ADGM jurisdictional expansion
On 24 April 2023, the United Arab Emirates ("UAE") Cabinet issued Cabinet Resolution No. 41 of 2023 ("Cabinet Resolution") regarding the Determination of the Location and Area of the Abu Dhabi Global Market ("ADGM") to expand the location of the ADGM to include 'Al Reem Island'.
The expansion of ADGM underpins its growth strategy and ambitions to become one the largest international financial centres in the UAE and the ADGM's response to the increasing demand from companies seeking to establish operations in ADGM.
Following the issuance of the Cabinet Resolution, the ADGM implemented legal and policy changes to ensure the smooth transition of existing companies established in Al Reem Island to the ADGM. The ADGM has provided such companies an opportunity to obtain an ADGM commercial license by 31 December 2024. Failure to obtain the licence by the specified period would result in such companies being subject to potential fines and enforcement action.
On 14 June 2024, the ADGM Registration Authority published Consultation Paper No.5 of 2024 concerning Proposed Amendments to Charges Against Continuing Companies and Single Family Offices and Restricted Scope Companies ("Consultation Paper") to invite public feedback and comments. Any company incorporated or proposing to continue its operations in the ADGM should consider the proposed amendments (the "Proposals") under the Consultation Paper.
The Proposals in the Consultation Paper relating to company charges seek to amend the Companies Regulations 2020 ("CR2020") to better facilitate a re-domiciliation or continuance into the ADGM. In this article, we explore the Proposals concerning registration periods and priority of company charges in the ADGM and what to expect.
Registration period for charges
The CR2020 set out the regulations in respect of the formation and registration of companies in the ADGM. Under sections 784 (Charges created by a company) and 785 (Charge in series of debenture) of the CR2020, where a company creates a 'charge' (i.e. security interest) or a 'charge' in a series of debentures, it must register that charge with the ADGM Registrar within 21 days of creation of that charge. Where a charge is not registered within the 21 day period (and with the exception of a court order for an extended registration period), such charges will be void so far as any security on a company's property or undertaking is conferred by it, against a creditor, liquidator, or administrator of that company and all payments due under that charge shall become immediately due and payable.
Where a company is transitioning from another jurisdiction into the ADGM that continuing company's existing charge may have been created more than 21 days prior to its continuance in the ADGM and could result in that company's non-compliance with the 21 day period requirement to register charges in the ADGM.
The ADGM proposes to amend the 21 day registration period of charges for all continuing companies to the date such company makes an application to continue its operations in the ADGM. This will ensure that any pre-existing charges of a continuing company that have been created more than 21 days prior to its application can be 'delivered' for registration in the ADGM under the CR2020.
Continuing companies would be under an obligation to disclose all existing charges to the ADGM as part of its continuance application process, such as a charge filing statement, certified copy of the instrument creating the charge/debenture in the series, any existing certificates of registration relating to such charges, and any other information deemed relevant by the ADGM Registrar. If such information has knowingly or recklessly failed to be provided by the continuing company, this would result in an offence. Furthermore, the ADGM intends to introduce a policy where continuations are granted simultaneously with registration of charges whereby, a continuance would not be granted until any registration issues with existing charges are resolved, which could hinder the proposed continuance in the ADGM for a company.
Priority of charges
The 'first in time' principle means the date on which a charge is created determines priority. Where charges are subject to perfection requirements, such as registration, priority is given to the date on which the charge is perfected (being the date of registration). For continuing companies re-domiciling into the ADGM, the charges of that company shall be registered and perfected during the continuation application process, potentially altering the rights of any charge holders where an existing order of priority exists in the ADGM.
The proposed solutions regarding determination of priority shall depend on whether the continuing company is re-domiciling from a jurisdiction that mandates a register of charges or not. Where such a register pre-exists, the priority status for such charges shall remain as it existed immediately prior to the continuation being granted. In circumstances where a continuing company is re-domiciling from a jurisdiction which does not mandate a register of charges, priority would be determined by way of contractual documentation agreed between the interested parties. The contractual documentation will be requested and inspected as part of the required particulars to be delivered to the ADGM Registrar under CR2020.
What to expect?
Where companies are seeking a continuance into the ADGM, careful consideration should be given to the security registration regime in its current jurisdiction and the impact the Proposals may have (when implemented) on their existing security documents, such as:
- Governing Law of Security Documents and Asset Pool: lenders will want to ensure any existing security they hold remains capable of enforcement. An analysis of the existing security package may be required to understand whether the existing security would remain effective (or whether new security should be taken). As the ADGM recognises the concept of a 'qualifying floating charge' "QFC" which permits holders to appoint an administrator, lenders may wish to predicate their consent to a re-domiciliation into the ADGM by the grant of a QFC.
- Priority Arrangements: where a company has different charge holders and/or that company's current jurisdiction does not have a mandated register of charges, negotiations on priority arrangements may need to be re-opened to ensure the commercially agreed contractual arrangements are documented (if not already done) and submitted to the Registrar; and
- General Impact on Existing Security: lender and borrowers will want to avoid a situation where an existing security interest granted by a company continuing into the ADGM is deemed void for failing to comply with the ADGM registration regime – in particular where the effect would be to render all secured liabilities immediately due and payable.
Next steps
Whilst the period for submission of feedback and comments on the Consultation Paper has closed, it will be interesting to see what changes the ADGM further propose or implement by way of legislation. Companies and lenders alike will need to carefully assess the impact of such changes on existing security arrangements. We have experience of re-domiciliation of companies into the ADGM so if you would like to discuss this with a member of our team, please reach out.
Written by Matthew Dyson, Neetu Sehdev and Kholoud Sweidan
