30 Jun 2019

The key aspects of the proposed ‘Prescribed Company Regulations 2019’

Authored by: Hadef & Partners, Sector Groups

In brief:

  • The new regulations will replace the special purpose company regulations which were restricted solely to structured finance related transactions.
  • The new regulations will provide a consolidated and simplified approach.
  • The new regulations will provide a competitive fees regime, and digital services, including a user friend portal.

Background

Prior to the proposed new regulations, a special purpose company (Special Purpose Company) was established in the Dubai International Financial Centre (DIFC) for the purposes of a particular structured finance transaction (Transaction) for the benefit one party (Initiator) in the context of certain specific exempted activities, such as:

  1. the acquisition, holding and disposal of assets with and for the purpose of a Transaction;
  1. the obtaining of any type of financing;
  1. the granting of any type of security interest over assets;
  1. the providing of any indemnity or similar support for the benefit of shareholder,
  1. the entering into any type of hedging arrangements, in connection with and for the purpose of a Transaction;
  1. the financing of the Initiator or another Special Purpose Company; and
  1. the acting as trustee or agent for any participant in the Transaction,

Under the current Special Purpose Company Regulations 2008 (SP Regulations), any individual or corporate entity could apply to incorporate a Special Purpose Company (SPC) provided it relates to a Transaction within the meaning of the provisions of the SP Regulations.

Hadef & Partners was invited to attend a workshop at the DIFC recently to discuss the proposed Prescribed Company Regulations 2019 (PC Regulations). On 30 June 2019, the DIFC formally introduced the PC Regulations which now converts SPCs and Intermediate Special Purpose Vehicles into Prescribed Companies; however, the PC Regulations have still not been officially enacted yet.

The proposed PC Regulations repeal and replace the SP Regulations which were designed to only apply in the context of structured finance related transactions. The proposed PC Regulations are much broader in scope and are not merely restricted to structured finance related transaction. As a result, it is likely that more applicants will qualify under the new regime.

The proposed PC Regulations also expand on the use of special purpose companies and provide that a ‘Prescribed Company’ could be used for a variety of structures. This, coupled with a competitive fees regime makes for a positive change in DIFC investment structures.  

Key aspects of the PC Regulations Qualifying Applicants

The PC Regulations have also expanded the role of corporate service providers and enabled them to perform all checks and verifications in order to confirm if the applicant or purpose qualifies to apply for Prescribed Company status including all Anti-Money Laundering and Ultimate Beneficial Ownership checks.

In order to incorporate a ‘Prescribed Company’ under the PC Regulations, the selected corporate service provider will be required to ascertain whether an applicant is a (i) Qualifying Applicant; (ii) Qualifying Applicant which will control (see below) the prescribed vehicle; and (iii) Qualifying Applicant that has a Qualifying Purpose within the meaning of the PC Regulations.

Unlike the SP Regulations, the PC Regulations provide that a Qualified Applicant must either have a registered office in the DIFC or use the address of the corporate service provider’s office. The chosen company name must also be followed by Limited or Ltd unless the Registrar permits otherwise.

The following are considered to be Qualifying Applicant under the proposed PC Regulations:

  1. Authorised Firms (DIFC & Recognised Jurisdictions);
  1. DIFC & Foreign Funds from Recognised Jurisdictions;
  1. Family Offices;
  1. Fintech Entities;
  1. Foundations;
  1. Government Entities;
  1. Holding Companies;
  1. Private Trust Companies;
  1. Proprietary Investment Companies; and
  1. A person wholly owned by one or more of the foregoing.

As noted above, Qualifying Applicants must ‘control’ the prescribed vehicle. Control is defined as ‘the power of a person to secure by means of the holding of shares or the possession of voting power in either case directly or indirectly; or as a result of any powers conferred by the Articles of Association or other document regulating the Prescribed Company or any other body corporate, that the affairs of the Prescribed Company are conducted in accordance with such person’s wishes’.

It is worth noting that it may be possible for the DIFC to extend the scope of Qualifying Applications as the PC Regulations have not yet been finalised. The Registrar will (in good faith) rely without further enquiry, upon certification of the corporate service provider of the above requirements as to whether you may incorporate a Prescribed Company.

1. Qualifying Purpose

The prescribed vehicle must have a ‘Qualifying Purpose’. The PC Regulations provide that the following are a ‘Qualifying Purpose’:

  1. an Aviation Structure – a structure of one or more persons having the sole purpose of facilitating the owning, financing, leasing or operation of one or more aircraft;
  1. a Family Holding Structure – a company is established for the sole purpose of consolidating the holdings of a specific family member, their spouse in a family office, holding company or proprietary investment company; or
  1. a Structured Financing – a structure of one or more persons having the sole purpose of holding assets to leverage and/or manage risk in one or more financial transactions, inclusive of complex lending or security arrangements, derivative transactions, hybrid securities and securitised and collateralised debt instruments, whether done in an Islamic or conventional financing manner.

2. Status Matter

A Prescribed Company is provided with ‘Small Private Company Status’, which means that accounting records need to be kept but audited accounts do not or filings.

Special Purpose Companies incorporated under the SP Regulations, will be automatically converted into a Prescribed Company upon change of name, articles and additional confirmations being provided at renewal. Further to this, the option to redomicile as a Prescribed Company will be available.

3. Incorporation Fees

The PC Regulations provide for the following competitive fees in relation to incorporating a Prescribed Company:

Application for incorporation of a Prescribed Company

$100

Application for grant or renewal of a Licence

$1,000

Lodgement of a Confirmation Statement

$100

Application to continue incorporation in the DIFC

$1,000

Application to transfer incorporation to the DIFC

$1,000

Conclusion

This article provides a high level summary of the PC Regulations and the flexibility of a Prescribed Company.  A prescribed company may be used in a number of potential structures involving assets located in onshore UAE (e.g. shares, real estate) in order to protect your interests.  We would be happy to assess whether it is viable or appropriate for you or your company to incorporate a Prescribed Company in the DIFC in light of your particular objectives.

For more information, please contact us on sectors@hadefpartners.com.