10 Jul 2014


Authored by: Tarik El-Bakri


Tarik El Bakri, Partner & Head of Commercial at Hadef & Partners in Abu Dhabi, discusses the recent amendments to the Corporate Governance Rules and the implications of these changes to companies in the UAE.
The Ministry of Economy has issued a new Resolution No. 250 of 2014 amending certain provisions of  Ministerial Resolution No. 518 of 2009 Concerning Governance Rules and Corporate Discipline Standards (the “Resolution”).  The Resolution was gazetted in Issue no. 564 dated 15 May 2014 and became effective on the date of publication.

Highlights include:

  • First-degree relatives of chairman, board members and senior executives must disclose any interest in transactions with listed companies.
  • Streamlining the nomination process for new board members.
  • New Article 12 bis: transactions with Concerned Parties must be approved by the board and shareholders, the board can be held liable if a transaction with a Concerned Party was unfair or harmful to the company.
  • Court may annul a transaction with Concerned Parties if unfair or harmful to shareholders and order compensation.
  • Concerned Parties who have dealings with the company must disclose details of these dealings to the board, who must then notify the relevant stock exchange.


  • Article 1 of the Resolution amends the definition of “Concerned Parties” by adding first-degree relatives of the chairman, members of the board of directors and senior executives to the list of parties that must disclose their interest in any transaction involving the company. This applies where there is a potential conflict of interest, as well as to legal or natural entities that hold a 10% interest or more  in the company, or are a member of its board of directors, or the board of the parent company or a subsidiary, as well as the “person” who exercises control over the company.
  • Article 1 of the Resolution also adds two more definitions to the list in Resolution 518 of 2009, the first of which is “conflict of interest”. This refers to the position where one’s neutrality is compromised by the overlapping interests of concerned parties with those of the company. Secondly, “control”, which refers to the ability to influence or control the appointment of a majority of the board of the company or to control or influence the decisions of the general assembly through ownership of shares or other arrangements.
  • Article 2 of the Resolution amends Article 3.9 of Resolution No. 518 of 2009 to provide that copies of the minutes of board and committee meetings should be sent to the members of the same while requiring the board secretary (translated from Arabic as “reporter”) to keep the minutes of these meetings.
  • Article 3 amends Article 12.5 of Resolution No. 518 of 2009 to (apparently) streamline the nomination process as follows:
    • Requiring that the announcement of the opening of the nomination process be made in the same invitation to the annual general assembly, instead of publishing it in two local newspapers (as under the current  Resolution No. 518 of 2009)
    • Nominations will remain open for 14 days from the date of publication instead of the current minimum of one month
    • The names and details of the nominees should remain posted on the company’s bulletin board and website for at least five days prior to the convening of the annual general assembly, as opposed to the current minimum of two weeks
    • Two new provisions have been added to Article 12, one of which (new clause 6) requires, inter alia, that a nominee must indicate whether he will serve on the board as an executive, non-executive or independent member
    • New clause 7 requires the company to adhere to the directives issued by the Securities and Commodities Authority (SCA) relating to “investor relations”, without further elaboration
  • The Resolution adds a new Article “12 bis” entitled “Performing Deals and Transactions with Concerned Parties”. The main highlights of this new provision include:
    • A company may not enter into a transaction with a Concerned Party that bears a value of 10% or more of the company’s assets without the approval of the board and general assembly. If a fundamental change occurs to the terms of the transaction, it has to be re-approved by the board and the assembly, and must be examined by an independent expert before signing.
    • A board member who has a connection with the transaction will be held liable, as will the board of directors,  if:
      • the latter approved the transaction by unanimous vote;
      • if they breached the provisions in the first bullet point; or
      • if it was proven that the transaction was unfair, or involved a conflict of interest and was harmful to rest of the shareholders.
    • A shareholder who owns 5% or more of the company’s shares is entitled to:
      • examine all documents relating to the transaction, including hiring an “independent  auditor”;
      • ask ESCA to examine the transaction to make sure that it is compliant with the provisions of this Resolution; and
      • file suit against the parties to the transaction (including, presumably, the company itself) to force them to submit all documents relating to the transaction and to cross examine the parties to the transaction.
    • Finally, the court is given the power to annul the transaction and order compensation.
    • The chairman of the company is required to notify SCA of the details of the transaction, the parties involved, and the benefits accruing to the concerned party and to certify, in writing, that the terms of the transaction are fair and beneficial to the shareholders of the company.
  • Article 5 of the Resolution then amends the numbering of Article 12 of Resolution No. 518 of 2009 to become  “12 bis 1”, which provides, in summary, the following:
    • If a concerned party had dealings with the company, the parent company or any of their subsidiaries or sister companies which equals 10% or more of the assets of the company, said concerned party must disclose the details of such dealings to the board of directors, including its share participation in both companies and the benefit it stands to make from the transaction.  The board, in turn, must notify the relevant exchange of this immediately.
    • The details mentioned above must be included in the annual financial report of the company and put before the shareholders, as well as published on the website of both the company and the relevant exchange.
    • Failure to disclose entitles the board of the company or any shareholder who owns 5% or more of the company’s shares to file suit in court asking for the suspension of the dealing and the payment to the company any profit or benefit derived therefrom.


  • The Resolution does not define “person” in Article 1 so as to distinguish between a real and juridical person who exercises control over a company, as it has elsewhere. This is likely to lead to confusion and potentially to litigation, or to an amendment to the Regulation in the future, so there is currently a level of uncertainty in this area.
  • While Article 3 of the Resolution purports to amend Article 12.2(c) of Resolution No. 518 of 2009, the amendment as it appears in the Gazette seems to repeat the existing provision, and so we must wait for SCA to produce a new version of Resolution No. 518 of 2009 that contains the amendments listed in the Resolution before more can be said about this particular amendment.
  • In relation to Article 12 bis, unfortunately, the Resolution is not definitive on when the chairman has to notify SCA of the details of the transaction, the parties involved etc.: will it be pre- or post-transaction? There is the question of what effect this will have on the liability of the board of directors if the transaction is proved to be harmful or unfair to the shareholders. Will disclosure by the chairman, especially if it transpires that such disclosure must be made prior to the conclusion of the transaction, constitute a defence against a claim of liability?

The Regulation is a useful extension of the rules on corporate governance, but the detail contained in the Regulation will have to be considered carefully in light of the potential for liability claims which arises with some of these new provisions.


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 develop jurisdiction of the UAE