportunity for foreign investment in the Egyptian healthcare sector. Key factors that make Egypt’s healthcare sector attractive are its growing (and aging) population, increasing insurance penetration, its regional reputation for medical tourism, and the shift towards encouraging private sector investment in healthcare.

Closing Comments

Egypt’s economy is among the most diverse in the MENA region. The country can continue to capitalise on strategic geographic location, low-cost and relatively qualified labour, high tourism potential, and an abundance of energy resources, to drive it forward through challenging times for world economies. The country has already adopted a variety of policies aimed in part at attracting foreign and domestic investments, such as the 2017 Investment Law and various free zone initiatives.

However, the country’s ability to exploit these advantages, and its economic prosperity will depend, in no small part, by its ability to execute key infrastructure projects.

The Energy and Transport sectors are poised for significant growth in the coming years. Our next instalment covers the plethora of planned and in-progress projects in these sectors.

If you are interested in learning more about Egypt’s economic transformation or require assistance with any related projects, please contact your relationship manager or contact Josh Kemp at jk@adglegal.com.

DIFC Employment Law Update – Presidential Directive on COVID-19

The recent DIFC Directive (No.4 of 2020) is intended to be in force until 31 July 2020 and is subject to extension (the “Emergency Period”). The DIFC Directive supersedes all other DIFC regulations during this Emergency Period.

We summarise the key measures and provisions below.

Flexibility Provisions

Heretofore, under the current DIFC Employment Law, employee consent is required for employers to impose various measures, such as reduced working hours, reduced salaries and forced unpaid leave. However, the new DIFC Directive permits employers to impose any of the following six measures with five (5) days’ written notice and without employee consent:

  1. reduced working hours;
  2. forced annual leave (this was permitted without consent, in any event);
  3. forced unpaid leave;
  4. reduced salary on a temporary basis;
  5. restricted workplace access; and
  6. remote working conditions.

These Emergency Measures are similar to those introduced by the UAE Government on 26 March 2020 by Ministerial Decision No.279/2020 (see our article here). Under Ministerial Decision No.279/2020, employers must have suffered actual losses or expect losses to be incurred before imposing measures on employees. This is not the case under the DIFC Directive. No threshold is required.

Sick Leave Provisions

  • Any sick leave taken as a consequence of having contracted COVID-19 or for being placed in quarantine by a competent UAE authority will not be counted towards an employee’s statutory sick leave entitlement (refer to our article on DIFC Employment Law here);
  • Employees will also be entitled to full pay during any COVID-19 sick leave period provided the employee can provide a sick leave certificate issued by a competent UAE authority. The DIFC Directive also confirms that an employer cannot impose any of the abovementioned emergency measures on employees during their COVID-19-related sick period.

Visa Permits

  • Employers may defer the cancellation of the residency visas and/or sponsorship of terminated employees during the Emergency Period, provided the employer continues to provide basic medical insurance to the terminated employees;
  • If an employer in the retail, service or hospitality sector provides accommodation to an employee, the provision of this accommodation must continue until the visa is cancelled.

DIFC Available Employee Database

  • Similar to the Virtual Labour Market introduced by the UAE Government (view our article on Virtual Labour Market here), all DIFC employers must maintain a list of employees during the Emergency Period. The list will include all employees that have been terminated since 1 March 2020 and any other employees that are surplus to its current needs. DIFC employers wishing to employ new employees may search the DIFC database for suitable candidates.

Contact Us

We are currently assisting clients across the UAE concerning business contingency plans and are advising both employers and employees on all employment-related aspects of COVID-19.

Should you require any assistance in navigating employment issues during the current crisis, please contact us at covidqa@adglegal.com.

Investment Opportunities in Sudan

Since independence in 1956, the Republic of Sudan has not enjoyed the opportunity to benefit from its enormous resources and rich treasures due to constant civil wars and conflicts. However, since the recent ceasefire, the situation is, at last, heading towards permanent stability. Firm foundations are now being built to stabilize the country, achieving peace and justice and consequently encouraging investors to look to Sudan for opportunities. So what does Sudan have to offer?

In addition to the known opportunities involving oil and gas, there are dozens of agricultural opportunities in crops such as cotton, peanuts and grains like corn, wheat and sesame, in addition to many fruits and vegetables. Most of these crops are grown for export abroad.

Sudan is also one of the largest producers of Arabic gum and is rich in natural and planted forests, from which wood can be used in building products or manufacturing.

Investment is being encouraged in agricultural projects, with the government having marked over 2 million acres of land for investors. Further opportunities for investment lie in livestock, being one of the biggest meat exporters worldwide.

Turning to mining, the country has yielded nearly 250 tons of gold in the past year and there remains significant virgin land available for expansion. This is to say nothing of other metals, where many prospects remain.

The establishment of modern hospitals provide further opportunity, with medical aid companies taking further advantage of the Investment Law to introduce equipment without customs or taxes, as well as profiting from contracting with medical insurance companies and other agencies in Sudan.

It is also hoped that tourism may flourish in the coming years, with over 400 km of land along the Nile available for the development of luxury hotels and restaurants, museums and the potential for sports tourism by way of golf courses. This is in addition to the many historic sites which could support further tourists – such as the pyramids of Meroe.

The scope for expansion and investment are many, but what are the requirements of investors and are there any advantages and guarantees given to potential investors in Sudan?

Investors are obliged to implement their project within a two years of the issue date of their license, with requirements that they notify the authority of any amendments that occur during the implementation stages and the submission of bi-annual reports.

In return, the authority may approve an investment project with guarantees such as tax and fee exemptions. Investments projects are protected so that confiscations and the seizure, freezing or confiscating of funds is not permissible without a court order, and compensation and recovery of invested funds, machinery, equipment are available for projects that are not implemented.

Importantly, guarantees granted by the administrative bodies cannot legally be withheld. Indeed, the authority may grant additional advantages.

In addition to exemption from fees and customs duties, the minister at the national level may recommend opportunities, such as lands allocated by the various authorities, and numerous accounting and tax benefits.

Further advantages may be granted to those projects deemed to be of greatest benefit to Sudan, such as those directed to less developed areas, helping to achieve integrated rural development and providing work opportunities for local communities.

Projects providing social services contributing to the advancement of the region are also encouraged, as are those that boost charitable endowment or renew natural resources. Any project seeking to reinvest a projects’ profits, or that assists in the states export capabilities may be further encouraged through the offering of additional benefits.

If you are interested in learning more about investment opportunities in Sudan or would like assistance in pursuing an opportunity, please contact your relationship manager or email Najla Obeid at nfh@adglegal.com

Amendments to the Bankruptcy Laws in the UAE

Following the 2008 global financial crisis, the UAE has worked diligently to further regulate and support companies in financial difficulties. After a long period of anticipation, the UAE Bankruptcy Law (Federal Law Number 9 of 2016) came into effect on 29 December 2016 (the “Bankruptcy Law”). This legislation has overhauled how the law deals with businesses with debt burdens that they cannot pay. It has mapped out a process for the restructuring of debt owed to creditors, as well as drawing a line between the rights and duties of each party involved in the bankruptcy process.

Following a successful pilot phase of the legislation in action, the Bankruptcy Law has been amended to further refine the process and also expand the scope of application, culminating in Federal Decree-Law No. (23) of 2019 Amending Certain Provisions of the Federal Decree-Law No. (9) of 2016 on Bankruptcy, issued 5th September 2019 and which came into force in January 2020. The Bankruptcy Law applies to all companies established under the UAE Company Commercial Law, including most free zones except for the DIFC and ADGM.

We will review the most prominent and important amendments, as well as their effects for the parties involved in the application of the Bankruptcy Law:

  1. What we deem the most noteworthy update is Article (4) Paragraph (1) allowing any regulated company to apply to the Financial Restructuring Committee (FRC) to facilitate amicable agreements between the debtor and its creditors, with the assistance of one or more experts appointed by the Committee for this purpose, following the procedures stipulated in the Cabinet’s Resolution. Previously only financial institutions licensed in the UAE that were facing current or projected financial difficulties could apply to the FRC. This amendment now caters for a wider scope of the FRC’s remit and the applicability of the legislation to a broader range of business entities.
  2.  The revision to Article (24) now imposes on trustees the duty to prepare an inventory of the debtor’s known creditors for submission to the Court. The inventory shall additionally include a ‘determination of the creditors, holders of preferential rights and the nature of such rights.’ This is to establish the grading of creditors’ dues as early as possible and determine which creditors have a greater preference.
  3. The revision of Article (29) allows the Court to appoint one or more controllers from among the creditors who request such appointment, to supervise the implementation of the protective composition procedure. Where there are candidate creditors of ordinary debts, debts secured by a mortgage, or privileged creditors, at least one controller must be appointed for each group. This amendment ensures that creditors can monitor and observe the process applied by the law and ensure that the process is secure and transparent. Also, Article (43) Paragraph (1) stresses a comparable idea as it states that “upon the suggestion of a group of creditors or by the Court’s accord after consulting the trustee, the court may issue a decision to establish one or more committees of creditors who represent different categories of creditors.”
  4. Amendments to Article (32) paragraph (2) states that “the creditors of the debts secured by a mortgage may exercise their foreclosure rights if their debts are due, upon approval of the court. The court shall decide whether to grant such approval within ten (10) Business days from the date a creditor files an application with the court.”
  5. Article (45) previously stated only the voting rights of ordinary creditors were of consideration while voting on the draft Protective Composition Plan; this has now been amended to include privileged creditors whose debts have been accepted.
  6. Furthermore, amendments to Article (46) Paragraph (1) and (2) now allow secured creditors to officially file as a creditor, as well as all other creditors. This amendment increases secured creditors’ options and rights in circumstances of bankruptcy. The amended law states that secured creditors have additional rights to vote on a protective composition to the extent that the money they are owed exceeds the value of the security.
  7. Article (69) now allows mortgagees to be regarded as creditors when filing, subject to the debt exceeding the value of their security, as it states that (1) the creditor or the group of creditors with a debt of not less than AED 100,000 may apply to the Court to open the procedures and (2) the creditor whose debt is secured by a mortgage shall only submit an application.
  8. Lastly, point (e) of Article (189) of the revised law now states that debtors’ professional fees incurred under the bankruptcy proceedings, are to be treated as a priority debt, including legal fees incurred as a result of the bankruptcy proceedings. This amendment was made as a consideration to the effort and time-consuming process involved in the resolution of the complicated cases of bankruptcy. Additionally, point (b) and (c) in the same article include outstanding end of service gratuity and alimony debt to also be treated as priority debts.

The amended law has also included several procedural amendments:

  1. Notices of bankruptcy may now be served electronically;
  2. Creditor Committee Meeting invitations may now be recorded and made available electronically. Previously, invitations to these meetings could only be issued via publication in two widespread local daily newspapers;
  3. Amendments to Articles (42) and (103) now allow electronic means to be used to deliberate insolvency plans and vote thereon.
  4. An amendment to Article (73) states “the debtor may specify whether the application is for the purpose of restructuring, or for the purpose of adjudicating bankruptcy and liquidation. Also, he shall mention the justifications on which the application is based.” This amendment is a useful measure to allow the debtor to establish their intentions early in the proceedings.

In a nutshell, the Bankruptcy Law has been better adapted to the current market conditions through the latest amendments, and further regulates and facilitates the process between debtors and creditors to make the business environment in the UAE more investor-friendly and transparent.

If you need any help in understanding the impact of this law on your business, please contact Dina Assar at da@adglegal.com

Restructuring in the Era of COVID-19

Keeping the Harbingers of Doom at Bay
By Roberto Cornetta

“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually and then suddenly.” 1

The current pandemic has meant that some companies may be going insolvent rapidly, despite the efforts of many governments to stem the tide.

In such distressed situations, stakeholders (debtors and lenders) seek to protect their position and provide a stable platform for the company. However, such a crisis also presents opportunities. Indeed, as Churchill reportedly said, “never let a good crisis go to waste”. While businesses are facing financial difficulty, it is an opportune time to consider alternative business streams, potential reorganization and new markets. Consider already the number of manufacturers who have quickly converted to producing much-needed medical supplies.

The road from financial tension to a more severe, expensive and risky crisis can be fast and slippery. Therefore, the golden rule when there is a global shortage of liquidity is to act rapidly as soon as symptoms of a crisis emerge.

Debt restructuring is just one example. As with any complex problem, the key is to conduct a robust analysis of the causes of the distress, both external and internal factors, and to identify and explore all recovery options. In fact, the analysis may well demonstrate that the effects of COVID-19 have simply exposed pre-existing fractures. Note for example that UK clothing brands Oasis and Warehouse have blamed the pandemic for going into administration, when in fact they were in trouble before it began. At the same time, the clothing chain Next has been overwhelmed with orders on reopening its online shopping facility and is seeing a recovering share price. Any plan for recovery must, therefore, take into account any underlying weaknesses and present sustainable solutions.

A comprehensive analysis should involve a consideration of factors such as:

  • Whether there is enough funding to keep operating while a solution is being developed and implemented
  • Whether to start a more aggressive program of collections
  • The most sustainable capital/debt structure
  • How to reconcile all stakeholder positions to implement the new debt/capital structure
  • How to ensure the business is supported through its recovery, e.g. with temporary cash in the form of privileged loans or third-party capital injection
  • Whether the business may take advantage of existing pre-insolvency rules
  • Negotiating with large suppliers regarding financing e.g. vendor finance, anticipated payment with discounts etc.
  • Negotiating payment terms to align with loan installments and customer payments

Additionally, while analyzing existing facility agreements with lenders and potential structuring, the following should be considered:

  • Applying for a moratorium at least until execution of the restructuring plan and the disbursement of new liquidity
  • Proposing more flexible covenants to reduce default risk, e.g. in respect of debt to equity ratios, grace periods etc
  • Exploring alternatives to shareholder guarantees, for example by channeling customer revenues directly to lenders and/or by renegotiating interest rates.

Our team have previously advised numerous public and private companies and Private Equity funds on restructuring measures, from debt restructuring to alternative capital raising, bond restructuring, separation of business units, sales of non-core businesses, and reorganization.

We work with a number of financial institutions, other lenders and borrowers, financial advisory firms, fund managers and others, in order to assist them to combat the effects on all stakeholders.

Our experience in this area includes construction, telecoms, medical and other sectors. We are able to provide strategic advice and assist with:

  • Devising action plans for the pre- and post-financial restructuring process
  • Litigation, debt recovery and enforcement strategies
  • Internal and external investigations
  • Litigation financing options

Should you require any assistance or simply wish to discuss options, please contact Roberto Cornetta at rco@adglegal.com.

Roberto Cornetta is a Partner in Al Dahbashi Grays’s Dubai office. Roberto teaches in distressed debt at LIUCC University, Milan. He has a track record of over 20 years advising companies in complex national and transnational debt restructuring. Roberto has also advised large corporations and banks on bond restructuring, securitization, de-listing and reorganization, and issues of director’s liability.

1 Ernest Hemmingway’s character, Mike Campbell in “The Sun Also Rises”

Can Cases Still be Filed in Dubai Courts During COVID-19 Restrictions?

You are all aware that the current situation with Covid 19 has caused the UAE government to impose measures to contain the outbreak. Given most of the official authorities are either working remotely or closed, people ask what the status of the courts is.

The Chief Justice decided to postpone all court hearings and pause non-urgent proceedings such as normal commercial and civil cases, however for the critical divisions such as the Public Prosecution and the Summary Courts, it is business as usual.

Many mistakenly believe that all legal actions shall be on hold until the courts return to normal working hours, consequently losing their right of litigation. We would like to confirm that the below legal actions are still active and do not require the client’s attendance before the Court.

Legal Notices

You may now proceed with any activity that needs to go through the Notary Public online, i.e. Power of Attorneys, legal notices and signing any undertakings. All you need to do is to submit all documents to the Notary Public by email, pay the fees and then a video call will be arranged with the Notary to complete the notarization process.

Payment Order Application

This type of application does not require any attendance before the Court. Once you send the legal notice as mentioned above, you can file the Payment Order application using the Court’s website and a decision shall be issued within 48 hours without any other process. No service or summons, attending in person or hearing is required.

Precautionary Attachment

If you fulfil the requirements of Article (111) of the Regulations of the Civil Procedure Code, you can draft your Statement of Claim and submit it in an online application to the Court, along with the necessary documents. A decision shall then be issued within 48 hours. Again, neither a hearing or any court attendance is required.

Enforcement

Similar to the above, you can lodge an enforcement file and follow the enforcement process, including the investigation and the attachments of your opponent’s assets, through the Court website without the need to attend personally.

We actually recommend that you proceed with your legal actions today (if they fall within the above scope) for two main reasons:

– Courts will be overwhelmed with work once the curfews are lifted and business is back to normal, and

– Costs are less, as lawyers are able to action these processes in a more time-efficient manner.

If you have any queries or require any legal assistance, please contact us on info@adglegal.com

Pressure on UAE Contractors to Re-Price Projects: Hostages to Fortune?

It has been reported that UAE contractors will have to go through the price negotiation process again, as project promoters insist on re-pricing contracts because of the changed circumstances (Gulf News: ‘UAE construction sector told to re-price projects’, 11 April 2020).

The current lockdown and coronavirus-related health and safety requirements on construction projects are certainly contributing to general anxiety over the bottom lines of contractors and developers. Among other things, there is additional time spent complying with on-site precautions, such as distancing and increased frequency of cleaning and the off-site transportation of workers. All the while, ordinary running expenses of maintaining the workforce and other mandatory expenses are still being incurred.

Employers are also increasingly nervous about the post-coronavirus world; in Dubai alone, the 2020 growth forecast (Fitch Ratings) has been revised down to -2.3%, from 3.8%, and Expo 2020 has been delayed until 2021.

While it has been suggested that employers will be looking to contractors to ‘sharpen their pencils’ and reflect the so-called ‘new reality’ post-coronavirus, there is a significant cause for concern that this is a short-sighted approach. There is good reason to argue that the current imperative to reduce prices is unsustainable in the medium term:

  • Despite the ‘double-shock’ of enormous drops in global fuel demand during the outbreak, together with excess supply, oil prices are on the road to recovery. While some analysts are of the view that the recent deal for production cuts are too little, too late for an immediate-to-short term recovery, others claim that the storm clouds for oil prices will dissipate once lockdowns are lifted. The lag effect could prove positive for world economies, helping to fuel a faster rebound after the virus subsides.
  • Commercial and industrial activity appears to be picking up, as suggested by the recent increase in refinery utilisation in China, and their copper and steel inventories are beginning to fall. While it is right to approach such reports with some scepticism, if the pandemic is brought under control relatively soon, trade and output will inevitably rebound, even though a return to the pre-virus trajectory is not likely to be immediate.
  • The UAE Central Bank has announced an AED 100 billion stimulus announcement, with virtually all other GCC countries adopting similar measures. This stands to affect individuals and SMEs, and ought to cushion the fall in activity. The boost on morale and confidence has been immediate, however, the wider growth benefits are unlikely to be seen until the health crisis subsides.
  • On the infrastructure side, while the effects of the stimulus on public spending are unlikely to be seen until the pandemic subsides, a spike in government infrastructure spending packages may be utilised as a part of the economic response. For example, if countries in the MENA region were to adopt a similar approach to the US, which has announced (with apparently bi-partisan support) a USD 2 trillion package only one week after the USD 2 trillion public stimulus relief package.

Additionally, demands for price reductions based on reduced materials costs, are questionable. According to sources reported by Gulf News, UAE contractors say they are seeing no shortages of key building materials, even those coming in from China, and the prices of key materials too – cement, steel products – are as steady as they have been for some time.

Naturally, much depends on the duration of the protective measures. According to analysts, on the assumption that the pandemic eases in the second half of 2020, there should be a marked rebound in growth, albeit a return to pre-virus levels is not expected until late 2021, but the uncertainties surrounding these forecasts are extremely high. If a longer lockdown period is required, that prediction must be pushed back.

There is a significant risk to contractors agreeing on any price reduction that is fixed during this period of uncertainty. As we have seen in the past, undue focus on the (temporary) burden of un-utilised overheads and a so-called imperative to ‘keep busy at all costs’ may result in increased future losses and business failure.

Should you need help with the terms of any renegotiation, advice on how to approach a contractor for a price reduction, or if you are a contractor faced with such a demand, please contact Josh Kemp on jk@adglegal.com.

Written by Josh Kemp

New Commercial Courts In Abu Dhabi

Al Dahbashi Gray has recently obtained a judgment issued by the newly established Abu Dhabi Commercial Court (Commercial Court). The Commercial Court was formed by Decision No.28/2019 on 4 September 2019 and comprises of minor, major and appeal chambers. The Commercial Court is completely independent and exclusive from the Abu Dhabi Court of First Instance.

It should be noted at the outset that prior to the establishment of the Commercial Court, all cases in Abu Dhabi were registered as ‘commercial’ without much attention being paid towards the commercial or civil nature of the cases. For simplification purposes, commercial cases relate to disputes between businesses while civil cases involve individuals.

Al Dahbashi Gray represented the Defendant and obtained a favourable judgment on its behalf. The Court dismissed the case for lack of jurisdiction and ordered the case to be transferred to the relevant Abu Dhabi First Instance Court due to the civil nature of the case. This judgment confirms that the Commercial Court has only jurisdiction over commercial disputes.

The Decision No 28/2019 further confirms that the Commercial Court shall have jurisdiction over disputes, motions, and cases arising in connection with the application of the following laws (even if the transaction is civil for one party and commercial for the other):
– Commercial Transactions law
– Commercial Companies Law
– Commercial Agencies Law
– Emirates Securities & Commodities Authority and Market
– Copyright Law
– Industrial Property Protection Law for Patents and Industrial Designs
– Transactions and Electronic Commerce Law
– Consumer Protection Law
– Competition Regulation Law
– Bankruptcy Law
– Central Bank Law
– Foreign Investment Law
– Maritime Trade Law
– Air Transport Law and Rules

Furthermore, the scope of Commercial Court’s jurisdiction will cover enforcement of foreign judgment or arbitral awards provided such judgments or awards are of commercial nature.

Accordingly, it is now imperative for law firms and/or litigants to ensure that they register their cases before the appropriate court systems. Registering a civil case with the Commercial Court would most likely be dismissed resulting in needless time and costs spend on litigation.

If you need any help in understanding the changes and the potential impact of the recent amendments, please contact us on info@adglegal.com.

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