Law on Administrative Penalties for Violation of the UAE Companies Law

Corporate Structuring / UAE

Law on Administrative Penalties for Violation of the UAE Companies Law

Jogan Punjabi
Associate,
Corporate Structuring

IntroductionThe UAE Council of Ministers have recently issued the Cabinet Resolution No. (102) of 2022 Promulgating the Administrative Penalties Regulations Regarding Acts Committed in Violation of the Provisions of Federal Decree-Law No. (32) of 2021 regarding Commercial Companies (“CCL Penalties Law”). The CCL Penalties Law came into effect on 4 November 2022. It repeals the previously issued Council of Ministers Resolution No. (78) of 2022 Promulgating the Administrative Penalties Regulations regarding Acts Committed in Violation of the Provisions of Federal Decree-Law No. (32) of 2021 regarding Commercial Companies.The CCL Penalties Law sets out administrative penalties that can be imposed on the violators of Federal Decree-Law No. (32) of 2021 regarding Commercial Companies (“CCL”). Its main objective is to promote compliance with the CCL by companies established in the UAE and to deter the business community from conducting business operations outline the prescribed framework. ApplicabilityThe CCL Penalties Law is a federal law. It therefore applies to the following entities:

Ccommercial companies established in UAE;

Foreign companies;

Branches of foreign companies; and

Representative offices.

However, it does not apply to UAE free zone companies, professional, civil companies and companies exempted under the CCL.Under this article, we will focus on the administrative penalties that the CCL Penalties Law introduced in respect of limited liability companies (“LLCs”) in the onshore UAE.

The CCL Penalties Law sets out administrative penalties that can be imposed on the violators of Federal Decree-Law No. (32) of 2021 regarding Commercial Companies (“CCL”).

Sequence of Government Actions Under the CCL Penalties Law, the Ministry of Economy (“Ministry”) or Department of Economic Development / Department of Economy & Tourism of each Emirate may impose one or more penalties for violations of the CCL provisions.The relevant authorities will be taking measures against those found in breach in the following order:

For a first-time violation, a 30 (thirty) day period will be granted for the violation to be corrected/ remedied.

For a second-time violation, the administrative fine will be imposed in accordance with the CCL Penalties Law Schedule. .

For a third-time violation, the administrative fine shall be twice as high as those under the CCL Penalties Law Schedule.

For a fourth-time violation, the administrative fine shall be tripled in accordance with the Schedule, and the violating LLC’s operation will be temporarily (max. six months) suspended.

Finally, if the breach has still not been remedied, the license of the LLC will be revoked.

Grievance/Objection MechanismA grievance mechanism has been established under the CCL Penalties Law, whereby the violator, within (30) thirty days of being notified of the administrative penalty by the respective authority, may file a grievance/ objection against the administrative penalty, with the head of the competent authority.The authority will review and assess the matter within (30) thirty days from the date of the objection submission. The decision issued regarding such grievance is final and not eligible for an appeal.

Table of Fines for LLCsBelow, we set out the fines that can be applied in respect of the LLC:

No.	Violation	Fine Amount
1.	Failure to observe the percentage of the contribution of the UAE nationals for activities that have a strategic impact.	AED 100,000 (one hundred thousand Dirhams)
2.	Non-compliance of the Sharia Controller and Members of the Internal Sharia Control Committee	AED 7,000
3.	Non-compliance with the decision to change the company’s trade name	AED 500 per month
4.	Failure to keep accounting registers	AED 15,000
5.	Company’s data and documents and stakeholders access denial	AED 5,000
6.	Failure to invite a director or a member of the board of directors to the board meetings	AED 3,000

No.	Violation	Fine Amount
7.	Failure to call the annual general assembly to convene	AED 5,000, imposed on any director or chairman, or their representative in the company, who fails to invite the annual general assembly of the company to convene within the period specified in the CCL.
8.	Failure to invite the general assembly to convene at the request of the Ministry or Department of Economic Development	AED 10,000, imposed on any company director, or chairman of the board, or their representative, who fails to invite the general assembly to convene after receiving a request to do so from the competent authority.
9.	Disposing of stocks or shares in violation of the provisions of the CCL	AED 20,000

No.	Violation	Fine Amount
10.	Failure to invite the general assembly to convene in case of losses of the LLC exceeding half of its share capital	AED 50,000, imposed on the director or chairman, or their representative in the LLC
11.	Refusal to assist inspectors	AED 5,000 shall be imposed on the director or chairman or employee of the company, or auditor
12.	No Timely Memorandum of Association amendments adjustment of status	AED 1,000 (up to AED 10,000 per year of having been in breach) per month. This fine shall be calculated from 2 January 2023.
13.	Violation of the provisions of the CCL for which no administrative penalty has been specified in the CCL Penalties Law	AED 10,000 per violation

Cabinet Resolution No. (102) of 2022 Promulgating the Administrative Penalties Regulations Regarding Acts Committed in Violation of the Provisions of Federal Decree-Law No. (32) of 2021 regarding Commercial Companies.

ConclusionPrior to the CCL Penalties Law, the position on penalties for violations under the CCL was unclear in respect of numerous breaches. That lack of certainty and sufficiently specific sanctions model resulted in a relaxed and possibly not always compliant approach that some LLCs would adopt. It also meant authorities were not very active in monitoring compliance, at their own motion. The “relaxed” approach is the matter of the past. With the enactment of the CCL Penalties Law, the legal framework has become more precise and transparent. This fresh approach is likely to help businesses maintain good governance and will assist authorities in enforcing the CCL framework, which they may get involved in on a more regular basis. In the world of today becoming subject to an increasing level of regulation, it is key that your business assesses its position. And no better save-guard than discussing the areas for consideration and possibly implementing some governance measures with your dedicated counsel.

For further information, please contact Jogan Punjabi.

^{Published in March 2023.}