Mainland Business Corporate Restructuring in the UAE

Mainland Business Corporate Restructuring in the UAE

Mainland Business Corporate Restructuring in the UAE

Corporate restructuring is an important process that companies go through to improve their performance, adapt to changing market conditions or legal environment, and position themselves for long-term success. The process of UAE business corporate restructuring can take various forms, such as mergers and acquisitions, divestitures, or changes to the company’s shareholder structure.

One of the primary reasons why business corporate restructuring is essential is that it helps companies adapt to changing market conditions. Shifts in consumer preferences, the emergence of new competitors, or changes in the regulatory environment can all impact a company’s operations and performance.

Corporate restructuring can also help companies reduce risk by improving their financial health and ensuring they can better weather economic downturns or other challenges. In addition, by reducing risk, companies can become more attractive to investors, which can ultimately help them secure more investments and grow their businesses.

In summary, corporate restructuring is an important tool for companies looking to improve their performance, adapt to changing market conditions, and position themselves for prolonged success. While restructuring can be complex and challenging, it can help companies become more efficient, competitive, and profitable.

Typical Scenarios for Business Corporate Restructuring in the UAE

In 2020, the UAE made one of the most significant changes to its corporate law via Federal Decree-Law No. 26 of 2020. The law eliminated the need for mainland commercial companies to have an Emirati shareholder or agent, allowing companies to have full ex-pat ownership in over 1000 commercial and industrial activities.

The profound change in regulation has led to a steady increase in companies amending the shareholder structure to remove or reduce the role of silent partners or agents previously necessary to operate a mainland company in Dubai.

Another common reason for mainland corporate restructuring is risk mitigation by changing company ownership from an ex-pat owner to a DIFC Prescribed Company or ADGM Special Purpose Vehicle. This type of restructuring provides a better buffer to the shareholder(s) and can help secure investments for new ventures. In addition, both DIFC and ADGM give access to common law regulations and courts, which are deemed as more advantageous to foreign investors.

You can see the comparison between DIFC and ADGM here.

Many companies in the UAE have restructured to downsize their personnel and reduce overhead costs to weather economic downturns or other challenges. However, restructuring for the aforementioned purposes must be conducted within the remit of UAE laws and regulations. Under the UAE Labour Law, employers can only terminate employees under certain circumstances. The courts may order the employer to compensate the employee if the terminations are unlawful. Additionally, terminated employees are entitled to receive termination benefits, which can be substantial depending on their latest salary and length of service with the company.

The Process of Restructuring

If a company in the UAE decides to restructure, it would typically start by thoroughly evaluating its current shareholder structure, operations, and financial position. This evaluation would help identify areas that need improvement and potential changes to the company’s structure or business model.

Once the objectives are defined, the company would develop a comprehensive restructuring plan that outlines the approach, timeline, resources required, and potential risks and challenges. The plan would also consider legal and regulatory requirements in the UAE.

Effective communication with stakeholders is also critical in any restructuring process. To manage expectations, the company would communicate its plans and objectives with employees, investors, creditors, and other stakeholders. This could involve providing regular updates on the progress of the restructuring process.

Commercial Contracts

In the UAE, it is common for commercial contracts to include a clause that allows companies to terminate an agreement if the other party undergoes restructuring or amalgamation. Therefore, it is crucial to inform external parties of any planned restructuring in advance to avoid any potential breach of contract.

After developing the plan and communicating with stakeholders, the company would start implementing the restructuring plan. This could involve amending the shareholder structure and revising the Articles of Association at the public notary, streamlining processes, or creating a new ownership matrix. The company would monitor the progress of the restructuring plan and adjust its approach as necessary. This includes reviewing financial results, assessing the external and internal impact, and evaluating the effectiveness of the new structure.

Get Professional Assistance for Mainland Corporate Restructuring

Mainland business corporate restructuring in the UAE requires a lot of time and effort. Therefore, it is essential to customize solutions to match the specific needs and objectives of the company or the companies involved. Before you take any steps that set off an unintended cycle in motion, consult our seasoned advisors who can give you all the answers you seek!

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