09 Dec 2015

Pre-empting Shareholder Disputes

Authored by: Farsheed Abdul-Rahman

Pre-empting Shareholder Disputes

Since the new UAE Commercial Companies Law (Federal Law No. 2 of 2015) came into force in July 2015, a number of articles have been published to highlight changes from the old law. While the changes made to the law have been broadly welcomed, the new law also gives rise to new procedures which may have practical consequences.

In particular, the new Law introduces a provision applicable to statutory pre-emption rights on transfer of shares which, in practice, represents a significant change. The statutory pre-emption right under the Law requires a shareholder wishing to sell his shares to first offer his shares to the existing shareholders for a period of thirty (30) days before he is permitted to sell such shares to a third party under the same terms and conditions offered to the existing shareholders. Under the old law, shareholders who disagreed on the value of the relevant shares would request the company’s auditor to value the offered shares and seek to settle the disagreement. Whereas, in the event of a dispute among shareholders under the new Law, the value of the offered shares must be determined by an expert nominated by the Department of Economic Development in the relevant Emirate (DED).

This change was likely intended to address previous situations where shareholders relied on the auditors to resolve disputes over valuation and, on occasion, sought to take disputes to court. Consequently, the appointment of an independent expert nominated by the DED was introduced as a mechanism to settle valuation disputes, with the expert valuation being binding on the shareholders.

However, the DED has not yet issued details regarding the implementation of this provision. Therefore, there is uncertainty on the criteria by which such experts will be nominated and appointed by the DED, and the timeframe to complete the valuation process.

Given these gaps in detail relating to application of the new Law, the new pre-emptive rights regime may have potential to increase delays, cost and uncertainty in respect of the valuation of shares. Until clear guidance is provided on the manner in which the new procedure will be implemented, shareholders should consider adopting binding mechanisms in a shareholders’ or similar agreement. This will enable the shareholders to seek to mutually agree on the method of settling valuation disagreements without reference to the DED’s nominated expert.


This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.